Spectra-Notes-Tax-Law-2-Compilation.pdf
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Taxation Law 2 Compilation Based on the outlined discussion of Atty. Bernardino Amago. Updated as of: AY: 2014 - 2015
Societas Spectra Legis
Societas Spectra Legis Taxation Law 2 Compilation
TABLE OF CONTENTS ESTATE TAXATION ......................................................................................................................................................... 9 ESTATE TAX ................................................................................................................................................................................................................................. 9 RATE OF ESTATE TAX .................................................................................................................................................................................................................. 9 PURPOSES OF ESTATE TAX ......................................................................................................................................................................................................... 9 THEORIES WHICH SUPPORTS THE ESTATE TAX ........................................................................................................................................................................ 9 CLASSIFICATIONS OF A TAXPAYER FOR PURPOSES OF ESTATE TAX ....................................................................................................................................... 9 WHEN DO YOU DETERMINE THAT AN INDIVIDUAL IS A RESIDENT CITIZEN .......................................................................................................................... 9 HOW DO YOU BECOME A NON-RESIDENT CITIZEN ............................................................................................................................................................... 10 RECIPROCITY RULE AS TO INTANGIBLE PERSONAL PROPERTY OF NON-RESIDENT ALIEN .................................................................................................. 10 INTANGIBLE PERSONAL PROPERTIES THAT HAVE SITUS IN THE PHILIPPINES: .................................................................................................................... 10 PROPERTIES COVERED BY GROSS ESTATE, IN GENERAL ........................................................................................................................................................ 11 COMPOSITION OF THE GROSS ESTATE ................................................................................................................................................................................... 11 1. DECEDENT’S INTEREST ......................................................................................................................................................................................................................................11 2. TRANSFERS IN CONTEMPLATION OF DEATH ...................................................................................................................................................................................................11 3. REVOCABLE TRANSFER .....................................................................................................................................................................................................................................12 4. PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT ...............................................................................................................................................................13 5. PROCEEDS OF LIFE INSURANCE ........................................................................................................................................................................................................................13 6. PRIOR INTERESTS ...............................................................................................................................................................................................................................................13 7. TRANSFERS FOR INSUFFICIENT CONSIDERATION ...........................................................................................................................................................................................14 8. CAPITAL OF THE SURVIVING SPOUSE ..............................................................................................................................................................................................................14 9. REPUBLIC ACT NO. 4917 ...................................................................................................................................................................................................................................14
ACQUISITIONS AND TRANSMISSIONS NOT SUBJECT TO ESTATE TAX .................................................................................................................................. 15 1. MERGER OR USUFRUCT IN THE OWNER OF THE NAKED TITLE .....................................................................................................................................................................15 2. TRANSMISSION BY THE FIDUCIARY HEIR OR LEGATEES TO THE FIDEICOMISSARY ......................................................................................................................................15 3. TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY ........................................................................................................16 4. BEQUESTS, DEVISES, LEGACIES OR TRANSFERS TO SOCIAL WELFARE, CULTURAL AND CHARITABLE INSTITUTIONS ...............................................................................16 5. OTHERS ..............................................................................................................................................................................................................................................................16
FORMULA ESTATE TAX ............................................................................................................................................................................................................. 17 DEDUCTIONS ALLOWED TO A CITIZEN OR A RESIDENT ......................................................................................................................................................... 17 1. EXPENSES, LOSSES, INDEBTEDNESS AND TAXES (ELIT)...................................................................................................................................................................................17 2. PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTIONS) ..........................................................................................................................................................................22 3. TRANSFERS FOR PUBLIC USE ............................................................................................................................................................................................................................24 4. THE FAMILY HOME ............................................................................................................................................................................................................................................24 5) STANDARD DEDUCTION ...................................................................................................................................................................................................................................25 6. MEDICAL EXPENSES...........................................................................................................................................................................................................................................25
FILING OF THE ESTATE TAX RETURN ....................................................................................................................................................................................... 26 PAYMENT OF THE ESTATE TAX DUE ........................................................................................................................................................................................ 26 PENALTIES FOR NON-COMPLIANCE ........................................................................................................................................................................................ 27 NOTICE OF DEATH .................................................................................................................................................................................................................... 27 WHERE DO YOU FILE & PAY YOUR ESTATE TAX RETURN: ..................................................................................................................................................... 28 TAX CREDITS OF TAXES PAID ABROAD:................................................................................................................................................................................... 28 TWO TYPES OF LIMITATIONS:...............................................................................................................................................................................................................................29
DONORS TAX ............................................................................................................................................................... 32 TWO-FOLD PURPOSE OF DONORS TAX .................................................................................................................................................................................. 32 LAW TO BE IMPOSED ON ESTATE TAX .................................................................................................................................................................................... 32
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Societas Spectra Legis Taxation Law 2 Compilation FORMULA OF DONOR’S TAX .................................................................................................................................................................................................... 32 GROSS GIFTS ............................................................................................................................................................................................................................. 32 WHEN DO YOU APPLY DONOR’S TAX...................................................................................................................................................................................... 33 INCOMPLETE DONATIONS, WHICH BECOME COMPLETE DONATIONS DUE TO AN EVENT ................................................................................................ 33 TYPES OF DONORS FOR TAXATION: ........................................................................................................................................................................................ 33 A. INDIVIDUAL PERSONS: ......................................................................................................................................................................................................................................33 B. JURIDICAL PERSONS: .........................................................................................................................................................................................................................................33
ELEMENTS FOR THERE TO BE A TAXABLE DONATION: (AFRAID-C) ...................................................................................................................................... 34 DONATIVE INTENT .................................................................................................................................................................................................................... 34 CAPACITY OF THE DONOR ....................................................................................................................................................................................................... 35 ACTUAL OR CONSTRUCTIVE DELIVERY.................................................................................................................................................................................... 36 ACCEPTANCE OF THE DONEE DURING THE LIFETIME OF THE DONOR................................................................................................................................. 36
VALUE ADDED TAX ...................................................................................................................................................... 37 DEFINITION OF VAT: ................................................................................................................................................................................................................. 37 RULE OF REGULARITY ............................................................................................................................................................................................................... 37 WHY IS IT CALLED VALUE ADDED TAX: ................................................................................................................................................................................... 37 STEPS IN VAT PROBLEMS/CASES: ............................................................................................................................................................................................ 38 WHO ARE VAT TAXABLE:.......................................................................................................................................................................................................... 38 VAT IN TERMS OF TRANSCATIONS: ......................................................................................................................................................................................... 38 SALE OF GOODS OR PROPERTIES ............................................................................................................................................................................................ 39 TAX RATE & TAX BASE ...........................................................................................................................................................................................................................................39 GROSS SELLING PRICE ...........................................................................................................................................................................................................................................39 GOODS OR PROPERTIES ........................................................................................................................................................................................................................................39
ZERO RATED TRANSACTIONS OF SALE OF GOODS: ................................................................................................................................................................ 40 I. EXPORT SALES: (SEC. 106) .................................................................................................................................................................................................................................40 II. FOREIGN CURRENCY DENOMINATED SALES (FCDS) .......................................................................................................................................................................................43 III. SALES TO PERSONS OR ENTITIES WHOSE EXEMPTION UNDER SPECIAL LAWS OR INTERNATIONAL AGREEMENTS TO WHICH THE PHILIPPINES IS A SIGNATORY EFFECTIVELY SUBJECTS SUCH SALES TO ZERO RATE. ..........................................................................................................................................................................................46
TRANSACTIONS DEEMED SALE ................................................................................................................................................................................................ 46 CHANGES IN OR CESSATION OF STATUS OF A VAT-REGISTERED PERSON. .......................................................................................................................... 48 SALE OF REAL PROPERTIES SUBJECT TO VAT.......................................................................................................................................................................... 48 SALE OF REAL PROPERTIES WHICH ARE EXEMPTED FROM VAT ........................................................................................................................................... 48 EXEMPT TRANSACTIONS INVOLVING SALE OF REAL PROPERTIES ........................................................................................................................................ 49 VALUE-ADDED TAX ON IMPORTATION OF GOODS (SEC 107) ............................................................................................................................................... 49 VALUE-ADDED TAX ON SALE OF SERVICES (SEC 108) ............................................................................................................................................................ 50 ZERO-RATED TRANSACTIONS .................................................................................................................................................................................................. 52 X. TRANSACTIONS EXEMPT FROM VAT................................................................................................................................................................................... 54 DIFFERENCE BETWEEN PERSONS EXEMPT FROM VAT AND VAT EXEMPT TRANSACTIONS: ...........................................................................................................................54 EXEMPT TRANSACTIONS: ......................................................................................................................................................................................................................................54
OUTPUT & INPUT TAX: ............................................................................................................................................................................................................. 63 TO BE ABLE TO OFFSET INPUT AGAINST OUTPUT USING THE TAX CREDIT METHOD: ........................................................................................................ 63 DIFFERENT TYPE OF INPUT VAT: ............................................................................................................................................................................................. 63 DISTRIBUTION OF INPUT VAT THAT CANNOT BE ATTRIBUTED TO ANY TRANSACTION: .................................................................................................... 65 HOW TO APPLY INPUT VAT ON DEPRECIABLE CAPITAL GOODS: .......................................................................................................................................... 66 WHEN TO APPLY INPUT VAT; WHEN IT ACCRUES: ................................................................................................................................................................. 66 WHEN TO PAY VAT: .................................................................................................................................................................................................................. 66
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Societas Spectra Legis Taxation Law 2 Compilation RULE ON REFUND OR CREDIT OF EXCESS INPUT VAT ............................................................................................................................................................ 66 OTHER PERCENTAGE TAX......................................................................................................................................................................................................... 73 PRELIMINARY MATTERS ON OTHER PERCENTAGE TAX: ........................................................................................................................................................ 73 OTHER PERCENTAGE TAX .....................................................................................................................................................................................................................................73 OTHER PERCENTAGE TAX (SECTIONS 116 – 128, NIRC)......................................................................................................................................................................................73
DOCUMENTARY STAMP TAX ....................................................................................................................................... 84 DOCUMENTARY STAMP TAX (DST) (SECTIONS 173-201, NIRC, AS AMENDED BY RA NO. 9243) ....................................................................................... 84
THE BUREAU OF INTERNAL REVENUE .......................................................................................................................... 95 CHIEF OFFICIALS OF THE BUREAU OF INTERNAL REVENUE .................................................................................................................................................. 95 POWERS AND DUTIES OF THE BUREAU OF INTERNAL REVENUE.......................................................................................................................................... 95 POWERS OF THE COMMISSIONER .......................................................................................................................................................................................... 95 AGENCIES INVOLVED IN TAX ADMINISTRATION .................................................................................................................................................................... 98 REMEDIES OF A TAXPAYER AFTER ASSESSMENT BUT BEFORE PAYMENT IS MADE ............................................................................................................ 98 REMEDIES OF A TAXPAYER AFTER PAYMENT HAS BEEN MADE............................................................................................................................................ 98 WHEN CAN YOU CLAIM TAX REFUND OR TAX CREDIT: ......................................................................................................................................................... 99 REQUISITE FOR YOU TO FILE A TAX REFUND OR TAX CREDIT: .............................................................................................................................................. 99 2 YEAR PERIOD FOR REFUND: BOTH ADMINISTRATIVE & JUDICIAL ..................................................................................................................................... 99 EFFECTIVITY PERIOD OF THE TAX REFUND: .......................................................................................................................................................................... 100 ADMINISTRATIVE & JUDICIAL PROCESS OF PROTESTING:................................................................................................................................................... 101 REMEDIES OF THE GOVERNMENT: ....................................................................................................................................................................................... 102 TAX LIEN ...............................................................................................................................................................................................................................................................102 DISTRAINT ............................................................................................................................................................................................................................................................102 GARNISHMENT ....................................................................................................................................................................................................................................................103 LEVY ON REAL PROPERTY....................................................................................................................................................................................................................................103 FORFEITURE .........................................................................................................................................................................................................................................................104 COMPROMISE ......................................................................................................................................................................................................................................................104
LEVY ......................................................................................................................................................................................................................................... 106 SUSPENSION OF BUSINESS OPERATIONS IN VIOLATION OF VAT LAWS (SEC. 115) ........................................................................................................... 107 COMPROMISE ......................................................................................................................................................................................................................... 107 ABATEMENT ............................................................................................................................................................................................................................ 109 JUDICIAL REMEDIES ................................................................................................................................................................................................................ 110 CIVIL ACTION........................................................................................................................................................................................................................................................110 CRIMINAL ACTION ...............................................................................................................................................................................................................................................110
STATUTE OF LIMITATIONS FOR TAX REMEDIES ................................................................................................................................................................... 111 SUSPENSION OF PRESCRIPTIVE PERIOD................................................................................................................................................................................ 112 FOR ASSESSMENT ................................................................................................................................................................................................................................................112 FOR COLLECTION .................................................................................................................................................................................................................................................113 FOR JUDICIAL REMEDIES OF THE GOVERNMENT..............................................................................................................................................................................................113
ADDITIONS TO THE TAX DUE (SEC. 247-252, NIRC) ............................................................................................................................................................. 113 A.
KINDS OF ADDITIONS TO THE TAX .........................................................................................................................................................................................................113
COURT OF TAX APPEALS .............................................................................................................................................116 APPLICABLE LAW .................................................................................................................................................................................................................... 116 A. REPUBLIC ACT NO. 1125 .................................................................................................................................................................................................................................116 B. REPUBLIC ACT NO. 9282 .................................................................................................................................................................................................................................116 C. REPUBLIC ACT NO. 9503 .................................................................................................................................................................................................................................116
JURISDICTION OF THE CTA ..................................................................................................................................................................................................... 116
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Societas Spectra Legis Taxation Law 2 Compilation JURISDICTION OF CTA UNDER RA 1125: ............................................................................................................................................................................................................117 UNDER RA 9282 ...................................................................................................................................................................................................................................................118
A.M. NO. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS ....................................................................................................................... 118 JURISDICTION OF CTA EN BANC (RULE 4, SEC. 2) ..............................................................................................................................................................................................118 JURISDICTION OF CTA DIVISION (RULE 4, SEC. 3) .............................................................................................................................................................................................119
NO INJUNCTION RULE IN TAX COLLECTION.......................................................................................................................................................................... 120 MANDAMUS, PROHBITION OR CERTIORARI......................................................................................................................................................................... 121 DECLARATORY RELIEF ............................................................................................................................................................................................................ 121 INDEPENDENT CPA ................................................................................................................................................................................................................. 121 A.M. NO. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS ....................................................................................................................................................121
QUORUM ................................................................................................................................................................................................................................ 122 CTA DIVISION .......................................................................................................................................................................................................................................................122 CTA EN BANC .......................................................................................................................................................................................................................................................122
LOCAL TAX ..................................................................................................................................................................123 LOCAL GOVERNMENT UNITS & SCOPE OF LOCAL TAXATION ............................................................................................................................................. 123 TERRITORIAL JURISDICTION:...............................................................................................................................................................................................................................123 DUAL STATUS OF LGUS .......................................................................................................................................................................................................................................123
POWER TO CREATE SOURCES OF REVENUE (ART. 10, SEC. 5, 1987 CONSTITUTION) ....................................................................................................... 123 WHO MAY EXERCISE LOCAL TAXING POWERS ..................................................................................................................................................................... 123 OBJECTIVES FOR IMPOSING LIMITATIONS ON LOCAL TAXATION....................................................................................................................................... 123 FUNDAMENTAL PRINICIPLES (SEC. 130) ............................................................................................................................................................................... 123 WHEN ARE YOUR REQUIRED TO REGISTER WITH THE BIR .................................................................................................................................................. 124 TAXPAYER’S IDENTIFICATION NUMBER ................................................................................................................................................................................ 124 KEEPING OF BOOKS OF ACCOUNTS AND RECORDS ............................................................................................................................................................. 124 LANGUAGE IN WHICH BOOKS ARE TO BE KEPT ................................................................................................................................................................... 125 ISSUANCE OF RECEIPTS OR SALES OR COMMERCIAL INVOICES ......................................................................................................................................... 125 ACCOUNTING PERIOD ............................................................................................................................................................................................................ 125 ACCOUNTING METHOD ......................................................................................................................................................................................................... 125 WHAT WILL COMPOSE YOU FINANCIAL STATEMENT .......................................................................................................................................................... 126 INDIVIDUALS REQUIRED TO FILE INCOME TAX RETURNS ................................................................................................................................................... 126 YOU ARE NOT REQUIRED TO FILE AN INCOME TAX RETURN, IF: ........................................................................................................................................ 126
LOCAL GOVERNMENT TAXATION................................................................................................................................127 HOW A LOCAL GOVERNMENT UNIT IMPOSE A TAX ............................................................................................................................................................ 127 LIMITATIONS OF THE RESIDUAL TAXING POWER OF LGUS (SUBSTANTIAL COMPLIANCE): ............................................................................................. 127 PROCEDURE FOR APPROVAL AND EFFECTIVITY OF TAX, ORDINANCES AND REVENUE MEASURES ................................................................................ 127 COMMON LIMITATIONS ON THE TAXING POWERS OF LOCAL GOVERNMENT UNITS ...................................................................................................... 127 TAXES WHICH MAY BE IMPOSED BY THE PROVINCE ........................................................................................................................................................... 128 TAXES WHICH MAY BE IMPOSED BY THE MUNICIPALITIES ................................................................................................................................................. 129 TAXES WHICH MAY BE IMPOSED BY THE CITIES .................................................................................................................................................................. 134 TAXES WHICH MAY BE IMPOSED BY THE BARANGAYS........................................................................................................................................................ 134 AUTHORITY OF LGUS TO ADJUST RATES OF TAX ORDINANCES (SEC. 191) ........................................................................................................................ 135 COMMON REVENUE-RAISING POWERS................................................................................................................................................................................ 135
COMMUNITY TAX CERTIFICATE: .................................................................................................................................136 WHO MAY LEVY COMMUNITY TAX: ...................................................................................................................................................................................... 136 TO WHOM IT MAY BE IMPOSED:........................................................................................................................................................................................... 136
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Societas Spectra Legis Taxation Law 2 Compilation INDIVIDUALS (LGC. 157)......................................................................................................................................................................................................................................136 JURIDICAL PERSON (LGC. 158) ............................................................................................................................................................................................................................136
EXEMPT FROM COMMUNITY TAX:........................................................................................................................................................................................ 137 WHERE TO PAY CTC: ............................................................................................................................................................................................................... 137 WHEN DUE: ............................................................................................................................................................................................................................. 137 CONSEQUENCE FOR FAILURE TO PAY ON DUE DATE: ......................................................................................................................................................... 138 PERSON NOT SUBJECT TO COMMUNITY TAX MAY STILL GET A CTC: ................................................................................................................................. 138 WHY PRESENT CTC FOR NOTARIAL PURPOSES: ................................................................................................................................................................... 138 OTHER INSTANCE WHERE CTC NEEDS TO BE PRESENTED:.................................................................................................................................................. 138 WHO PRINTS THE CTC: ........................................................................................................................................................................................................... 138 HOW DO YOU DISTRIBUTE THE INCOME DERIVED FORM THE CTC: .................................................................................................................................. 138 WHO COLLECTS THE CTC: ...................................................................................................................................................................................................... 139 COLLECTION OF TAXES FOR LOCAL TAXATION:.................................................................................................................................................................... 139 WHEN DOES LOCAL TAX ACCRUE: ......................................................................................................................................................................................................................139 DEADLINE FOR PAYMENT: ..................................................................................................................................................................................................................................139 WHAT ACCOUNTING PERIOD IS FOLLOWED FOR PURPOSE OF LOCAL TAXATION: .......................................................................................................................................139 SURCHARGES & INTEREST FOR LATE PAYMENT: ..............................................................................................................................................................................................139 WHO ARE AUTHORIZE TO COLLECT LOCAL TAXES: ...........................................................................................................................................................................................139 CAN LOCAL TREASURER LOOK AT THE BOOKS OF THE TAXPAYER: .................................................................................................................................................................140
CIVIL REMEDIES FOR COLLECTION OF REVENUES:............................................................................................................................................................... 140 LOCAL GOVERNMENT LIEN .................................................................................................................................................................................................................................140
CIVIL REMEDIES FOR COLLECTION OF LGT: .......................................................................................................................................................................... 140 PROPERTIES THAT CANNOT BE LEVIED OR DISTRAINT: ....................................................................................................................................................................................142 JUDICIAL REMEDIES .............................................................................................................................................................................................................................................142 CAN LOCAL GOVERNMENT UNITS ISSUE TAXES WHICH ARE NOT PROVIDED UNDER THE LGC: ..................................................................................................................142
QUESTIONING THE TAX ORDINANCE: ................................................................................................................................................................................... 142 QUESTIONING THE CONSTITUTIONALITY OR LEGALITY OF THE ORDINANCE .................................................................................................................................................143 PUBLICATION FOR TAX ORDINANCE ..................................................................................................................................................................................................................143 AUTHORITY TO GRANT TAX EXEMPTION ...........................................................................................................................................................................................................143 QUESTIONING THE ASSESSMENT .......................................................................................................................................................................................................................143
REAL PROPERTY TAX ...................................................................................................................................................145 FUNDAMENTAL PRINCIPLES (SEC. 198) ................................................................................................................................................................................ 145 DEFINITION OF TERMS (SEC. 199) ......................................................................................................................................................................................... 145 ADMINISTRATION OF RPT (SEC. 4) ........................................................................................................................................................................................ 147 APPRAISAL AND ASSSESMENT OF REAL PROPERTY ............................................................................................................................................................. 147 ASSESSMENT OF RPT: ............................................................................................................................................................................................................. 157 REMEDY AS TO ASSESSMENT: ............................................................................................................................................................................................... 158 THE REAL PROPERTY TAX ITSELF: .......................................................................................................................................................................................... 158 BASIC REAL PROPERTY TAX:................................................................................................................................................................................................................................158 EXEMPT REAL PROPERTIES: ................................................................................................................................................................................................................................159 SPECIAL LEVY ON REAL PROPERTY TAX: ............................................................................................................................................................................................................159 REMEDY FOR SPECIAL LEVY ................................................................................................................................................................................................................................161 ACCRUAL OF SPECIAL LEVY: ................................................................................................................................................................................................................................161
COLLECTION OF REAL PROPERTY TAX ................................................................................................................................................................................... 161 COLLECTION OF TAXES: .......................................................................................................................................................................................................................................162 NOTICE OF COLLECTION OF TAX: .......................................................................................................................................................................................................................162 TAX DISCOUNT FOR ADVANCE PAYMENT: ........................................................................................................................................................................................................162
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Societas Spectra Legis Taxation Law 2 Compilation REMEDY OF COLLECTION ....................................................................................................................................................................................................... 162 PAYMENT UNDER PROTEST. – ............................................................................................................................................................................................................................162 REPAYMENT OF EXCESSIVE COLLECTIONS. .......................................................................................................................................................................................................163
REMEDY OF THE GOVERNMENT: .......................................................................................................................................................................................... 163 ACTION ASSAILING VALIDITY OF TAX SALE. – ....................................................................................................................................................................................................165 PERIODS WITHIN WHICH TO COLLECT REAL PROPERTY TAXES. – ...................................................................................................................................................................165
SPECIAL PROVISIONS .............................................................................................................................................................................................................. 165
TARRIFF AND CUSTOMS .............................................................................................................................................167 BASIS FOR THE IMPOSITION OF THE TARRIFFS AND CUSTOMS .......................................................................................................................................... 167 TARRIFF AND CUSTOMS CODE .............................................................................................................................................................................................. 167 BASIS- BRUSSELS TARIFF NOMENCLATURE .......................................................................................................................................................................... 167 TARRIFF ................................................................................................................................................................................................................................... 167 CUSTOMS ................................................................................................................................................................................................................................ 168 BUREAU OF CUSTOMS ........................................................................................................................................................................................................... 168 COMMISSIONER ..................................................................................................................................................................................................................... 168 PRIMARY FUNCTION OF THE BUREAU OF CUSTOMS .......................................................................................................................................................... 168 CUSTOMS TERRITORY ............................................................................................................................................................................................................ 168 TERRITORIAL JURISDICTION ................................................................................................................................................................................................... 168 DOCTRINE OF FRESH PURSUIT............................................................................................................................................................................................... 168 JURISDICTION OVER PREMISES USED FOR CUSTOMS PURPOSES....................................................................................................................................... 169 CUSTOM HOUSES ................................................................................................................................................................................................................... 169 POWER OF THE PRESIDENT TO SUBJECT PREMISES TO JURISDICTION OF BUREAU OF CUSTOMS .................................................................................. 169 WHEN IS A PARTICULAR ACTIVITY BE SUBJECT TO THE JURISDICTION OF BUREAU OF CUSTOMS.................................................................................. 169 COMMISSIONER TO MAKE RULES AND REGULATIONS ....................................................................................................................................................... 169 CUSTOMS ADMINISTRATIVE ORDER ..................................................................................................................................................................................... 169 CUSTOMS MEMORANDUM ORDER ...................................................................................................................................................................................... 169 CUSTOMS MEMORANDUM CIRCULAR ................................................................................................................................................................................. 169 PORT ........................................................................................................................................................................................................................................ 170 PRINCIPLES .............................................................................................................................................................................................................................. 170 LIFE BLOOD DOCTRINE ........................................................................................................................................................................................................................................170 DOCTRINE OF PRIMARY JURISDICTION ..............................................................................................................................................................................................................170 DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES .........................................................................................................................................................................170 DOCTRINE OF FRESH PURSUIT (HOT PURSUIT) .................................................................................................................................................................................................171
IMPOSITION OF TAX ............................................................................................................................................................................................................... 172 CLASSES OF IMPORTATION .................................................................................................................................................................................................... 172 CONDITIONALLY- FREE IMPORTATION ................................................................................................................................................................................. 174 RATES OF DUTIES .................................................................................................................................................................................................................... 177 ADDITIONAL DUTY IMPOSED ON PRODUCTS OF FOREIGN COUNTRIES ............................................................................................................................ 177 METHODS TO DETERMINE THE BASIS OF DUTIES ................................................................................................................................................................ 177 BASES OF DUTIABLE WEIGHT ................................................................................................................................................................................................ 179 EFFECTIVE DATE OF RATES OF IMPORT DUTY ...................................................................................................................................................................... 179 CONTENTS OF COMMERCIAL INVOICE. ................................................................................................................................................................................ 179 CERTIFICATION OF INVOICE ................................................................................................................................................................................................... 180 DECLARATION ......................................................................................................................................................................................................................... 180 WHEN ARE YOU SUPPOSE TO FILE YOUR IMPORT ENTRY DECLARATION? ........................................................................................................................ 181
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Societas Spectra Legis Taxation Law 2 Compilation SPECIAL TYPES OF DUTIES ...................................................................................................................................................................................................... 181 OTHER CHARGES, FEES, OR DUES PAYABLE BY CERTAIN ENTITES IN RELATION TO THEIR DEALINGS WITH THE CUSTOMS ......................................... 182 FLEXIBLE TARIFF ...................................................................................................................................................................................................................... 182 POWERS OF THE PRESIDENT UNDER 401(A) ........................................................................................................................................................................ 182 IMPOSITION OF DUTIES ......................................................................................................................................................................................................... 182 PERSONS LIABLE ..................................................................................................................................................................................................................... 182 LIABILITY OF THE IMPORTER FOR THE DUTY ........................................................................................................................................................................ 183 IMPORTATIONS BY THE GOVERNMENT ................................................................................................................................................................................ 183 DECLARATION ......................................................................................................................................................................................................................... 183 IMPORT ENTRIES .................................................................................................................................................................................................................... 183 TWO FORMS OF ENTRIES ....................................................................................................................................................................................................... 183 BY WHOM TO BE SIGNED....................................................................................................................................................................................................... 183 EXAMINATION, APPRAISAL AND CLASSIFICATION ............................................................................................................................................................... 183 READJUSTMENT OF APPRAISAL, CLASSIFICATION OR RETURN .......................................................................................................................................... 184 LIQUIDATION .......................................................................................................................................................................................................................... 184 REMEDIES OF THE GOVERNMENT......................................................................................................................................................................................... 184 REMEDIES OF THE TAXPAYER ................................................................................................................................................................................................ 185 A. REFUND............................................................................................................................................................................................................................................................185 B. PROTEST ...........................................................................................................................................................................................................................................................187 C. ABANDONMENT ..............................................................................................................................................................................................................................................190
REMEDIES OF THE GOVERNMENT......................................................................................................................................................................................... 191 COMPROMISE ......................................................................................................................................................................................................................................................191
SETTLEMENT IN SEIZURE/FORFEITURE CASES: .................................................................................................................................................................... 192 SEIZURE/FORFEITURE CASES: .............................................................................................................................................................................................................................193 PRIMA FACIE KNOWLEDGE OF UNLAWFUL IMPORTATION: ............................................................................................................................................................................193 A VESSEL OR AIRCRAFT MAYBE FORFEITED OR SEIZED EVEN IF NOT ACTUAL VESSEL USED FOR IMPORTATION OR EXPORTATION: ......................................................194 WHEN CAN FORFEITURE BE ESTABLISHED: .......................................................................................................................................................................................................194 WHO HAS JURISDICTION OVER FORFEITURE & SEIZURE PROCEEDINGS: .......................................................................................................................................................194 TRIAL COURT HAS NOT JURISDICTION OVER SEIZURE OR FORFEITURE PROCEDURE: ...................................................................................................................................194 NOTIC OF SEIZURE/FORFEITURE: .......................................................................................................................................................................................................................195 REMEDY FOR SEIZURE/FORFEITURE: .................................................................................................................................................................................................................195 REFUND CASES PRESCRIPTIVE PERIOD: .............................................................................................................................................................................................................195 EFFECT OF LOSS ARTICLES DURING THE PENDENCY OF THE CASE: .................................................................................................................................................................195 PRINCILPLES OF RULES OF CRIMINAL PROCEDURE WITH REGARD TO SMUGGLING: ....................................................................................................................................196
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ESTATE TAXATION ESTATE TAX – Estate tax is an excise tax imposed on the privilege of transmitting properties at the time of death. It is also a tax on inter-vivos transfers or transfers made by the decedent during his lifetime that partake and is considered by the tax authorities as taking the form of a testamentary disposition of property. It is not imposed on the property nor on the person who receives the estate nor on the decedent. It is an excise tax.
RATE OF ESTATE TAX: Exempt to 20% PURPOSES OF ESTATE TAX 1. To raise revenues in order to defray the expenses of the government. (Supplements income tax) 2. Facilitates the distribution of wealth so that those who have more gets to be taxed more. 3. To prevent undue accumulation of wealth.
THEORIES WHICH SUPPORTS THE ESTATE TAX Benefits-Received Theory – The State expects to be paid for the services that it has rendered which you benefited in a system of distribution or property. Ability to Pay Theory – Those who have more properties to transfer to their heirs upon death shall pay more estate taxes. Redistribution of Wealth Theory – This is founded upon the principle of reduction of social inequality. The taxes paid by rich people are programmed for disbursement by Congress more for the benefit of the poor in terms of social services, education, health, etc. State Partnership Theory or Privilege Theory – Succession to the property of a deceased person is not a fundamental right and consequently, the legislature can constitutionally burden such succession with a tax. The government is your partner in increasing you wealth. You get to have that privilege because you have a partner.
CLASSIFICATIONS OF A TAXPAYER FOR PURPOSES OF ESTATE TAX 1. Resident Citizen – Taxable for estate within and without the Philippines 2. Non-Resident Citizen – Taxable for estate within and without the Philippines 3. Resident Alien – Taxable for estate within and without the Philippines 4. Non-Resident Alien – Taxable for estate within the Philippines RESIDENCE - refers to the permanent home or domicile, the place to which whenever absent, for business or pleasure, one intends to return.
WHEN DO YOU DETERMINE THAT AN INDIVIDUAL IS A RESIDENT CITIZEN 1) You have to qualify as a Filipino citizen under the Constitution: 1. Those who are citizens of the Philippines at the time of the adoption of this Constitution; 2. Those whose fathers or mothers are citizens of the Philippines; 3. Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship upon reaching the age of majority; and 4. Those who are naturalized in accordance with law. 2) You have to establish domicile or permanent residence here in the Philippines.
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Societas Spectra Legis Taxation Law 2 Compilation HOW DO YOU BECOME A NON-RESIDENT CITIZEN 1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. 2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. 3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. most of the time: it means that that particular citizen stays abroad for 183 days or more during a calendar year. 4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. 5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section. RESIDENT ALIEN - A person not a citizen of Philippines who establishes permanent residency in the Philippines. NON-RESIDENT ALIEN - A person not a citizen of Philippines who fails to establish permanent residency in the Philippines.
RECIPROCITY RULE AS TO INTANGIBLE PERSONAL PROPERTY OF NON-RESIDENT ALIEN A decedent’s (NRA) intangible personal property may be subject to transfer taxes both in his place of domicile or residence and in the place where such property has a situs or is located. In order to prevent multiplicity of taxation, the Tax Code provides that the tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the authority of a foreign country, subject to limitation (Sec. 86[E], NIRC). If reciprocity applies, these intangible personal properties will not be included in the computation of the net estate of the NRA. In all other cases – RA, RC, NRC – their intangible personal property will always form part of the gross estate. RECIPROCITY RULE: No tax shall be imposed in respect to intangible personal property of the NRA: a) When the foreign country does not impose transfer tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or b) When the foreign country imposes transfer taxes but grants similar exemption from transfer taxes in respect of intangible personal property owned by the citizens of the Philippines not residing in that foreign country.
INTANGIBLE PERSONAL PROPERTIES THAT HAVE SITUS IN THE PHILIPPINES: 1. Franchises, patents, copyrights and royalties exercised in the Philippines. It may not be registered here in the Philippines as long as it is being used in the Philippines. 2. Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; 3. Shares, obligations, or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines; 4. Shares, obligations, or bonds issued by any foreign corporation is such shares, obligations or bonds have acquired business situs they are used in furtherance of its business in the Philippines by the foreign corporation in the Philippines University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Example: A US Corporation issued a bond to augment the funds of the corporation in order to expand its operations in the Philippines. That bond is considered as having situs here in the Philippines because it is used in furtherance of its business in the Philippines. 5. Shares or rights in partnership, business or industry established in the Philippines (Sec 104, NIRC). 6. Bank deposits of banks located in the Philippines. 7. Accounts receivable from debtors residing in the Philippines.
PROPERTIES COVERED BY GROSS ESTATE, IN GENERAL All properties and interests of the decedent at the time of his death shall be included in his gross estate including transfers akin to a testamentary disposition. The properties includible in the gross estate of the decedent would depend on whether or not the decedent is a citizen or alien and whether or not the alien decedent is a resident of the Philippines at the time of his death. Requires ownership but not possession.
COMPOSITION OF THE GROSS ESTATE The decedent’s gross estate includes the following (Except for No 8, all these are considered transfers akin to a testamentary disposition): 1. Decedent’s interest; 2. Transfers in contemplation of death; 3. Revocable transfers; 4. Property passing under general power of appointment; 5. Proceeds of life insurance; 6. Prior interests; 7. Transfers for insufficient consideration; 8. Capital of the surviving spouse (Sec. 85, NIRC) 1. DECEDENT’S INTEREST The general rule is that all property owned by the decedent has to be included in the gross estate, to the extent of the value of his interest in such property at the time of his death. Thus, if the decedent fully owns a piece of property, the value of such property shall be included in the gross estate. However, if he owns only a proportionate share in the property, or is entitled only to its use, it is only the value of such share or such use that has to be included. Requires ownership but not possession. The decedent may only own the legal title but not the beneficial ownership or vice-versa. o Example: Usufruct - To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there 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. 2. TRANSFERS IN CONTEMPLATION OF DEATH Transfers in contemplation of death cover those which are transfers made during the lifetime but are considered as part of the gross estate. If the motive behind the transfer is due to an impending death that he has been called or he perceives, then the transfers may be in contemplation of death and at the time of his death it will be
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Societas Spectra Legis Taxation Law 2 Compilation considered as transfer in contemplation of death and it will be considered as part of his gross estate subject to estate tax. Controlling motive is the thought of death which made him dispose of his property regardless of time from the transfer until the time of death. Example: Mr. A thinks that he will die 10 years from now. He made a transfer to take effect at the time of his death. Is it a transfer in contemplation of death? Yes as long as it is the thought of death which made him dispose of his property regardless of time from the transfer until the time of death. Before, if the transfer was made 3 years before the death of the decedent, it is already considered as in contemplation of death. Now, it is simply the thought of death which makes it a transfer in contemplation of death. 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; 2) Length of time between the gift and the date of death. A short interval suggests the conclusion that the thought of death was in the decedent’s mind, and a long interval suggests the opposite. 3) Concurrent making of a will or making a will within a short time after the transfer. 3. REVOCABLE TRANSFER A revocable transfer is made when there is a transfer of property with the transferor or decedent retaining the rights to alter, amend, terminate or revoke the transfer during his lifetime whether or not such rights to revoke, terminate, amend or alter has been exercised. So long as that right remains until the day of his death, it is still under the control of the decedent, it is part of his properties because he actually will enjoy the income, the rights and the enjoyment of the property. TAKE NOTE: So long as the transferor will retain those rights until the day of his death, it is as if he has full dominion of his property and it will form part of his gross estate. Example: Mrs. J transferred her car to Ms. L with the condition that she reserves the right to revoke the transfer during Ms. J’s lifetime. When Ms. J died, the car will form part of the gross estate of Ms. J. The right to alter, revoke, amend or terminate the enjoyment of the property by the transferee does not need to be actually exercised by the transferor as long as the right has been reserved, even if it is in conjunction with another person. o Example: Mrs. J, transferor, along with her husband, may reserve the right to alter, amend, terminate or revoke the transfer during their lifetime. TRANSFERS WITH RETENTION Not totally the same as revocable transfers but somewhat takes the form of a revocable transfer because there is a right (to alter,amend, terminate or revoke) that has been retained or reserved by the transferor during the time that the property has been transferred during his lifetime. So long as the transferor has retained those rights until the day of his death, he can still say that he, the transferor, may have at anytime have taken back the property. So it’s equivalent to full dominion over the property, still part of his gross estate as if there was no transfer made. This may fall under Revocable Transfer or Transfers In Contemplation of Death, provided that the retention of the right relating to an intention of controlling the property.
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Societas Spectra Legis Taxation Law 2 Compilation Example: You retain the right to income while you transfer the property during your lifetime and the enjoyment of the income is retained until your death. It may be considered a transfer in contemplation of death rather than a bona fide transfer. 4. PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT A “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. GENERAL It is “general” when it gives to the donee (decedent) 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. Example: Mr. A, during his lifetime gave a painting to Mrs. B along with a general power of appointment. Mrs. B appointed Mrs. C to enjoy or possess the painting. When Mrs. B dies, this painting will be considered part of her gross estate. SPECIAL It is “special” when the donee (decedent) can appoint only among a restricted or designated class of persons other than himself. The power to dispose of property at death by the exercise of a general power of appointment is equivalent of ownership. 5. PROCEEDS OF LIFE INSURANCE The life insurance policy must be taken out by the decedent himself. If it is not taken by the decedent himself, it shall not be part of the estate. Taxation of the proceeds of life insurance will depend on the designated beneficiary and the manner of designation of such beneficiary, such that if the beneficiary is the estate itself, the executor or the administrator, IT FORMS PART OF THE GROSS ESTATE regardless of the manner of designation. If the beneficiary is other than the estate, executor, or administrator and the designation is revocable (which is the default in the insurance code), THE INSURANCE PROCEEDS FORM PART OF THE GROSS ESTATE. If the beneficiary is other than the estate, executor, or administrator and the designation is irrevocable, THE INSURANCE PROCEEDS WILL NOT FORM PART OF THE GROSS ESTATE. The transfer is absolute and the insured did not retain any legal interest in the insurance. Example: Mr. A secured a life insurance in favor of his estate for P1M. Later on, Mr. A died and the proceeds of the insurance policy is now collected. Is it subject to income tax? No, it is exempted from income tax. Is it subject to estate tax? Yes, regardless of the manner of designation. o What if the beneficiary is the girlfriend of Mr. A? Is it subject to income tax? No. Is it subject to estate tax? It depends on the revocability of the designation. o What if the company of Mr. A secures a life insurance for the benefit of the girlfriend of Mr. A. The designation is irrevocable. Is it subject to income tax? Yes. How about estate tax? No, because it is the company was the one who secures the insurance. The revocability of the designation is irrelevant. 6. PRIOR INTERESTS - No longer relevant now considering that the law has been in effect for more than 17 years now.
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Societas Spectra Legis Taxation Law 2 Compilation 7. TRANSFERS FOR INSUFFICIENT CONSIDERATION If during the lifetime of the decedent, he has entered into transactions for inadequate or insufficient consideration, the property that was sold for insufficient consideration will still form part of his gross estate at the time of his death provided that no prior donor’s tax has been paid on the said transaction. The law does not provide for a time frame wherein transfers may be classified as one with insufficient consideration. For as long as it transpired during the decedent’s lifetime, it should be included in the gross estate. In transactions TANTAMOUNT TO A FICTITIOUS SALE OR SIMULATED SALE, where no consideration was in fact given, the FMV at the time of death less the consideration paid, will form part of the gross estate of the decedent. TAKE NOTE: Do not include Capital Assets subject to Capital Gains Tax for purposes of Transfers for Insufficient Consideration. Classification of the property matters because if the sales involves a capital asset which is subject to Capital Gains Tax, the tax on that transfer has already been accounted for, based on an assumed gain. Thus, it can no longer be considered as transfers for insufficient consideration for purposes of Estate Tax. The property can no longer ba taxed again. o Example: Mr. M owns a land with a Fair Market Value of P1M. He sold the land to Mr. X for P200K (selling price). When Mr. M dies, such transfer would no longer be considered as transfer for insufficient consideration and the land will not form part of his gross estate because the asset has already been subjected to CGT. For properties which falls under Transfers for Insufficient Consideration, you have to consider the FMV of the property at the time of the death of the decedent. o Example: Mr. M, during his lifetime, sold a property with a FMV of P1M for a gross selling price of P200,000. At the time of his death, the FMV of the property is P1.5M. The amount that will formed part of his gross estate would be P1.3M (P1.5M – P200K) o Had the FMV of the property gone down to P400K at the time of Mr. M’s death, the amount that will formed part of his gross estate would be P200K (P400K – P200K) TAKE NOTE: In all the transfers akin to testamentary disposition, the exception is when the transfer is made bona fide for an adequate and full consideration in money or money’s worth. The last two will form part of the gross estate of the decedent but will later be deducted as part of the Deductions: 8. CAPITAL OF THE SURVIVING SPOUSE 9. REPUBLIC ACT No. 4917 - An act providing that retirement benefits of employees of private firms shall not be subject to attachment, levy, execution, or any tax whatsoever. The retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment, garnishment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action. Provided: 1. That the retiring official or employee has been in the service of the same employer for at least ten (10) years and 2. Is not less than fifty years (50) of age at the time of his retirement 3. Availed of by an official or employee only once: 4. That in case of separation of an official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee,
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any amount received by him or by his heirs from the employer as a consequence of such separation shall likewise be exempt as hereinabove provided. The term "reasonable private benefit plan" means a pension, gratuity, stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his officials and employees, wherein contributions are made by such employer or officials and employees, or both.
ACQUISITIONS AND TRANSMISSIONS NOT SUBJECT TO ESTATE TAX These involve transfers or transmittals which do not give rise to estate tax even though it is in some way connected to someone’s prior death. 1. MERGER OR USUFRUCT IN THE OWNER OF THE NAKED TITLE This involves a situation where upon the death of a decedent, property is transferred to one person (usufructuary) giving the latter the right to enjoy the property, and to a second person (naked or beneficial owner), the naked title to the property. When the usufructuary dies and that the enjoyment of the property is transferred to the naked owner (merger), this transfer is not subject to estate tax because the same property has already been subjected to tax upon the decedent’s death. The transfer between the decedent and the usufructuary has already been subjected to estate tax. The subsequent transfer from the usufructuary to the naked owner should be therefore no longer taxed. Example: Upon the death of Mr. D, the naked title of his property is transferred Mr. N, and the usufructuary of the same property to Mr. U. Upon the transfer of the property from Mr. D to Mr. U, such property will be subjected to estate tax. When Mr. U dies and the enjoyment of the property will be merge with the naked title of Mr. N, the property will no longer be subjected to estate tax. 2. TRANSMISSION BY THE FIDUCIARY HEIR OR LEGATEES TO THE FIDEICOMISSARY This involves fideicomissary substitution wherein the decedent provides in his will that upon the death of the fiduciary heir, the property shall be transferred to the fideicomissary heir. The subsequent transfer (from fiduciary heir to fideicomissary) shall be free from estate taxation because the same property has already been taxed upon the first transfer.
Example: Mr. A died, in his will, he named Mr. B as the fiduciary heir and Mr. C as the fideicommissary. Upon the transfer of the property from Mr. A to Mr. B, the fiduciary heir, it will be subjected to estate tax. Upon the death of Mr. B and the transfer of the property from Mr. B to Mr. C, the fideicommissary heir, the property will no longer be subjected to estate tax. Review: Requisites of Fideicommissary Substitution: 1) There must be a first heir (fiduciary) called primarily or preferentially to the enjoyment of the property. 2) There must also be a second heir (fideicommissary). University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation 3) There must be an OBLIGATION CLEARLY IMPOSED upon the first heir to PRESERVE AND TRANSMIT to the second heir the whole or part of the inheritance 4) The first and the second heirs must be only one degree apart. 5) Both heirs must be alive, or at least conceived, at the time of the testator’s death. 3. TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY (in accordance with the desire of the predecessor) This contemplates a situation where the decedent’s will provides that his property shall be transmitted to two heirs proportionately. The subsequent transfer from the 1st heir to the 2nd heir will not be subject to estate tax if such transfer was made in accordance with the will of the decedent. This is so because the estate tax has already been imposed on the 1st transfer. Example: If in the will of decedent A there will be two beneficiaries, B and C, each given ½ of the property, if B transfers his half to C thereby making the property whole, this 2nd transfer is NOT SUBJECT TO ESTATE TAX.
4. BEQUESTS, DEVISES, LEGACIES OR TRANSFERS TO SOCIAL WELFARE, CULTURAL AND CHARITABLE INSTITUTIONS This transfer also includes transmissions made to NON-STOCK, NON-PROFIT EDUCATION INSTITUTIONS. Although not included in the enumeration provided for under the NIRC, such exemption is provided for in Art. XIV, Sec. 4(4) of the 1987 Constitution which provides that bequests to be actually, directly and exclusively used for educational purposes shall be exempt from tax. Requisites for this transmission to be considered non-taxable: 1. Transfer to a social welfare, cultural and charitable institutions; 2. No part of the income inures to the benefit of any individual; and 3. Not more than 30% of the said bequests, devises, legacies or transfers 5. OTHERS The other transmissions of property or receipts/proceeds of the estate of the decedent that are not subject to estate tax are the following: a. Benefits received from SSS or GSIS; b. Benefits received from U.S. Veterans Administration; c. War benefits given by the Philippine government and U.S. government due to damages suffered during the war; d. Grants and donations to the Intramuros Administration;
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Societas Spectra Legis Taxation Law 2 Compilation e. If the decedent holds a property in trust for someone else, usually a beneficiary, the general rule is that it does not form part of the estate of the decedent because ultimately, it will be in favor of the beneficiary, unless it falls under the general power of appointment over which the decedent has been holding on to it with the free reign to designate himself as the ultimate beneficiary; f. Transfers by way of bona fide sales of adequate and full consideration; g. Life insurance proceeds from GSIS and from private insurance companies so long as the beneficiary designated irrevocably is a third person other than the estate, administrator, executor. It will never form part of the gross estate of the decedent; anf h. Capital of the surviving spouse. Even if initially we consider the assets of both spouses during lifetime, we eventually exclude the exclusive properties of the surviving spouse.
FORMULA ESTATE TAX Gross estate Less: Deductions Less: ½ share of surviving spouse Net estate X Estate Tax Rates Estate tax due Less: Tax Credits Estate tax payable
DEDUCTIONS ALLOWED TO A CITIZEN OR A RESIDENT 1. EXPENSES, LOSSES, INDEBTEDNESS AND TAXES (ELIT)
A. FUNERAL EXPENSES
For expenses to be considered under this category, such expenses must be incurred from the moment of death until interment (burial). In order for funeral expenses to be deductible, IT MUST BE INCURRED BY THE FAMILY MEMBERS. If the funeral expense has been paid for voluntary or as a donation by someone else, it cannot be deductible from the estate. Such rule is also applicable to judicial expenses. In other words, judicial and funeral expenses must be shouldered by the immediate family; otherwise, such expenses are not deductible against the estate. Funeral expenses NEED NOT BE PAID in order to be deductible from the gross estate. It is sufficient that such funeral expenses have been INCURRED (accounts payable).
Q: What if later on, when you account for the taxable estate, there is this accounts payable for funeral expense. Can I then choose that as claims against the estate? After all, the funeral parlor under special proceedings, will have to apply for the settlement of the obligation of the estate as part of the claims? A: No, it can no longer be considered as claims against the estate because there is a specific category for funeral expenses. Such claims remain under funeral expenses, whether paid or unpaid.
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Societas Spectra Legis Taxation Law 2 Compilation The following are considered funeral expenses: 1. Mourning apparel of the surviving spouse and unmarried minor children of the deceased, bought and used on the occasion of the burial 2. Expenses for the deceased’s wake, including food and drinks 3. Publication charges for death notices (obituaries) 4. Telecommunications expenses incurred in informing relatives of the deceased 5. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible. 6. Interment and/or cremation fees and charges 7. All other expenses incurred for the performance of the rites and ceremonies incident to interment How much can you deduct? - The amount actually paid or incurred, OR - 5% of the gross estate, WHICHEVER IS LOWER - But in no case to exceed P 200,000
B. JUDICIAL EXPENSES Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, include all expenses essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it. These expenses include: fees of executor or administrator, attorney’s fees, notarial fee paid for the extrajudicial settlement, court fees, accountant’s fees, clerk hire, costs of preserving and distributing the estate, costs of storing or maintaining property of the estate, brokerage fees for selling property of the estate, etc. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not deductible. (CIR vs Pajonar) PERIOD FOR WHICH JUDICIAL EXPENSES INCURRED ARE ALLOWED TO BE DEDUCTED They must be incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. So expenses within the 6 months period or within the 30 day extension granted (in meritorious cases). Take note: For filing of the estate tax return, it can only be extended up to 30 days in in meritorious cases while for payment of the estate tax could be extended up to 2 years for judicial settlement or 5 years if it is an extrajudicial settlement (when it would impose undue hardship upon the estate or any of the heirs)
C. LOSSES These are CASUALTY LOSSES – losses which arose from fires, storms, shipwrecks or other casualties – or LOSSES FROM ROBBERY, THEFT, OR EMBEZZLEMENT. These are the same type of losses that can be deducted on the estate under income tax. WHEN SUCH LOSSES BE INCURRED Such losses must occur during the settlement of the estate but not later than the last day for payment of the estate tax. Only losses incurred during the 6 months filing period are deductible. This means that if there was a 30 day extension granted, such loss which incurred during that period are not deductible. (“Sec 86(e)” only University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation refers to “Sec 91. (A)” which only provides for the time of payment when the return is filed. It does not mention anything about any extension for either filing or payment.) Losses before death are never deductible losses because the computation of the gross estate is reckoned from the decedent’s point of death and therefore does not contemplate property that has been lost prior to his death. OPTION OF THE EXECUTOR OR ADMINISTRATOR The executor or administrator of the decedent has the option to either deduct the loss from the income tax or the gross estate. Therefore, if the executor opts to deduct it from the GE, such losses must have not been claimed as a deduction for income tax purposes in an income tax return, and such losses were incurred not later than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91: "SECTION 91. Payment of Tax. — "(A) Time of Payment. — The estate tax imposed by Section 84 shall be PAID AT THE TIME THE RETURN IS FILED by the executor, administrator or the heirs. REQUIREMENTS IN ORDER FOR LOSSES TO BE DEDUCTIBLE: 1. INCURRED after death and during the settlement of the estate; 2. Arose from fires, storms, shipwreck or other casualties, or from robbery, theft or embezzlement; 3. Must not be compensated by insurance; 4. Are not claimed as a deduction for income tax purposes in an ITR in favor of either the decedent or the estate itself; and 5. Were incurred not later than the last day for payment of the estate tax. (6 months filing period)
D. CLAIMS AGAINST THE ESTATE Here, the estate has a payable. These are 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 death are significant to, and should be made the basis of, the determination of allowable deductions. (Dizon vs CTA) DATE-OF-DEATH VALUATION RULE - The deductible amount for a claim against the estate is fixed as of the decedent's death. For purposes of estate tax, we follow the date-of-death valuation rule REASONS WHY WE FOLLOW THE DATE-OF-DEATH VALUATION RULE 1. The legislative intent in our tax law is to follow the date-of-death valuation principle. 2. Since this involves taxation, it should be construed strictly against the State and in favor of the taxpayer. 2. Such CONSTRUCTION finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" 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. (Dizon vs CTA) In case there is a condonation of the debt after the death of the decedent, the value to be considered should be the value at the time of the death of the decedent.
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Societas Spectra Legis Taxation Law 2 Compilation The requirements for the deductibility of claims against the estate are: 1. Must be a personal obligation of the deceased existing at the time of his death (except unpaid funeral expenses and unpaid medical expenses); 2. Liability must have been contracted in good faith and for adequate and full consideration in money or money’s worth; Example of debt contracted in bad faith: When the decedent obtained a loan at the time when he knew that he will only be living for 2 months. So such contracted debt will not form part of claims against the estate. 3. A claim or debt which is valid in law and enforceable in court 4. Indebtedness not condoned by the creditor during the lifetime of the decedent. 5. The action to collect from the decedent must not have prescribed 6. Must be duly substantiated depending on the type of obligation. If the claim against the estate arose from a contract of loan or a promissory note, the following additional requirements are needed: 1. The debt instrument must be duly notarized at the time the indebtedness was incurred Except: Loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender 2. Duly notarized certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death 3. Proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited financial statement with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor 4. A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within 3 years prior to the death of the decedent. Debts incurred more than three prior to the death would be difficult to determine where the proceeds of the loan went. If the claims against the estate arose from a simple purchase of goods or services: 1. It need not be substantiated by a contract or a promissory note. 2. Usually substantiated by invoices and receipts for the purchase of the goods or services 3. A certification from the creditor still that the amount is collectible, including interest.
E. CLAIMS AGAINST THE INSOLVENT Here, the estate has a receivable which forms part of the gross estate of the decedent. It is the decedent who is the creditor who has extended a loan but can no longer collect the loan because the debtor is already insolvent. A person is insolvent when his liabilities exceed his assets. For claims against insolvent persons to be deductible from the gross estate (Sec. 86(d), it is important to show that: 1. The amount of said claims has been initially included as part of his gross estate; and 2. The incapacity of the debtors to pay their obligations is proven, not merely alleged.
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Societas Spectra Legis Taxation Law 2 Compilation Review: Steps to be done to in order to prove its worthlessness/insolvency/bad debts: 1. There must be a Statement Of Account(SOA) sent to the debtor stating the maturity date 2. If there is still no payment at the maturity date then A collection letter is sent by the creditor to the debtor 3. If he failed to pay, refer case to lawyer; Lawyer then send a formal demand letter to the debtor 4. Fails to pay, File an action in court for collection 5. Despite the order of the court there is still no payment then consider it as BAD DEBTS.
F. UNPAID MORTGAGES OR INDEBTEDNESS Unpaid mortgages upon, or any indebtedness in respect to property shall be deductible from gross estate, where the value of decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate. The unpaid mortgages must be contracted bona fide and for an adequate and full consideration in money or money’s worth (Sec. 86*e+, NIRC). The property subject of the mortgage must be fully included in the gross estate. However, in the deduction, you will only deduct the unpaid portion which the decedent is liable. Even if the administrator of the decedent paid the full amount of the mortgage, and later only it was determined that the decedent was only liable for half the amount, you can only deduct the portion for which the decedent was liable. The unpaid mortgages must be contracted bona fide and for an adequate and full consideration in money or money’s worth. Here, the decedent has mortgaged his property during his lifetime. It is a payable on the part of the decedent in the form of a mortgage wherein the decedent is a mortgagor. Therefore, the estate should be reduced. It is likened to a claim against the estate, only that it is in the form of a mortgage. Requisites in order for unpaid mortgages to be deductible against the gross estate: 1. Value of the decedent’s interest in the property encumbered by such mortgage or indebtedness is included in the value of the gross estate. 2. Such deduction shall be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money’s worth, if such unpaid mortgages or indebtedness were founded upon a promise or an agreement; 3. The mortgage must be personally contracted during the lifetime of the decedent. What if it is an accommodation mortgage, can you still be allowed to deduct? Yes, but only when the estate can record the mortgage as a receivable from the person for whom you accommodated the mortgage for will you be allowed to deduct the unpaid mortgage.
G. UNPAID TAXES (refers to ALL types of taxes personally incurred by the decedent) Unpaid income tax upon income received before the death of the decedent, or property taxes accrued before his death, or any estate tax shall be deductible from gross estate. The unpaid taxes must be contracted bona fide and for an adequate and full consideration in money or money’s worth. Even if it is already incurred, so long as it not yet paid, you can deduct it from the estate of the decedent.
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Societas Spectra Legis Taxation Law 2 Compilation Problem: The decedent died on October 1, 2014. Up to what part of the income tax liability can you deduct? All income earned before his death are deductible while the income earned after October 1 are non-deductible. When do you pay your income tax? Individual taxpayer - April 15; Real property taxes are due for payment on January 31. It accrues on January 1 and it’s supposed to be paid on January 30. It follows a pay-first incur-later scheme. So a person’s real property is already paid on January, such that when such person dies on October, his estate is no longer liable to pay real property tax because the tax the decedent paid on January is already good for that year. Taxpayer has the option to pay in installment. Requisites for unpaid taxes to be deductible against the gross estate: 1. The taxes must have accrued as of the death of the decedent or prior to the death of the decedent. Property taxes accrued prior to the decedent’s death, unpaid taxes on income received by decedent during his lifetime, donor’s taxes which are unpaid upon death are properly deductible against the estate. Any taxes accruing after death will be considered as a separate taxable entity. 2. They were unpaid as of the time of death. 3. This deduction shall not include income tax upon income received after death, or property taxes not accrued before his death, or the estate tax due from the transmission of his estate. 2. PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTIONS) Requisites in order for property previously taxed to be deductible against the gross estate: 1. Prior transfer. There is a prior decedent or donor who gave the property; It is not required that there must be a prior death because it could be a donation. 2. Death of present decedent within 5 years after receiving the inheritance from the prior decedent or gift from the prior donor; 3. The property must be identifiable. The property with respect to which deduction is sought can be identified as the one received from the prior decedent or the donor, or as the property acquired in exchange for the original property so received; Includes instances where the property transferred may no longer be in the possession of the decedent but the property acquired in exchange can be identified. 4. The property must be included in the gross estate of the present decedent. If the property is no longer in the in the possession of the decedent, the property that must be included is the property that was exchanged for. 5. Previous Taxation of the Property. The estate tax on the prior succession, or the donor’s tax on the gift, must have been finally determined and paid by the prior decedent or by the donor as the case may be. Example: When Mr. Z transmitted the property to Mr. A by inheritance, the proper estate tax should have been paid. 6. No Previous Vanishing Deduction on the Property. Vanishing deduction can only be applied once. Example: Should Mr. Z also acquire the same property by inheritance or donation last Aug. 8, 2007 (Aug. 8, 2007 until Dec. 8, 2011 is still within the five year period. For purposes of this requirement, if there had been two transfers, such transfers must have transpired within 5 years of each other.), Mr. Z should not have claimed vanishing deductions for the same property in the computation of his estate tax if Mr. A should be allowed to claim the such deductions. If Mr. Z had already claimed vanishing deductions over the parcel of land, Mr. A can no longer claim for vanishing deductions over the same property. Vanishing deduction shall be allowed only once. 7. The property should be located in the Philippines.
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Societas Spectra Legis Taxation Law 2 Compilation COMPUTATION 1st: Determine the value of the property for the initial basis of the vanishing deductions allowed: GR: In including the value of the property in the gross estate, the FMV at the time of death shall be the basis. EXC: For the initial basis of vanishing deductions, the value shall be prior or present FMV, whichever is lower. Example: Let’s say that the FMV at the time of the inheritance was 1 M and at the time of death, the FMV was 1.2M. To obtain the initial basis, the FMV of 1M shall be used being the lower amount. 2nd: Deduction for mortgage or other lien. The initial value above shall be reduced by the total amount paid, if any, by the present decedent, on any mortgage or other lien on the property where a deduction was allowed. 3rd: Deduction for expense, losses, indebtedness, taxes, transfers for public use – The value as reduced above shall be further reduced to the extent of the pro rata deductions based on the principle that a portion of the expenses (ELIT and TFPU) pertains to the percentage of the property inherited for vanishing deduction over the total gross estate. 4th: Percentage of Deductions: 100% if the present decedent dies within 1 year, 80% if the present decedent dies more than 1 year but not more than 2 years, 60% if the present decedent dies more than 2 years but not more than 3 years, 40% if the present decedent dies more than 3 years but not more than 4 years 20% if the present decedent dies more than 4 years but not more than 5 years Example: If the present decedent dies within 1 year, the full amount of 900K is deductible (900K x 100%). If the present decedent died more than 4 years after the death of the first decedent, only 180K is deductible (900K x 20%) Problem: 1st Transfer happened on January 1, 2010. Decedent died on January 1, 2014. Determine the vanishing deduction allowed. Given: Gross estate = P9,600,00 ELIT = P200,000 TPU = P100,000 ELIT + TPU = P300,000 Value of property at the time of the first transfer = P1,000,000 Value of property at the time of the death of the decedent = P1,200,000 Value of the mortgage to be assumed at the time of the transfer = P100,000 Unpaid mortgage = P60,000 Calculation: FMV (Value of the property on the first transfer or the value of the second transfer, whichever is lower) P1,000,000 Less mortgage payments (deduct the amount of the mortgage already paid) P40,000 INITIAL BASIS Less allowable deductions: (Initial Basis/Gross Estate)ELIT + TPU = (P960K/P9.6M)P300K = P30,000 FINAL BASIS X Vanishing Deduction Rate (1st transfer: Jan. 1, 2010; Died on Jan. 1, 2014) =
P960,000
VANISHING DEDUCTION ALLOWED
P372,000
P930,000 40%
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Societas Spectra Legis Taxation Law 2 Compilation Example: Mr. X is a Filipino. He died while in the U.S. He has a motorcycle in the U.S. at the time of his death. In his will, he gives the motorcycle to Mr. Y who is in the Philippines. 2 years after Mr. X died, Mr. Y also died who is already in possession of the motorcycle. Is the motorcycle included in the gross estate of Mr. Y? Yes, it forms part of decedent’s interest. Is the same property subject to vanishing deduction? Yes since the 1st transfer was subjected to a donor’s tax. However, if Mr. X is a NRA, Mr. Y would not be subjected to a vanishing deduction because the property would not be subjected to a tax during its first transfer (Mr. X being an NRA and the property located in the U.S. at the time of his death)
3. TRANSFERS FOR PUBLIC USE The whole amount of all the bequests, legacies, devises or transfers to or for the use of the Government of the RP, or any political subdivision thereof, for exclusively public purposes shall be deductible from gross estate, provided such amount or value had been included in the gross estate. The transfers to the government or political subdivisions include only provinces, cities, municipalities and barangays. IT DOES NOT INCLUDE GOCCs. The transfer happens after the death of the decedent. At the time of the death of the decedent, he still owns the property. That is why the property must be included in his gross estate. Once the property is transferred to the government, the estate of the decedent is allowed to deduct the value of the property from his estate. For bequests to charitable institutions, social welfare, etc., they are not deductible since in the first place, they are exempt transmission of property. In other words, they are not included in the gross estate. Requisites in order for transfers for public use to be deductible against the gross estate: 1. Transfers to the Government of the RP, or any political subdivision, excluding GOCCs. 2. It must be for public use. 3. The amount must be initially included in the gross estate. 4. The transfer must be made in writing. 4. THE FAMILY HOME An amount equivalent to the current fair market value of the decedent's family home: Provided, however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality. Rule: FMV of the property or P1M, whichever is lower. When the Family Home is part of the conjugal property of the married couple, you will divide the value of the conjugal property by 2 in order to arrive at the deductible amount. Family Home forms part of the gross estate. Part of the deduction of the gross estate would be the share of the surviving spouse. This Family Home is considered as part of the special deductions. It is not accounted for prior to the deduction of the share of the surviving spouse. That being the case, the gross estate, you will claim there the full amount of the FM but you will deduct a portion of that under the share of the surviving spouse. Example 1: Family Home is worth P2M. The share of the surviving spouse is P1M. For purposes of estate tax, you will only tax P1M. Example 2: A conjugal Family Home is worth P3M. Half of that is P1.5M, but you can only deduct the maximum amount of P1M. The remaining P500K will be subject to estate tax.
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Societas Spectra Legis Taxation Law 2 Compilation Family home means the dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein (Arts. 152 and 153, Family Code). For estate tax purposes, the definition of the head of the family is still significant. A head of the family is: 1. An individual who is single, legally separated or widowed, etc. who is chiefly supporting a child, whether legitimate, illegitimate, legally adopted or naturally acknowledged, not more than 21 years of age, where such child is NOT GAINFULLY employed, UNMARRIED and he can be more than 21 if he is mentally incapacitated or physically disabled. 2. An individual who is chiefly supporting a parent living with him and not gainfully employed. 3. An individual who is chiefly supporting a brother or sister living with the former, provided that the latter shall be no more than 21 years of age, UNMARRIED and not gainfully employed. 4. An individual who is supporting a senior citizen whether or not related to each other, provided that the latter be 60 years of age or above and not earning more than P 5K a month (P60K a year). For income tax purposes, among the 4 types of dependents, only a child can entitle a taxpayer to avail of the P 25K additional exemption. But for estate taxes, if you’re classified as a married individual or single but head of the family, then your family home can be considered as a deductible item. 5) STANDARD DEDUCTION — An amount equivalent to One million pesos (P1,000,000). This only pertains to the deceased. This does not apply to a Non-Resident Alien. 6. MEDICAL EXPENSES Medical expenses incurred by the decedent within one (1) year prior to his death which shall be duly substantiated with receipts: Provided, That in no case shall the deductible medical expenses exceed Five hundred thousand pesos (P500,000). Example: If decedent died on Dec. 8, 2011, expenses must be incurred on Dec. 9 up to Dec. 8, 2011. Medical expenses need not pertain to the cause of death. Take note: Any amount of medical expenses exceeding P 500K, even if unpaid, shall not be allowed as deduction from the gross estate as claim against the estate (same rule in funeral expenses) because they are already given special categories under the law.
Requisites for deductibility of medical expenses: 1. The expenses (cost of medicines, hospital bills, doctors’ fees, etc.) were incurred within one (1) year prior to the death of the decedent; 2. The 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; 3. Provided, that the total amount incurred thereof, whether paid or unpaid, does not exceed Five hundred thousand pesos (P 500,000)
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Societas Spectra Legis Taxation Law 2 Compilation TYPES OF DEDUCTIONS 1. Ordinary deductions 2. Special deductions – It is deducted only after deducting the Share of the Surviving Spouse. a. Standard Deduction b. Medical Expenses c. Family Home
PROPERTY REGIMES THAT GOVERN THE MARRIED COUPLE 1. Absolute Community of Property – governs marriages on or after August 3, 1988, provided there is no prenuptial agreement providing for another property regime. 2. Conjugal Partnership of Gains 3. Complete Separation of Property Absolute Community of Property As to the GR: Everything you brought into the marriage communal and anything acquired thereafter. property: EXC: 1. Anything received gratuitously, including its fruits, will be considered as exclusive property, unless it is expressly provided by the donor, testator or grantor that they shall form part of the community property; 2. Property for personal and exclusive use of either spouse, except jewelry which shall form part of the community property; 3. Property acquired before the marriage by either spouse who has legitimate descendants by a former marriage, and the fruits as well as the income, if any, of such property.
Conjugal Partnership of Gains GR: Everything acquired or gained during the marriage using the conjugal funds. EXC: Anything: 1. you owned before the marriage. 2. acquired using an exclusively fund. 3. received gratuitously will be considered as exclusive property. However, the fruits as well as the income thereof, will be considered as conjugal property. 4. Property for personal and exclusive use of either spouse, except jewelry which shall form part of the conjugal property;
Example: kato ni activity nato nga by group
FILING OF THE ESTATE TAX RETURN The estate tax return shall be filed within 6 months from the date of death, unless the period is extended for not more than 30 days from the 6th month, by the Commissioner on meritorious grounds.
PAYMENT OF THE ESTATE TAX DUE The estate tax is due and payable at the same time that the return is filed, i.e., within six months after the decedent’s death. When the Commissioner finds that the payment on the due date of the estate tax or any part of the said amount would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such taxes or any part thereof not to exceed 5 years in case of judicial settlement or 2 years in the case of extrajudicial settlement, reckoned from the 6 month [filing].
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Societas Spectra Legis Taxation Law 2 Compilation PENALTIES FOR NON-COMPLIANCE In the event of a violation of the law, in respect to the foregoing, as well as of regulations promulgated thereunder, criminal penalties and civil liabilities (surcharges, ad valorem penalties, and interest) are imposed (Secs. 93, 247, NIRC). If it’s a simple extension of time to pay, the add-on penalty would only be the 20 % interest. Surcharge would only come in for absolute non-compliance with the requirement. If you file the return late, you will be imposed of a 25% surcharge. If you filed an inaccurate return, you will be imposed of a 25% surcharge. If you filed a fraudulent return, you will be imposed of a 50% surcharge. Q: When you pay within the extension period, will you be subject to penalties? A: Yes, if it’s a simple extension of time to pay, the add-on penalty would only be the 20 % interest. Take note: Interest, under the law, is not considered a penalty. It is surcharge which is a penalty.
NOTICE OF DEATH GR: The Commissioner shall be notified of the fact of death in the following cases: 1. In all cases of transfers subject to tax, OR Notice of death shall be necessary when the death of the decedent would result to estate taxation, meaning it will be subject to tax beyond the 20K limitation. 2. Where, though exempt from tax, the gross value of the estate exceeds 20K Take note: Even if the estate is not subjected to tax for as long as the gross value of the estate exceeds 20K, a notice of death shall be necessary. Purpose. For purposes of the government to be prepared in computing for the estate tax. When to give notice of death - The notice of death shall be given to the Commissioner or his/her alter ego within two months after the decedent’s death or within a like period after the executor or administrator qualifies as such. SECTION 89. Notice of Death to be Filed. — In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner. Q: Supposing a decedent’s only property are shares of stock worth P20K, will you be required to file the notice of death? A: No, because the gross value of the estate does not exceed P20K Q: Are you required to file a return? A: Yes, because shares of stocks are registrable property. Take note: Under the law, the government agency is not allowed to cause the registration of the transfer of the property if the estate tax is not paid. You are required to file the return for purposes of securing the certificate authorizing registration.
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Societas Spectra Legis Taxation Law 2 Compilation Q: Who else are required to file a return? A: In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000). Q: What do you have to remember about P2M? A: If the estate tax returns shows a gross value exceeding Two million pesos then it shall be supported with a statement duly certified to by a Certified Public Accountant containing the following: 1. 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; 2. Itemized deductions from gross estate allowed in Section 86; and 3. The amount of tax due whether paid or still due and outstanding. (Sec 90[A] 2nd Paragraph) SECTION 90. Estate Tax Returns. — "(A) Requirements. — In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or 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 Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate... xxx
*CLARIFICATIONS: As to head of the family: whether for income tax or estate tax, head of the family refers to the same definition but its just that we do not classify taxpayers whether a person is single, married individual or a head of the family. They are the same. The DIFFERENCE IS ON THE DEPENDENTS of the head family.
WHERE DO YOU FILE & PAY YOUR ESTATE TAX RETURN: Except in cases where the Commissioner otherwise permits, the return shall be filed and the estate tax paid at: 1. An Authorized Agent Bank (AAB), or
2. Revenue District Office (RDO), or Collection
Officer, or
3. Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death, or
4. If there be no legal residence in the Philippines, with the Office of the Commissioner
If a person does not have a domicile here in the Philippines such as a non-resident, you will have to file your return in the national office but it was designated that RDO 39 South District of Quezon City should be the RDO where you should file when you are a non-resident alien. 14:23
TAX CREDITS OF TAXES PAID ABROAD: There is a limit of the tax credit, which may be granted to resident Citizens, Non-resident citizens or resident aliens for the reason that there is a chance they are paying foreign estate taxes since they are taxed for properties outside the Philippines. We do not include taxes paid by non-resident aliens paid outside because we did not account their properties outside the Philippines. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation TWO TYPES OF LIMITATIONS:
1. PER COUNTRY Limitation – a. if you have only one foreign country you use this or the global limitation, it does not matter if you have only one foreign country. b. Formula: i. Net Estate of Foreign Country A divided by Global Net Estate then multiplied by the Philippine estate tax due equals per country limit (for essay exam purpose) ii. NE of Foreign Country x Philippine estate tax due Global Net Estate
2. GLOBAL Limitation a. Formula: i. Total Foreign Country Net estate divided by the Global Net Estate then multiplied by the Philippine estate tax due equals the global limit (for exam purpose) ii. Total Foreign NE x Philippine estate tax due Global Net Estate
EXAMPLE: 1. One Foreign Country: (use either per country or global) X died with: Philippine Estate Tax Japan Estate Tax Net Estate in Japan Net Estate of Philippines
1M 50M 100M 300M
Per Country Limit = NE of Foreign Country x Philippine estate tax due Global Net Estate Per Country Limit = 100M x 1M (100M+300M=400M) Per Country Limit = 250K
You then compare the per limit to the foreign estate tax and choose whichever is lower. In this case, the tax credit is only 250K which is lower than the 50M japan estate tax.
2. Two FC: X died with: Philippine Estate Tax
1M
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Societas Spectra Legis Taxation Law 2 Compilation
Japan Estate Tax Brazil Estate Tax Net Estate in Japan Net Estate of Philippines Net Estate of Brazil
50M 200K 100M 300M 200M
Since you have two countries here or even when there is more than two you apply both limitation to get whichever is lower from both formula. 1st step: Apply the Per Country For Japan: Per Country Limit Japan = NE of Japan x Philippine estate tax due Global Net Estate Per Country Limit Japan = 100M x 1M (100M+300M+ 200M=600M) Per Country Limit Japan = 166,667
For Brazil: Per Country Limit Brazil =
NE of Brazil Global Net Estate
x Philippine estate tax
Per Country Limit Brazil = 200M x 1M (100M+300M+ 200M=600M) Per Country Limit Brazil = 333,333 2nd step: Apply the Global Limit Global Limit = Foreign Country Estate x Philippine estate tax due Global Net Estate Global Limit = (100M+200M= 300M) x 1M 600M GLOBAL LIMIT = 500,000
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Societas Spectra Legis Taxation Law 2 Compilation 3rd Step: Apply the Limit
Japan Brazil TOTAL Per Country
Estate Tax Paid 50,000,000 200,000
Per country Limit 166,667 333,333
Whichever is Lower 166,667 200,000 366,667
TOTAL PER COUNTRY VS GLOBAL LIMIT = 366,667 vs 500,000 Since Per Country is lower, we the tax credit to be applied is 366,667.00
SOCIETAS SPECTRA LEGIS AND FRIENDS
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Societas Spectra Legis Taxation Law 2 Compilation
DONORS TAX Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Take note there must be two acts that must concur for there to be a valid donation. First the acts of transfer and second the acceptance. For purpose of taxation this act is subject to tax, to be exact we are taxing the ACT OF LIBERALITY. Its is the privilege of transferring which is being taxed. You do not tax the person or the property but the privilege.
TWO-FOLD PURPOSE OF DONORS TAX 1. To Supplement estate tax 2. Avoid Payment of Income tax - it is to prevent the transfer of properties without paying income tax. For Example when a person earns income(employee-ee), instead of the boss compensating the employee, the ee will ask the boss to just donate it to the ee’s family. In this case, there is no income earned on the part of the ee because it is the family members who receive the income. So the ee was able to get away with the income tax, in order to prevent that situation, the government imposes donor’s tax so that if ever there is no tax imposed on your income at least there is a tax imposed on the donation made.
LAW TO BE IMPOSED ON ESTATE TAX it should be the law prevailing at the time of the donation. Therefore if the donation was made before 1997, the 1997 NIRC is not applicable it will be the 1979 tax code.
FORMULA OF DONOR’s TAX GROSS GIFTS Less: Deductions NET GIFTS Multiply: Tax Rate DONORS TAX PAYABLE
XXX (XX) XXX % XXX
GROSS GIFTS Composition: Donations made during your lifetime in one calendar year. Take note that it should be during the calendar year and not fiscal year because the tax code provide so even if the corporation is using a fiscal year. “SEC. 99. Rates of Tax Payable by Donor. (A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the following schedule..”
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Societas Spectra Legis Taxation Law 2 Compilation WHEN DO YOU APPLY DONOR’S TAX
Apply it during the point of completion. There is a completion when the object of the donation which is delivered either constructive or actual to the donee. As opposed to perfection, which is when there is knowledge on the part of the donor of the acceptance of the donee. TAKE NOTE: it is the knowledge of acceptance of the donee by the donor, which perfects the donation. Donor’s tax is applied when there is a completed donation. If it so that the date of perfection does not coincide with the date of completion the date COMPLETION should PREVAIL.
INCOMPLETE DONATIONS, WHICH BECOME COMPLETE DONATIONS DUE TO AN EVENT
These are DONATIONS subject to a CONDITION. Example when there is a donation with reservation of powers there is completion when there is renunciation or the donor cease to have that power or when the condition has been met. Take note that there is also reservation of powers in estate tax. So you make a distinction when the power is withdrawn or the condition is met. If it is done during the life time of the donor then it is subject to donor’s tax and not estate tax. Example: A donates his car to B on the condition that B passes the bar. If A during his lifetime withdraws the condition and gives the car to B, right then and there A is liable to donor’s tax. On the other hand, of B does pass the bar then A is liable to donor’s tax.
TYPES OF DONORS for taxation: A. INDIVIDUAL PERSONS: 1. Residents or Citizens – Resident citizen (RC), Non-resident citizen (NRC) and Resident Alien (RA) Properties donated within & without 2. Non-resident and non-citizen – Non-resident alien (NRA), whether engaged in trade or business is immaterial Tangible Properties donated within, Intangible Properties within subject to rule on reciprocity B. JURIDICAL PERSONS: (Corporation
or Partnership) Note: Unlike in estate taxation wherein juridical persons cannot be the transferor of property 1. Domestic Corporation or Resident Foreign Corporation Properties donated within & without 2. Non-Resident Foreign Corporation Tangible Properties donated within, Intangible Properties within subject to rule on reciprocity
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Societas Spectra Legis Taxation Law 2 Compilation
ELEMENTS FOR THERE TO BE A TAXABLE DONATION: (AFRAID-C) 1. 2. 3. 4. 5. 6. 7.
A – Actual or Constructive Delivery F – Form to Effect Donation R – Reduce the Assets or Patrimony of the Donor A – Acceptance of the Donee During the lifetime of the Donor I – Increase in the Assets or Patrimony of the Donee D – Donative Intent C- Capacity of the Donor
DONATIVE INTENT
Intent of the donor to DONATE without consideration since it’s a gratuitous transfer (act of liberality). As a RULE there must be an intent to donate these are the DIRECT DONATIONS such as those expressly made and follow the requirements of the law. As an EXCEPTION, there are instances though that donations are made but are done INDIRECTLY. These are those donations by OPERATION OF LAW. Such as: 1. Transfer of Insufficient/Inadequate consideration this is the same as that in estate tax. To determine which should be taxed either donor’s tax or estate tax, we base it on the POINT OF DISCOVERY by the BIR whether during the lifetime of the transferring/giver/donor (donor’s tax) or after (estate tax). As a rule all properties transferred for inadequate consideration is subject to donor’s tax. As an exception, The ONLY transfer for inadequate consideration that may NOT be taxed with donor’s tax are transfers involving REAL PROPERTIES subjected to CAPITAL GAINS TAX. o SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. o SEC. 24. (D) Capital Gains from Sale of Real Property. -
(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets… Reason: real property that are capital assets that are sold are taxed with a capital gains tax of 6% based on gross selling price or current fair market value, whichever is higher. So even if the sale was transferred for inadequate consideration the government does not lose any taxes because it taxed the transfer based on whichever is higher of the selling price or the market value. On the other hand, in the case of shares of stocks subject to capital gains tax, which are transferred for inadequate consideration, are still subject to donor’s tax. o Sec. 24 (C) Capital Gains from Sale of Shares of Stock not Traded in the Stock
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Societas Spectra Legis Taxation Law 2 Compilation Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. Not over P100,000......................................... 5% On any amount in excess of P100,000............ 10%
the LEGAL REASON is that law is clear that the only property exempted under sec. 100 of the NIRC are properties subject to CGT under par. D of sec. 24 which are real properties subject to CGT. The logic for this is because capital gains on shares of stocks are based on capital gains realized which is the difference of the selling price and the cost of the shares. Here if there is an inadequate consideration the government stands to lose taxes from the transaction therefore to supplement the loss it is subject to donor’s tax.
2. Condonation of a Debt this is the gratuitous cancellation of a debt which is free from any material consideration. Its should not be predicated on a past or future service. REVIEW: when there is a condonation of debt it could be subject to 3 types of taxes: o INCOME TAX – if it pertains to past service rendered o DONORS TAX – no material consideration either past or future service. o DIVIDEND TAX – if it pertains to a condonation of a debt of a stockholder(debtor); it could also be seen as an additional investment if the stockholder condones the corporation where the creditor is the stockholder.
CAPACITY OF THE DONOR
As a rule, we look only at the capacity of the Donor however there are exceptions where the capacity of the donee is material such as those that are not able to receive as provided for by the civil code. Donors are capacitated if they are capacitated to enter into contracts. o Incapacitated donors: a. Insane persons
b. Minors
C. Spouses (to each other)
o o
Art. 87. Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife without a valid marriage. Moderate gifts depend on the financial capacity of the donor If donation was void because it is not a moderate gift, then such transfer will be considered as income tax (all income from whatever source is subject to income tax) on part of the donee.
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Again as a rule, The donee need not be capacitated to receive the gift. It can be received by his guardian or legal representative. o Exception – Incapacitated donees: a. Those under civil interdiction b. Spouses and man and woman living together without the benefit of marriage c. Lawyers who notarized the will is incapacitated to receive donation or inherit d. Gifts to public officers or their spouses or relatives by reason of public office e. Those incapacitated to receive in succession due to undue influence (i.e. priests, doctors, one who accuses the donor on an attempt on his life etc...)
o
Gift received by a disinherited heir is subject to donor’s tax.
ACTUAL OR CONSTRUCTIVE DELIVERY
Actual Delivery – delivery by physically placing the thing sold in the hands or in the physically placing it in the donee’s possession Constructive Delivery – by operation law or legal delivery o Traditio symbolica – symbolic delivery of a thing part of the thing to be delivered such as a key to the property o Traditio longa manu – delivery of a movable by long hand, usually by pointing at the thing o Traditio brevi manu – delivery by short hand, takes place when the donee is already in the possession of the thing to be donated before the donation and continues to be the owner thereof o By legal formalities – sale made through a public instrument, the execution is equivalent to the delivery of the thing donated.
ACCEPTANCE OF THE DONEE DURING THE LIFETIME OF THE DONOR
Must be made known to donor during his lifetime As a rule, Acceptance must generally be made personally As an exception, can be made through another as long as authorized to accept such SPECIFIC donation (authorized person with a special power for that purpose or with a general and sufficient power) Such as when the donee is not capacitated to receive the gift. It can be received by his guardian or legal representative.
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VALUE ADDED TAX DEFINITION OF VAT: Value Added Tax is: a consumption tax on every stage of the distribution process on the sale, barter, exchange, lease of goods or properties, rendition of services and the importation of goods in the ordinary course of trade and business. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. The burden can be shifted from the seller to the buyer. The incidence of the taxation can be transferred from the seller to the buyer. BUT TAKE NOTE, the statutory taxpayer is always the SELLER. What is merely shifted is the incidence of taxation. So what is transferred to the buyer is no longer technically a value added tax but an additional cost on the part of the buyer. A privilege tax. Not attach to a particular good or a person. It is attach to the privilege of transferring certain ownership over goods or properties or rendition of services including importation itself. Therefore it is considered as an EXCISE TAX under classification based on nature. An ad valorem tax, meaning it is based on a fixed value. It is imposed either on the GROSS SELLING PRICE (GSP) or GROSS RECEIPTS (GR).
RULE OF REGULARITY NIRC SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the valueadded tax (VAT)
In the same section in the third paragraph it states that:
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
Take note of the word regular, this is referred to as the RULE OF REGULARITY. This rule is generally applied to all taxpayers. EXCEPT, non-resident foreign entity. GR: we subject a particular transaction to rule of regularity. o EXC: Non-resident foreign person or entity. Therefore, when a NR foreign individual or entity engages in an activity here in the Philippines it is automatically subject to VAT provided all other requisites are complied with or it is not a vat exempt transaction.
WHY IS IT CALLED VALUE ADDED TAX:
It is the tax in the value added. For example: o A to B: A sells a piece of wood. Sold it to B for 100. As a rule 12% will be VAT on the GSP. So total amount that will be paid by B is 112. o Now be wants to use the wood to make a chair and then sell it. So B sold it for 200 to C. so plus the vat of 12% the total price paid by C is 224. Notice that the difference of the value from a piece of wood @ 100 to a chair @ 200 there is an increase of value of 100 (200-100=100). TAKE NOTE: B here at first is liable for the vat of 24(12% of 200) upon sale to C which he then shifted.
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o
o o
o o
o
But B here already paid 12(12% of 100) which was passed by A to B. in effect the tax actually shouldered by B is 12. (24-12=12). Later on you will see that B here made an Output Vat from his sale of 24 less the Input VAT from his purchase of 12 giving him a Vat due of 12. GUIDE: “PISO” P-urchase I-nput; S-ales O-utput So as you see, B added a value of 100 to the wood therefore ultimately his shoulders the tax of 12 from the 100 value he added to his piece of wood. B to C: So let say C bought from B the chair and added designs to the chair and sold it for 300. The vat of this is 36(12% of 300). Total is 336. The difference of the value from B to C is 100 (300-200=100). The vat actually shouldered by C is 12 (36-24=12) which is still equivalent to the vat on the value added which is 100 pesos. So the tax shouldered by the people in the process is only the tax on the value added in each stage of the process. That is why its called value added tax. Take note, it its only called value added tax before it reaches the end user. This is because if you are the end user and you cannot make use of the property anymore or rather you did not add value to the property anymore you ultimately shoulder the full amount of the VAT. C to D: Lets say from C it was sold to D, the end user. D will shoulder the entire 36 from the GSP of 300.
STEPS in VAT problems/cases: 1. look at the taxpayer involved. Whether he is a VAT registered or NON-VAT registered. a. If he is a VAT registered then initially you may say this is subject to vat BUT it does not stop there. 2. Look at the TRANSACTION where the taxpayer is involved in.
WHO ARE VAT TAXABLE: 1. those whose annual gross sales EXCEED 1,919,500.00 (memory tip: 19-19-500); these taxpayers MUST register itself as a VAT REGISTERED TAXPAYER. 2. Those who do not exceed but who OPT to register as a VAT REGISTERED TAXPAYER. o What if you were non-vat registered and your sales for the year exceeded 1,919,500. Are you subject to vat? YES. More reason for you to pay in addition to other percentage tax you are liable for. So before you start a business you must project your sales in order to estimate if you will be subject to vat or not.
VAT IN TERMS OF TRANSCATIONS: it is imposed on the: 1. Sale goods or properties, 2. Rendition of services 3. Importation of Goods
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Societas Spectra Legis Taxation Law 2 Compilation SALE OF GOODS OR PROPERTIES TAX RATE & TAX BASE GR: 12% on Gross Selling Price; EXC: 0% rated transactions
GROSS SELLING PRICE Gross selling price means the total amount of money or its equivalent, which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax.
The phrase “obligated to pay” is relevant because this means that even if you did not pay it because it was already incurred you have to automatically subject it to VAT. So when you are talking about SALE OF GOODS AND PROPERTIES, it does not depend on the payment it depends on the incurrence. When you are already allowed to record the transaction you are already liable to pay VAT regardless when the payment is made. o TAKE NOTE: that this is the DIFFERENCE BETWEEN GROSS SELLING PRICE & GROSS RECEIPTS because: GROSS SELLING PRICE taxable upon incurrence of the obligation GROSS RECEIPT taxable only when there is actual or constructive payment of goods.
GOODS OR PROPERTIES The term "goods" or "properties" shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include: (a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
(b) 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; (c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and (e) Radio, television, satellite transmission and cable television time.
as stated in the cases, the enumeration of goods and services stated in the NIRC are not exclusive. Moreover, from the use of the phrase “shall include” the enumeration is not exclusive therefore there may be other properties taxable. As to what are properties, this was discussed in property law. These maybe real or personal. As to what are goods this was covered in your sales law. These maybe fungible or non-fungible and others. This also includes the right and privilege to use intellectual properties.
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Societas Spectra Legis Taxation Law 2 Compilation ZERO RATED TRANSACTIONS OF SALE OF GOODS: 1. EXPORT SALES 2. FOREIGN CURRENCY DENOMINATED SALES (FCDS) 3. EXEMPT UNDER SPECIAL LAWS or EFFECTIVELY ZERO RATED TRANSCATIONS
I. EXPORT SALES: (sec. 106) 1) Direct Export (1st paragraph) a) Sale and there must be an actual shipments of goods FROM the PHIL to FOREIGN COUNTRY b) must involve payment of ACCEPTABEL FOREIGN CURRENCY c) accounted for under the rules and regulations of the Bangko Sentral (BSP)
Example 1: A(Phil) exports chairs to B(US) B pays 1000USD through BPI to A o This is a direct export sale. o 1st there is a shipment of goods from Phil to foreign country. Take note it will not matter if FOB shipping point or destination as long it is exported. o 2nd paid under an acceptable foreign country. Acceptable currencies are generally those currency of countries not at war with the Philippines. To be exact there is a complete list in the BSP website. o 3rd paid for accordance with the rules of the BSP. If you pay with a banking facility then it is covered by the rules of the BSP. o Therefore, this is a zero rated sale under category no.1 as a direct export sale. Example 2: A(Phil) exports chairs to B(US) B pays 1000USD directly to A o This is a direct export sale. o 1st there is a shipment of goods from Phil to foreign country. Take note it will not matter if FOB shipping point or destination as long it is exported. o 2nd paid under an acceptable foreign country. Acceptable currencies are generally those currency of countries not at war with the Philippines. To be exact there is a complete list in the BSP website. o 3rd BUT NOT accounted for accordance with the rules of the BSP. Because no bank was involve therefore BSP was not involve in the sale. o Therefore, not an export sale. 2) Indirect Export (2nd paragraph) a) Sale of RAW materials or PACKAGING materials b) Sold to a NON RESIDENT BUYER c) DELIVERED to a RESIDENT LOCAL EXPORT ORIENTED enterprise d) For the purpose of MANUFACTURING, PROCESSING or PACKING of the said goods in the Philippines e) Paid for in acceptable foreign currency f) Accounted for under the rules of the BSP Example 1: C(supplier) is selling rattan. B(US buyer) wanted to buy a chair from A(exporter).
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B was so picky with the quality of the materials. So he bought from C the raw materials in the amount of 1000USD through BPI. B also believes in the skills of A in manufacturing the furniture. So B here instructs C to deliver the rattan to A for the latter to manufacture it and then ship it to B for 2000USD through BPI. This problem shows to kinds of transactions: o First: INDIRECT EXPORT: Sale of C to B 1st there is a sale of RAW materials, which is rattan. 2nd there is a sale to a NON RESIDENT BUYER 3rd C is to DELIVER to A a RESIDENT LOCAL EXPORT ORIENTED enterprise the rattan 4th it is for the purpose of MANUFACTURING of the said goods in the Philippines 5th it was paid for in acceptable foreign currency which is 1000USD 6th it was accounted for under the rules of the BSP by paying through BPI. Therefore the sale of C to B was a zero rated transaction being a indirect export sale. o Second: DIRECT EXPORT SALE: Sale from A to B 1st there is a shipment of goods from Phil to foreign country. 2nd paid under an acceptable foreign country. 3rd paid for accordance with the rules of the BSP.. Therefore, this is a zero rated sale under category no.1 as a direct export sale.
3) Constructive Export (Paragraph 3) a) Sale of raw materials or packaging materials b) Sold To a local export oriented enterprise c) Sales of the export oriented enterprise MUST EXCEED 70% of its total annual production i) Export-oriented enterprise – primarily devoted to the production of goods and services for export that demonstrably contributes foreign exchange to the economy
Example 1: A is local export oriented enterprise. 100% of its sale is export. One of its customers is B who is in the US. A is sourcing its raw materials which is rattan from C. so A buys rattan from C here in the Philippines and paid for in 1000 pesos per strip of rattan through BPI. The sale of C to A of the rattan is considered as an export sale. o 1st it is a sale of raw materials o 2nd it is sold to a local export oriented enterprise o 3rd sales of the export oriented enterprise EXCEED 70% of its total annual production o here it does not matter if it was paid in peso or not paid in accordance with the rules of BSP. Only 3 elements. This is considered as a export sale under paragraph 3. 4) Sale of Gold to BSP a) Sale of GOLD b) To BSP
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Societas Spectra Legis Taxation Law 2 Compilation 5) Those considered export sales under ART. 23 Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws According to the article there are three type of exports. 1. Actual Export. Actual is just the same as par. 1.
2. Constructive Export Article 23. xxx….Provided, further, That without actual exportation the following shall be considered constructively exported for purposes of this provision:
(1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: These are sales to foreign instrumentalities. These are exemptions to the DESTINATION PRINCIPLE & CROSS BORDER DOCTRINE. As a RULE: Here in the Philippines we follow the DESTINATION PRINCIPLE. This states that when the goods are sold here in the Philippines for consumption then it is liable to value added tax. There is also this CROSS BORDER DOCTRINE, which states that when it crosses the borders of the Philippines it will be taxed abroad not here. These two doctrines are complimentary but not exactly the same. If you are talking about the destination principle you look at the viewpoint of the Philippines. If cross border you look at outside. If it is destined outside then Philippines has no jurisdiction. THEREFORE as an EXCPETION by OPERATION LAW these sale to foreign instrumentalities are subject to VAT BUT ZERO RATED. (5) and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee. From the Philippines it is shipped to an entity abroad that is just a consignee. Here it is still not considered an export sale. It will only be considered as an export sale once consignee actually sales the goods. So upon consignment what is subject to vat is the consignment fees BUT the sale of the goods will not be subject to vat because it is export. Another school of thought is that you can argue that consignment fees should not be subject to vat because it is transacted abroad. But again BIR will argue that you perfected the contract within the country. This is highly debatable. Just take a position. THE POINT HERE is that upon shipment of the consignment it is not yet the export sale contemplated by the law it only when the consignee sells it.
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Societas Spectra Legis Taxation Law 2 Compilation (6) A. Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales. 3. Sales made by a VAT-registered supplier to a BOI-registered manufacture/producers (6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. a) sale of goods, supplies, equipment and fuel b) to persons engaged in international shipping or international air transport operations c) Domestic entities later on you will realize that in connection with services rendered to international air transport operations are also zero rates. What if the business involves an international length and a local length. Will it affect the local length operations? It will depend on the stoppage at the airport of these entities engaged in international shipping or transport is for purposes of BOARDING or UNLOADING passengers but ultimately will go to an international airport then it maybe considered as part of the entire international length. But if the reason of the stoppage is for inter country transfer only subject to vat. Therefore when we say: o “BOARDING” of passengers the trip here is TO THE foreign country. Ex. Trip is CEB to US but stopover MNL to board passengers to US. o “UNLOADING” of passengers the trip here is GOING BACK TO the phil from foreign country. Ex. US to CEB but stopover MNL first to unload passengers then unload in CEB. o So stoppage here is only to unload or load passengers ULTIMATELY going abroad. TAKE NOTE THE AIRLINES HERE is a DOMESTIC ENITITY engage in international air transport or shipping. Foreign entities will be covered either by other % tax or under exempt transaction. II. FOREIGN CURRENCY DENOMINATED SALES (FCDS) 1. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, a. SEC. 149. Automobiles. Automobile shall mean any four (4) or more wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power: i. Provided, That for purposes of this Act, buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles shall not be considered as automobiles b. SEC. 150. Non-Essential Goods i. All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones and imitations thereof; goods made of, or ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or mountings for spectacles or eyeglasses, and dental gold or gold alloys and other precious metals used in filling, mounting or fitting the teeth); opera glasses and lorgnettes. The term "precious metals" University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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shall include platinum, gold, silver and other metals of similar or greater value. The term ‘imitations thereof shall include platings and alloys of such metals; ii. Perfumes and toilet waters iii. Yachts and other vessels intended for pleasure or sports. 2. assembled or manufactured in the Philippines for delivery to a resident in the Philippines, 3. paid for in acceptable foreign currency and 4. accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). This is different from a constructive export sale because it is not need to be a raw material or a packaging material and not delivered to local export oriented enterprise. Example 1. C sells lenses(not a raw material) to B who is in the US. B instructs that the lens be delivered to A for the latter to manufacture it further. (take note that under this there is no need for there to be a purpose of the delivery it may be for manufacturing or just a gift). B paid C 1000USD through BPI. Will these be export sales? o NO. because to fall under export sales. 1st there is no actual shipment so it will not fall as a DIRECT EXPORT 2nd it will not fall as an INDIRECT or a CONSTRUCTIVE export because the lens are not raw materials and is not sold to local export oriented enterprise. o it is considered an Foreign currency denominated sale (FCDS). Because: 1st sale to a nonresident of good 2nd assembled or manufactured in the Philippines for delivery to a resident in the Philippines, 3rd paid for in acceptable foreign currency 4th accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
Example 2. C sells cellphone (manufactured here in the Philippines) to B who is in the US. B instructs that the phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these be export sales? o NO. because to fall under export sales. 1st there is no actual shipment so it will not fall as a DIRECT EXPORT 2nd it will not fall as an INDIRECT or a CONSTRUCTIVE export because the lens are not raw materials and is not sold or delivered to local export oriented enterprise. o it is considered an Foreign currency denominated sale (FCDS). Because: 1st sale to a nonresident of good 2nd assembled or manufactured in the Philippines for delivery to a resident in the Philippines Take note locally assembled. So iphone cannot qualify maybe cherry mobile or my phone manufactured here in the Philippine will qualify. 3rd paid for in acceptable foreign currency 4th accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
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Example 3. C sells CAR (manufactured here in the Philippines) to B who is in the US. B instructs that the phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these covered by the FCDS? o NO. “means sale to a nonresident of goods, except those mentioned in Sections 149 and 150” SEC. 149. Automobiles. Automobile shall mean any four (4) or more wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power: i. Provided, That for purposes of this Act, buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles shall not be considered as automobiles
Example 4. C sells JEEPNEY to B who is in the US. B instructs that the phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these covered by the FCDS? o YES. “means sale to a nonresident of goods, except those mentioned in Sections 149 and 150” SEC. 149. Automobiles. Automobile shall mean any four (4) or more wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power: Provided, That for purposes of this Act, buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles shall not be considered as automobiles
Example 5. C sells Tricycle to B who is in the US. B instructs that the phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these covered by the FCDS? o YES. “means sale to a nonresident of goods, except those mentioned in Sections 149 and 150” SEC. 149. Automobiles. Automobile shall mean any four (4) or more wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power: Provided, That for purposes of this Act, buses, trucks, cargo vans, jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles shall not be considered as automobiles
Example 6. C sells Fashion Jewelries to B who is in the US. B instructs that the phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these covered by the FCDS? 5. NO. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, SEC. 150. Non-Essential Goods i. All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones and imitations thereof; goods made of, or ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or mountings for spectacles
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Societas Spectra Legis Taxation Law 2 Compilation or eyeglasses, and dental gold or gold alloys and other precious metals used in filling, mounting or fitting the teeth); opera glasses and lorgnettes. The term "precious metals" shall include platinum, gold, silver and other metals of similar or greater value. The term ‘imitations thereof shall include platings and alloys of such metals; ii. Perfumes and toilet waters iii. Yachts and other vessels intended for pleasure or sports. III. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.
First there has to be a treaty. When it says not subject to VAT then it is not. Second, are entities who are exempted under special laws such as ASIAN DEVELOPMENT BANK (ADB) or International Rice Institute (IRI) or those enterprise located in export zones. o As a rule if a person sells to ADB normally the seller will be subject to VAT but under the law the exemption of ADB is extended to the seller or any of its supplier.
TAKE NOTE: All this Zero rated sales are transacted by VAT REGISTERED PERSONS. Because if they were non- vat registered then it would have been another transaction which maybe covered by exempt transactions. Non-VAT registered individuals are NOT COVERED by the Zero Rated Transactions.
TRANSACTIONS DEEMED SALE Reason: because the government wants to recover the taxes that is due to it. Because upon purchase of the materials you will be allowed to deduct your Input Vat as an expense but later on you did not sell your products you are in effect depriving the government of its Output Vat. (B) Transactions Deemed Sale. - The following transactions shall be deemed sale: (1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business;
This is will only cover goods intended for sale. Ex. In a Sari2x Store, the sardines you give to carolers is deemed sale subject to VAT. So if you were selling the sardines for 10.00 then the Vat will be based on the 10.00.
(2) Distribution or transfer to: (a) Shareholders or investors as share in the profits of the VAT-registered persons; or o
The goods must be intended for sale. Ex. Real Estate Business. The shareholders are given property dividends which are condominium units intended for sale therefore the dividends will be subject to VAT. Basis of the VAT is the FMV of the property.
(b) Creditors in payment of debt; o
Ex. Engage in the Selling of Ferrari Cars. The creditor has an outstanding receivable from your company and you cannot pay cash so instead you give the creditor a Ferrari car. The distribution of the car will be subject to VAT.
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If the debt is 1M and the car is worth 3M this will always be subject to VAT and it will always be based on the FMV of the property. If the debt is 10M and the car is worth 3M again still subject to VAT based on the FMV of the property which is 3M. the twist here is that the 7M (10M – 3M) of the debt that was condoned is subject to DONORS TAX who will be paid by the DONOR the creditor who condoned the debt. In both case, the seller will be the one who will pay the VAT.
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and
Here still the goods must be intended for sale because the fact that you are consigning it is there is an intention to sell. If it is over 60 days and its still not sold it is as if it was sold. So as a consignor before the 60 or at the 60 days days arrive pull out the goods from your consignor. Consignor will pay the VAT here if it is considered as a transaction deemed sale. Based still on the FMV of the goods sold.
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
Here you closed shop. Ex. Sari2x Store you closed business but there were still sardines left. All these will be deemed sold and subject to VAT. No Mercy BIR. HOWEVER, if you are engage in the so called TAX FREE EXCHANGE: o Sec. 40(c) (2) (2) Exception. - No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation -
o
(a) A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or consolidation; or
o (b) A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock of another corporation also a party to the merger or consolidation; or o (c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely for stock or securities in such corporation, a party to the merger or consolidation.
No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property. This TAX FREE EXCHANGE will not be covered by VAT. Q: What about the Sari2x Store structure, will it be deemed as sold too? o This is contestable. But the current position of the BIR is YES it will be considered part of the inventoriable goods because it is incidental to your business and VAT extends to incidental activities. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any
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Societas Spectra Legis Taxation Law 2 Compilation person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
Changes in or Cessation of Status of a VAT-registered Person. -
The tax imposed shall also apply to goods disposed of or existing as of a certain date if under circumstances to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is terminated. o You were so confident you would reach 1,919,500.00 and yet you can never reach it no matter how hard you try. You change to a non-vat taxpayer. Those goods bought during the status of VAT registered will be considered as deemed sold and are VAT taxable.
SALE OF REAL PROPERTIES SUBJECT TO VAT This includes sale, transfer or disposal within a 12-month period of two or more adjacent residential lots, house and lots or other residential dwellings in favor of one buyer from the same seller, for the purpose of utilizing the lots, house and lots or other residential dwellings as one residential area wherein the aggregate value of the adjacent properties exceeds P1,919,500.00, for residential lots and P3,199,200.00 for residential house and lots or other residential dwellings. RR No. 13-2012) To go around this, you might want to sell it on a different period so it will not be covered by VAT.
SALE OF REAL PROPERTIES WHICH ARE EXEMPTED FROM VAT (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at P1,919,000.00 and below, house and lot and other residential dwellings valued at P3,199,200 and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO); Generally, only those real properties ordinarily sold in the course of business will be subjected to VAT. However, even if the real properties are not intended for sale but they are used in the business of the taxpayer, they may be subject to VAT because when a real property is considered an ordinary asset, it is subject to VAT when sold. 5. BIR’s justification: Incidental transactions are those which are necessary appertaining to or depending upon another business (principal business) of the seller or transferor. 6. Exception: Real properties subject to CGT. Even if the sale involves an ordinary asset but the aggregate sale within a year does not exceed P1,919,000 it may not be subject to VAT. If such property is ordinary held for sale, it is now subject to percentage tax. However, if such property is merely used in the business, it is not subject to percentage tax.
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Societas Spectra Legis Taxation Law 2 Compilation EXEMPT TRANSACTIONS INVOLVING SALE OF REAL PROPERTIES 1) Sale of residential lot not exceeding P1,919,000. This is not based on an aggregate sale but on a per transaction basis. If a residential lot, within the year, is sold for at least P1,919,000, it will not be subject to VAT. 2) Sale of residential house and lot not exceeding P3,199,200. 3) If two or more adjacent residential lots, house and lots or other residential dwellings are sold or disposed in favor of one buyer from the same seller, for the purpose of utilizing the lots, house and lots or other residential dwellings as one residential area, the sale shall be exempt from VAT only if the aggregate value of the said properties do not exceed P1,919,500.00 for residential lots, and P3,199,200.00 for residential house and lots or other residential dwellings. Adjacent residential lots, house and lots or other residential dwellings although covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer, whether covered by one or separate Deed/s of Conveyance, shall be presumed as a sale of one residential lot, house and lot or residential dwelling. (RR No. 13-2012) 4) Sale of other residential dwellings such as condominium units not exceeding P3,199,200.
VALUE-ADDED TAX ON IMPORTATION OF GOODS (SEC 107) Tax rate: 12% Tax base: GR: Total transaction value, i.e. the value shouldered by the importer including the shipping, excise taxes, customs duties and all other cost related to the bringing in of goods up to the customs territory. That where the customs duties are determined on the basis of the quantity or volume of the goods, the valueadded tax shall be based on the landed cost plus excise taxes, if any.
Take note: 1) In importation, it does not take into consideration if it’s for business or personal use. 2) That as a general rule, if such goods is exempted from customs duties, it is also exempted from value added tax. Example of goods exempted from customs duties: personal apparel that you are wearing when you come here from abroad. Technical importation - where the importation or purchase was made by an exempt person (like ADB, IRRI, or consul) and subsequently sold to a non-exempt person. The transfer to the non-exempt person shall be assessed of VAT. The transferee will be liable for VAT. It’s usually practiced in the Economic Zone.
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Societas Spectra Legis Taxation Law 2 Compilation VALUE-ADDED TAX ON SALE OF SERVICES (SEC 108) Tax rate: 12% Tax base: gross receipt. The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding valueadded tax. It does not matter when the services is rendered as long as payment is actually or constructively received. Services are anything which requires for the exercise or use of the physical or mental faculties. Every activity that can be imagined as a form of "service" rendered for a fee should be deemed included unless some provision of law especially excludes it. Congress has given the term "services" an all-encompassing meaning. The listing of specific services are intended to illustrate how pervasive and broad is the VAT's reach rather than establish concrete limits to its application. "Services" to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds that require the use of human knowledge and skills. (Diaz vs Secretary Of Finance) Among those included in the enumeration is the "lease of motion picture films, films, tapes and discs." This, however, is not the same as the showing or exhibition of motion pictures or films. The legislature never intended operators or proprietors of cinema/theater houses to be covered by VAT. Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or proprietors has always been considered as a form of entertainment subject to amusement tax. Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local government unit and not by the national government is immaterial. (CIR vs SM Prime Holdings) That a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. (CIR vs Comaserco) Thus, there MUST be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony. (CIR vs Sony Philippines) Distinction between the Comaserco and Sony case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred although without University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation profit. This is not true in the Sony case. Sony did not render any service to SIS at all. The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latter's advertising expense but never received any goods, properties or service from Sony. Tollway operators render services for a fee When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the following service providers under Section 108 who allow others to use their properties or facilities for a fee. Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of whether or not the performance calls for the exercise or use of the physical or mental faculties." And not only do tollway operators come under the broad term "all kinds of services," they also come under the specific class described in Section 108 as "all other franchise grantees" who are subject to VAT, "except those under Section 119 of this Code." Distinction between toll fees and taxes A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership. CIR vs BWSC-Mitsui case – [services rendered by the foreign entity to the consortium here in the PH] BWSC formed a consortium with Mitsui for services rendered of NAPOCOR in the operation of its barges. The consortium appointed BWSC Denmark as its coordinator-manager. There is services rendered by the coordinator-manager, so he is being paid. There was imposition VAT on BWSC for services rendered here in the Philippines. They raise the issue that they should not be imposed with VAT because their transaction is covered under Sec 108 B(2) "(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); SC said that the services were rendered to an entity doing business here in the Philippines. As distinguished from the case of American Express: branch here collects credit card bills for the HK branch. Therefore services was rendered by the Phil branch for the HK branch as distinguished from the BWSC case. This time it is covered by Sec 108 B(2). The important thing to remember in these two cases is that there is clearly a difference with respect TO WHOM the services was rendered. Take note that zero rated transactions are an exception to the destination principle such that even if the services are rendered HERE in the Philippines, but because it is rendered FOR a person engaged in business OUTSIDE the Philippines. The only thing to consider here is FOR WHOM the services are rendered. The issue on WHERE the services are rendered is IMMATERIAL.
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Societas Spectra Legis Taxation Law 2 Compilation ZERO-RATED TRANSACTIONS Sec 108 "(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (1) Processing, manufacturing or repacking [services] goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); Connect this with Section 106 Export Sales (2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): In Section 106(2) there is a sale of goods while in Sec 108 B(1) there is no sale of goods but rather, it’s the service that is being exempted from VAT. Example of Section 108 B(1): B, engaged in a business outside the Philippines, bought chairs from C, but B wants it packed. So he told C to deliver the goods to A for packaging purposes. We all know the sale from C to B may be treated as ‘export sales’ if ultimately the chairs are exported by C to B. Now for it to be covered by Sec 108, it must be B, who must contract with A for the packaging services. The transaction for the packaging services of the chairs must be between B and A, paid for in acceptable foreign currency and accounted for under the rules of the BSP. Take note of the elements: o To whom is the service being rendered? To B who is a non-resident o What service is being rendered? Packaging of the chairs. (It could also be processing or manufacturing) o Is it paid for in acceptable foreign currency? Yes o Is it accounted for under the rules of the BSP? Yes. Now if it’s not being packaged and now C ships it to B, what will happen to the transaction between C and B? It is still a zero-rated transaction covered under paragraph 1. (2) Services OTHER THAN THOSE mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); CIR vs American Express - AE Philippines does the collection for and in behalf of AEHK. AEHK pays for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP. In this instance, the service is covered under Sec 108 B(2). Call centers, assuming its not in an Economic Processing Zone may be considered as services OTHER THAN THOSE mentioned in paragraph 1. First, it’s a services other than processing, manufacturing or repacking goods. Second, it is being rendered for an entity engaged in business conducted outside the Philippines. Third, it is paid for in acceptable foreign currency and; Fourth, it is accounted for in accordance with the rules and regulations of BSP. Again, it does not matter WHERE the service is being rendered. What matters is FOR WHOM is the services
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Societas Spectra Legis Taxation Law 2 Compilation being rendered because we are talking of ZERO-RATED transaction, which is an EXCEPTION to the DESTINATION principle. (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; Example: Services rendered to ADB or IRRI. If you are contractor and you render service to ABD or IRRI. Your services will subject to zero-rated VAT. It not required that it be paid paid for in acceptable foreign currency or that it is accounted for in accordance with the rules and regulations of BSP. (4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof. (5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production; Example: C, is a local export-oriented enterprise whose export sale exceeds 80% of its total annual production. C subcontracts A, to package [processing] the goods it exports abroad. The transaction between C and A will be considered zero-rated transaction under Sec 108 B(5). Try to relate this with Section 106 A(a) (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; (6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; The service has to be rendered by a domestic entity in order to be covered under the zero-rated transaction. Example: You fly with PAL or CebuPac from Cebu to HK. You will notice in your ticket that the flight is zero-rated. Revenue Regulation 15-2013 SECTION 6. VALUE-ADDED TAX. — The transport of passengers by international carriers doing business in the Philippines shall be exempt from value-added tax (VAT) pursuant to Sections 109(1)(S) of the NIRC, as amended by RA No. 10378. The transport of cargo by international carriers doing business in the Philippines shall be exempt from VAT pursuant to Sections 109(1)(E) of the NIRC, as amended by RA No. 10378, as the same is subject to Common Carrier’s Tax (Percentage Tax on International Carriers) under Section 118 of the NIRC, as amended. International carriers exempt under Sections 109(1)(S) and 109(1)(E) of the NIRC, as amended, shall not be allowed to register for VAT purposes. (7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels. This list is not exhaustive.
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Societas Spectra Legis Taxation Law 2 Compilation X. TRANSACTIONS EXEMPT FROM VAT Difference between persons exempt from VAT and VAT Exempt Transactions: Persons exempt from VAT is directed on the taxpayer on reason that the seller is exempt while VAT exempt transaction pertain to transaction which are VAT exempt regardless of the seller. EXEMPT TRANSACTIONS: (A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor. "Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as: a. freezing, b. drying,
c. salting,
d. broiling, e. roasting, f. smoking or g. stripping
There are two transactions here that are exempt. Both Sale & Importation. Agricultural and Marine FOOD products may be considered to have be considered in their Original State even if it has undergone through processing BUT has only undergone simple processes of preparation or preservation such as: o Freezing o Drying o Salting o Broiling o Roasting o Smoking o Stripping
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DRIED MANGOES – Not Exempt. Because when they produce this commercialized dried mangoes in the grocery it does not simply go through drying. There are more process that these mangoes undergone. However if you LITERALLY sell mangoes that were simply dried then it may be exempt but this is very unlikely. DRIED FISH – Exempt. Marine Food product that undergone drying. RICE – Exempt. Because it is a Agricultural food product. It is exempt in whatever form. Either it is palay, rice or cultured rice. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state; WATER – Not Exempt. It does not fall under this paragraph because it is neither an agricultural food product or a marine food product EGGS: exempt whether red-egg or salted egg. Salting does not deviate the food product from its original form
ROASTED CHICKEN: Exempt
COFFEE BEANS: Exempt
COTTON or COTTON SEEDS: VATable even in its original state
COPRA: Exempt PETROLEUM PRODUCTS: VATable ELECTRICITY: VATable SUGAR: Only Raw cane Sugar is VAT exempt. Refined sugar is already VATable. o There is an entire revenue regulations devoted to the payment of VAT on sugar. It is actually called the “Advance Value Added Tax” that you pay on every sugar that the sugar miller produces. So it is not totally exempt unless it falls under raw cane sugar or molasses. o Cane sugar produced from the following shall be presumed to be refined sugar: Product of a refining process, Product of a sugar refinery, or Product of a production line of a sugar mill accredited y the BIR to be producing and/or capable of producing sugar with polarimeter reading of 99.5% and above
EXEMPT o Dried fish o Rice o Eggs o Roasted Chicken o Coffee Beans o Copra o Raw Cane Sugar or Molasses
NOT EXEMPT o Dried mangoes o Water o Cotton or Cotton Seeds o Petroleum o Electricity o Refined Sugar
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); -
Not all sale or importation of fertilizers and seeds are exempted from VAT. Specialty feeds are VATable. Specialty feeds are those feeds for animals that we do not actually consume ordinarily like pets and zoo animals.
Societas Spectra Legis Taxation Law 2 Compilation (C) VS (D) (C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines;
o
o o
BELONG: belonging to residents of the Philippines returning from abroad or NR citizens coming to Resettle PERIOD: No period required for the importation ITEMS: Importation of personal and household effects
(D) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide; o
o
o
BELONG: belonging to persons coming to settle in the Philippines; not residents citizens or NR citizens PERIOD: There is a period of (90) days before or after their arrival such importation shall be made. ITEMS: Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and merchandise of any kind in commercial quantity)
o
TAKE NOTE: To be exempt from VAT, the household effects must be primarily exempt from custom duties. They go hand in hand.
o
Goods should not be in commercial quantity (meaning not so much as to indicate it is intended for sale in the Phils)
o
The VAT exemption in this provision does not include
Vehicle, Vessel, Aircraft, Machinery, and other goods for use in the manufacture and merchandise of any kind in commercial quantity
o
If you want to be exempt from VAT on vehicles, aircrafts, machineries, do not rely on the exemption provided under Section 109. Your exemption must be relied upon in another provision on exemptions granted under International agreements or special laws.
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Societas Spectra Legis Taxation Law 2 Compilation o
Consuls, ambassadors or officers of these international organizations that have been granted from exemption from indirect taxes under international agreements, they can still bring in vehicles, machineries that are exempt from VAT. But not under this provision because under this provision what is covered are those which are for personal use not for commercial use such as machineries for commercial use.
(E) Services subject to percentage tax under Title V; 1.
- Generally, if a person is subjected to percentage tax, he would no longer be liable for VAT. They are mutually exclusive because they are both sales taxes.
Examples of percentage taxes: Tax on land transportation which is specifically called common carrier’s tax. Gross receipts tax (on banks) or Amusement taxes
2.
- If a certain business or individual is already covered by percentage tax in whatever form it is imposed, he can no longer be covered by VAT because the nature of percentage tax and VAT is the same.
o
o
o
o o
Q: a lawyer for his professional services is subject to VAT as a rule. But once his income does not reach Php 1.9195M in total gross receipts for any 12- month period, he is exempt from VAT. But is he exempt from other taxes? No. He will be liable for percentage taxes. The percentage tax generally for professionals is 3%, even for business. If you are a professional with PRC license or IBP, you are subject to VAT as a general rule. Exceptions are when there is an employer-employee relationship and if income does not exceed 1.9195 million in any 12 month period. If you see a supermarket or a grocery store not registered for VAT purposes because its proceeds or receipts does not reach Php1.9195M, it may be subject to another kind of tax (percentage taxes) and not VAT. Banks or financial institutions including pawnshops and money changers subject to VAT? No. banks are subject to gross receipts tax ranging from 5% down to 0%. Take note: Life insurance is subject to percentage tax but property insurance (non-life) is subject to VAT
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar; o
o
A miller can be subject to VAT if the subject of the transaction does not involve: palay into rice, corn into grits and sugar cane into raw sugar; any other type of milling like cassava and other else not mention they are subject to VAT.
(G) Medical, dental, hospital and veterinary services except those rendered by professionals;
must be rendered by a professional who is an employees of the hospital. To determine if a professional
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is an employee of the hospital we use the four-fold test. Medicines used in the hospital are considered as services in the hospital therefore are not also subject to VAT. Laboratory cost is part of the hospital services therefore VAT EXEMPT. As a GR: a pharmacy operated by the hospital within its premises is subject to VAT if it reaches the threshold and sold to out patients. It is exempt if sold to in-patients. Professional Fees are liable to VAT if in the breakdown of payments it is separated as an item from hospital fees.
(H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions;
Must be educational services rendered by: o a. PRIVATE educational institutions (needs accreditation) o b. Government educational institutions (automatic, no need for accreditation)
It does not have to be a formal school to be exempt. The requirement is only that it is duly-accredited by a. DepEd b. CHED or c. TESDA
Does not need to be non-stock and non-profit
So, Korean online schools may be VAT exempt if duly accredited. However, if they venture in other services not educational, then such services will be subject to VAT
Non-stock non-profit educational institutions are exempt from TAXES as long as actually, directly and exclusively (ADE) used for educational purposes. Income from canteens, dormitories or parking lots owned by the school and within the school is exempt. Even interest from loans used for educational purposes are exempt.
(I) Services rendered by individuals pursuant to an employer- employee relationship;
(J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines
A Main criterion in this paragraph is that it is NOT EARNING INCOME. It is doing business here in the Philippines that is why it is registered but it does not earn income.
Only applies to Regional or AREA headquarters since it has no income-generating activity. It is exempt from both income tax and VAT
Regional OPERATING HQs however are subject to 10% income tax and 12% VAT while its employees are subject to 15% compensation tax.
(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;
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It is a matter of choices of these entities. If they enter into zero-rated transactions then they may opt to be zero-rated but they may also be exempt in services they render.
Ex. Of entity granted VAT exempt status – IRRI (International Rice Research Institute). The purchase or importation need not relate to goods in its original state.
What is covered under the exemption would not run counter to zero-rated sales. Zero-rated and exempt are not the same. One can actually claim input taxes the other one cannot. So what is covered by the exemption provision is that “transactions entered into by such companies (PEZA-registered) will be exempt when it sells or when it purchases/imports
(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce
Cooperatives must be Duly registered with the Cooperative Development Authority. Agricultural Cooperatives: o Sale of their agricultural produce whether in its original state or processed form to members or non-members – EXEMPT o Sale of fresh bangus to members and non-members – still EXEMPT but not by reason of par. L but par. A of Sec. 109 NIRC. It is a marine food product in its original state.
VAT exemption extends to importation of direct farm inputs, machineries and equipment to be used directly and exclusively in the production and/or processing of their produce
(M) Gross receipts from lending activities by credit or multi- purpose cooperatives duly registered with the Cooperative Development Authority
Cooperatives must be Duly registered with the Cooperative Development Authority.
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members
All non-agricultural, non-electric ad non-credit cooperatives are VAT exempt as long as: o a) Duly registered with the CDA
o b) Share capital contribution of each member does not exceed Php15,000 (regardless of the aggregate capital and net surplus ratably distributed among the member)
So, whether it has 1,000 or more members, it does not matter.
In effect, only ELECTRICAL cooperatives are purely subjected to VAT. Other cooperatives may be VAT exempt if the above requisites are met but electrical cooperatives are subject to VAT.
(O) Export sales by persons who are not VAT-registered
These transactions if made by VAT-registered entities should have been subjected to zero-rating however since they are not VAT-registered; these transactions are VAT- exempt. Since they are not VAT-
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(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at One million five hundred thousand pesos (P 1,500,000.00)* (1,919,500.00) and below, house and lot and other residential dwellings valued at Two million five hundred thousand pesos (P 2,500,000.00)** (3,199,200.00)
If the real property is an ordinary asset, its sale is subject to VAT; but if it’s not, then not subject to VAT because it is now subject to capital gains tax.
As a general rule, the sale of real property, if in the course of trade or business, is vatable.
Exception: 1. Those utilized for low-cost housing.
- When the real property sales involves low-cost housing programs where the price does not exceed the ceiling of Php750,000 per housing unit, of course used for residential purposes, it will be exempt from VAT.
2. Those properties for socialized housing - Same concept as low-cost housing but the price threshold is different. It’s Php 400,000 for socialized housing. Socialized housing, not more than 400,000; it relates not only to house and lot but it can be lot only so long as it is covered by the socialized housing program that has been recognized. 3. Sale of lot not exceeding Php 1,919,500; when a parcel of residential lot is sold and its value does not exceed 1.919500 M, it is exempt from Vat. when one and the same person purchases two or more parcels of land adjacent to each other and the total value of which exceeds 1.919500 M, even if individually it does not exceed, it will be subject to VAT if the purpose is to build one residential unit over the parcels of land. If the purpose is other than that (example: purchasing lots to be donated to children), it’s not subject to vat. It’s not simply automatically vatable because it’s more than 1.5M; you have to look at the purpose. If I were you, do not purchase it altogether, different dates. 4. Sale of residential house and lot and other residential dwellings such as condominium units valued at not more than Php2.5 M. 5. When you sell real properties not primarily held for sale
(Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10,000) 12,800.
Only applies to residential unit. As to rent amounts: o Per rent does not exceed 12,800 Exempt o Per rent exceed 12800 look at the aggregate for the year of 1,919,500 is not exceeded then still exempt. If commercial unit it is liable for VAT if its aggregate receipts for the year exceeds 1,919,500.00
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OLD NOTES EXAMPLES:
o
One of your classmates is renting out a room in ABC Pension House. Monthly rent is Php12,800. Is it vatable or not? He’s utilizing it as a temporary home in Cebu. Is a “pension house” covered under the term residential unit?
o
It’s vatable. It is not covered. When you say “residential unit”, the primary purpose is for dwelling purposes; pension house is for transient.
ABC Corp vs DEF Corp. (YEAR 2015)
ABC Corp. Total for the yr
DEF Corp. Total for the yr
Studio (monthly 10K)
2M = Exempt
2M = Exempt
Apartment (M=15K)
1.919500M = Exempt
2M = VAT
Total Gross Receipts for the yr
3.919500M = Exempt
2M = exempt; 2M = VAT
These corporations, have two types of residential units – apartment and studio-type units. Studio-type units at Php10, 000 per month, while the apartment at Php 15,000 per month. Total gross receipts for the year 2011 is Php3.919500 M, the other one is Php 4M. Which is subject to VAT?
o o
o
o
o
o
ABC Corp is entirely vat-exempt for both types of units while DEF Corp is vatable but only to the apartment. In the law, it states that the monthly rentals should not exceed Php 12,800. And for both corporations, their studio units are rented at 10K so that is already exempt despite the fact that it already exceeds the 1.5M threshold limit of the vat. So regardless of the aggregate amount, so long as the monthly rental does not exceed 12,800 it is exempt. The apartment for ABC Corp is still exempt because the gross receipts do not exceed 1.919500 M. So if a corporation or a person engages in both types of residential units – one is exceeding 10K the other one not, you don’t need to combine the gross receipts for the two types of units. You have to take it stand alone. So for those exceeding 10K, you have to individually determine whether it exceeds the threshold limit or not. So since 1.5M of ABC Corp is still within the threshold limit for 2011, then it is not vatable. The apartment of DEF Corp is already vatable because it exceeded the threshold. You cannot say that ABC is vatable because the total proceeds is 3.5M, thus exceeding the 1.5M limit. For vat purposes, you have to separately consider. ABC Corp is entirely vat-exempt for both types of units while DEF Corp is vatable but only to the apartment.
(R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
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Involves 4 transactions: Sale, Importation, Printing or Publication Books must be for religious and educational purpose. o E-Books. Same applies to the rule on books. As for newspapers it must be for regular interval, for a fix price and must not be principally devoted for paid advertisement. o Ex. Suppose that Sunstar’s Advertisment is expensive it is still exempt because it is paid at a fixed price, it is produced in a regular interval and that it is PRINCIPALLY not devoted to paid advertisement. magazines, however, which are principally devoted for advertisement (i.e., classified ads). So, they are vatable.
(S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations;
The sale, importation and lease of vessels including all parts implemented in the vessel, whether it’s engaged in passenger or cargo transportation, domestic or international, is exempt from vat but only for those weighing 150 tons or more. Those below 150 tons will be subject to vat.
o TAKE NOTE: 150 or more exempt; less than 150 tons VAT. o
Limitations:
For passenger and/or cargo vessels, the age limit is 15 years old;
For tankers, the age limit is 10 years old;
For high-speed passenger crafts, the age limit is 5 years old.
(T) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations;
Here you look at which entity is engaged in the transaction: o If importation and the one importing is the entity engaged in international shipping Exempt o But if you are the one selling to the entity engaged in international air transport operation zero-rated.
Sale by Vat-registered person of goods, supplies, equipments and fuel to an entity that is engaged in international shipping/air transport will be zero-rated. But if this entity engaged in international shipping/air transport operations imports product from abroad, the transaction is exempt.
(U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other nonbank financial intermediaries; and
Subject to percentage tax
(V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,919,500)
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Societas Spectra Legis Taxation Law 2 Compilation OUTPUT & INPUT TAX: Output Tax:
Applies to sale of goods and services. Applies to importation, because the importer is the statutory taxpayer therefore it is an output VAT.
Input Tax:
Tax on your purchases of goods or services.
To be able to offset Input against Output using the Tax Credit Method: 1. Vat registered taxpayer 2. Must be engage in trade & business a. That is why a law student cannot offset input vat from books bought because he is not engage in trade or business. Even if he is also a businessman, still cannot because the purchase is not related to his trade or business. 3. Must be able to substantiate the claim a. Services – receipts b. Goods – invoice c. Importation - Import entry declaration or some other supporting documents
Different Type of Input Vat: 1. Transitional Input VAT – from being a Non Vat registered to a Vat registered. a. 2% of the beginning inventory reckoned at the time of the effectivity of your registration OR actual 12% VAT paid on the beginning inventory whichever is higher. Situation when you will opt to choose the 2% against the 12%: normally you would choose to deduct the Vat paid because it is bigger in amount than just 2%. The reason for this option is because as a requirement to avail of the 12% Vat paid is that it must be: 1. Substantiated with receipts – services or invoices - goods. 2. Import entry declaration or some other supporting documents – importation. But there are times that you loss the receipts and you cannot substantiate the 12% vat paid. So as an incentive of registering as a VAT taxpayer, so you could at least get a deduction is to opt for 2% because you cannot claim the 12%. 2. Presumptive Input VAT Rate of 4% Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar, cooking oil and packed noodle- based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.
As used in this Subsection, the term "processing" shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition.
Involves the processing of (a) sardines,
(b) mackerel and
(c) milk,
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in manufacturing
(d) refined sugar, (e) cooking oil and
(f) packed noodle-based instant meals
Pasteurization, canning and activities alter the exterior or inner substance as stated above still included in the definition of processing
RATIONALE: their primary sources of raw materials are agricultural products in its original state for which it was purchased or obtained (e.g. fishing). So when it is sold, it will generate full 12% without the benefit of the input tax because it was purchased or obtained
vat-free. So in order to soften the tax liability of manufacturers of such initial stage of production, all manufacturers of the enumerated agricultural products are allowed to recognize a presumptive input tax but not fully at 12% - only 4% of the value of the purchases of these agricultural products, which are the actual process inputs. Hence, it is “presumed” that 4% of these goods can be claimed as input tax. MEMORY TIP: “T”ransitional input tax = 2% arbitrary rate if higher (“T”wo) while “P”resumptive input tax = 4% (“P”or) 3. CREDITABLE WITHOLDING VAT Creditable Withholding VAT (on payments to non- residents) There must be a non-resident party, who is the seller. The purchaser withholds the VAT because the Phils. has no jurisdiction over the seller.
Remember persons who are liable for vat: 1.) those who enter into transaction made in the
ordinary course of trade or business 2.) those who import product WON in the course of trade or business
3.) non-resident persons, regularity notwithstanding, rendering services in the Phils. The third is covered by creditable withholding vat. Because if a non-resident person, not engaged in trade or business in the Phils., performs service in the Phils., it’s vatable. But because we have no jurisdiction over them, we cannot expect that whatever a vat-registered purchaser pass on as a vat, we can never expect the non-resident person to remit the 12%.
4. FINAL WITHOLDING VAT Final Withholding VAT (on payments by the Government) One of the parties is the government and that the government should be the purchaser. The seller, who should be a vat-registered seller, is liable for vat. Take note the government is the withholding agent here. o The withholding vat is at the rate of 5% o Standard input vat of 7% this cannot be used anymore as credit to you other output vat. The 5% is already the final VAT of the transaction. o That is why you cannot comingle your transaction with the government with your other transactions.
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Societas Spectra Legis Taxation Law 2 Compilation DISTRIBUTION OF INPUT VAT THAT CANNOT BE ATTRIBUTED TO ANY TRANSACTION:
Apportionment should be based on SALES on each transaction whether it is 12% vat, zero-rated vat, Exempt or government. Example: Sales
Input
Outpu t
Vat Pay abl e
Distribution
Total Input VAT
Excess Input VAT
BASED ON SALES (100/400) X 10K = 2500
12% VAT Sales
100K
10K
12K
2K
2500 (may be offset)
(10,000 + 2500) = 12,500
500
0 rated sales
100K
5K
0
0
2500 (may be offset)
(5000 + 2500) = 7500
7500
Exempt
100K
4K
0
0
2500 (cannot offset) not allowed
Sale to Governm ent
100K
7K
5K final tax to be paid
0
2500 (cannot offset) already covered by the 5K final tax
Cannot be Attribute d to any transactio n Input VAT
7000 standard input vat BUT CANNOT BE OFFSET
10K
Example Equipmen t used to manufact ure goods of company TOTAL SALES:
TOTAL INPUT VAT
EXCESS INPUT VAT = 8000
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= 27,000
BUT, INPUT VAT THAT MAYBE REFUND only 7500 from 0 rated.
HOW TO APPLY INPUT VAT ON DEPRECIABLE CAPITAL GOODS:
That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, finally, that in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee. o So if bought for more than 1M shall be spread over 60 months or 5 years HOWEVER the if useful life is shorter than 5 years then spread over such shorter period.
WHEN TO APPLY INPUT VAT; WHEN IT ACCRUES:
Sale of Goods gross sales which are perfected. Upon incurrence of the obligation. Sale of Services gross receipts. Upon payment of the amount. Whenever there is payment. Importation upon release of the goods in the customs.
WHEN TO PAY VAT:
Upon declaration & filing. Declaration is made, 20 days after the month of sale Filing of return, 25 days after the end of the quarter
RULE ON REFUND or CREDIT OF EXCESS INPUT VAT
There must be complete substantiation requirement and filed within the proper period. Requirements: 1. Must be a vat registered 2. Paid input vat 3. The input vat has not been applied to any output VAT. 4. The claim can be substantiated with receipts or invoices. 5. Must be engaged in trade or business which are subject to zero rated VAT 6. Following the proper invoicing requirements o Proper invoicing requirements: a) If Vat registered, it must be stated that he is vat registered followed by his TIN must be printed in the receipt/invoice b) if zero rated, a stamp that word zero-rated c) invoice must show the segregation of the VAT against the price of the good or service d) date of transaction, quantity, the unit cost, e) if exceeds more than 1K, the name, TIN, address of the purchaser, customer or client.
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Societas Spectra Legis Taxation Law 2 Compilation CIR vs. Aichi Forging(TN: came out in the BAR) -
Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were madeSEC. 112. Refunds or Tax Credits of Input Tax. — (A) Zero-rated or Effectively Zero-rated Sales — Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, 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.
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In Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, 44 where we ruled that Section 112 (A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204 (C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Atty A: is VAT an internal revenue tax? Yes. Is it erroneously paid when you have excessive input VAT? No, you have an excess because you have no output VAT where you can offset it from but it is not erroneously or illegally paid. So that provision (sec 204 and 229) does not apply, instead, Sec 112 will apply. Atty. A: SC ruled that the two-year period under Sec 112 applies only to administrative claims. So long s you have filed your administrative claim within the two-year period, the judicial claim need not fall within the two-year period as well. The filing of the judicial claim was premature – Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit]," within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. (Commissioner of Internal Revenue v. Mirant Pagbilao Corporation)
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Societas Spectra Legis Taxation Law 2 Compilation KEPCO Phils. vs. CIR - Issue: whether Kepco's failure to imprint the words "zero-rated" on its official receipts issued to NPC justifies an outright denial of its claim for refund of unutilized input tax credits - Indubitably, said revenue regulation is merely a precautionary measure to ensure the effective implementation of the Tax Code. It was not used by the CTA to expound the meaning of Sections 113 and 237 of the NIRC. As a matter of fact, the provision of Section 4.108-1 of R.R. 7-95 was incorporated in Section 113 (B)(2)(c) of R.A. No. 9337, 15 which states that "if the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt." This, in effect, and as correctly concluded by the CIR, confirms the validity of the imprinting requirement on VAT invoices or official receipts even prior to the enactment of R.A. No. 9337 under the principle of legislative approval of administrative interpretation by reenactment. - Quite significant is the ruling handed down in the case of Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, 16 to wit: Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. …. the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund. -
Atty A: In other words, the requirement of printing of the word “zero-rated” on the invoice or official receipts under the regulation is mandatory. Failure to comply with that is fatal to your claim for refund.
Tambunting Pawnshop vs. CIR - Issue: whether pawnshops are liable to pay VAT - the Court, in First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue, 21 held: In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were treated as lending investors subject to lending investor's tax. Subsequently, with the Court's ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of "sale or exchange of services" under Section 108 (A) of the Tax Code of 1997, as amended. R.A. No. 9238 [which was passed in 2004] finally classified pawnshops as Other Non-bank Financial Intermediaries. Xxx
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Societas Spectra Legis Taxation Law 2 Compilation … Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT, 28 and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997.
In light of the foregoing ruling, since the imposition of VAT on pawnshops, which are non-bank financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999.
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Atty A: “Let’s keep this updated” the rule now is that pawnshops are not covered by the VAT because they are subject to other percentage tax. And under the NIRC, those that are subject o other percentage taxes are exempt from VAT. Financial intermediaries are not subject to VAT even non-bank financial intermediaries.
Philippine Phosphate vs. CIR - Petitioner's entire claim for refund, however, was denied for petitioner's failure to present invoices allegedly in violation of CTA Circular No. 1-95. The CTA in denying petitioner's motion for reconsideration, also mentioned for the first time that petitioner's failure to present "a certification of an independent CPA" is another ground that justified the denial of its claim for refund. - Issue: whether or not the CTA should have granted petitioner's claim for refund. - The certification of an independent CPA is not another mandatory requirement under the Circular which petitioner failed to comply with. It is rather a requirement that must accompany the invoices should one decide to present invoices under the Circular. Since petitioner did not present invoices, on the assumption that such were not necessary in this case, it logically did not present a certification because there was nothing to certify. - Atty A: in this case, they (petitioner) asked the CTA if they could present the invoices but the CTA automatically dismissed the case for their failure to comply with this requirement. But SC said that if the government requires its taxpayers to be religious in paying its taxes, they also shouldn’t deny the taxpayer’s claim for refund if it is clear that they are also entitled for refund. (But the SC here is just being generous) CIR vs. San Roque -
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G.R. No. 187485 — CIR v. San Roque Power Corporation Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner to decide whether to grant or deny San Roque's application for tax refund or credit. It is indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer's petition.
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-
-
-
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San Roque's failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque's void petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be legitimized "except when the law itself authorizes [its] validity." There is no law authorizing the petition's validity. For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque's petition with the CTA is a mere scrap of paper. This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer. 51 The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.
G.R. No. 196113 — Taganito Mining Corporation v. CIR Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque — both cannot claim being misled, misguided, or confused by the Atlas doctrine. However, Taganito can invoke BIR Ruling No. DA-489-03 57 dated 10 December 2003, which expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim with the CTA on time. Atty A: TN: Taganito filed after the BIR ruling which says that the 120-day period is not mandatory and before the Aichi case. While San Roque filed after the Aichi case; thus, San Roque is bound by the Aichi case. The SC take cognizance of Taganito because they presumed that they believed in the BIR ruling.
G.R. No. 197156 — Philex Mining Corporation v. CIR Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philex's claim. Since the Commissioner did not act on Philex's claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial claim. (perting late.a! :D) Atty A: TN: 120-day period is mandatory.
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SC: There are three compelling reasons why the 30-day period need not necessarily fall within the twoyear prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period:
First, Section 112 (A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law.
Second, Section 112 (C) provides that the Commissioner shall decide the application for refund or credit "within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)." The reference in Section 112 (C) of the submission of documents "in support of the application filed in accordance with Subsection A" means that the application in Section 112 (A) is the administrative claim that the Commissioner must decide within the 120-day period. (Atty A: the reference in Sec 112 (C) supports sec 112 (A) that the two-year period only applies to administrative claims.)
Third, ….. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period. (Atty A: this reason seems flimsy.)
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The input VAT is not"excessively" collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller 61 of goods, properties or services used as input by another VATregistered person in the sale of his own goods, properties, or services. (Atty A: its just that there is no output VAT by which you can off set the input VAT)
TN: The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. (Commissioner of Internal Revenue v. Mirant Pagbilao Corporation)
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CIR vs. Dash Engineering - Atty A: this case only resonates the ruling in Aichi Forging and San Roque case and clarifie that the 120day period is a mandatory period plus the 30 days.
Question: are you given an option to wait for the denial of the BIR or is it mandatory that after the 120-day period, you must right away file? No, it’s not mandatory to file just because the 120-day period lapsed. However, this is mutually exclusive. You have two options: 1. 120 days + 30 days 2. Wait for denial + 30 days
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That if you have already chosen to wait for the 120-day period to lapse, then 30-days after, you have to file. You will be bound by that option. So that if the BIR decision is released during the 30 day extension, you cannot opt to wait for another 30 days from the denial. It is a mutually exclusive option. Situation: the 120 days had already lapsed, but you filed only after 50 days from the 120 days, so most likely, the CTA will dismiss the case. If thereafter, the denial of the BIR was realeased, can you still refile the case? NO. you already chose the first option, you cannot anymore choose to avail of the second option. Pilde-gana! touch-move! :p
Isn’t it mandatory for the BIR to act on the claim within the 120 days? Atty A: even if the law says that they should, shall or have to, the SC had long threshed that out. It is just a directive. The 120 day is just directory on the part of the BIR. What if after the lapse of 120 days, you appealed to the CTA then the BIR ruling was issued which grants your claim, what happens? Atty A: the decision of the CTA is moot and academic because after all, there is really no basis for you to file an appeal. There no case now for you to mention. You have the option to withdraw your appeal but it’s not a requirement. CIR vs. Cebu Toyo Corp -
While the zero rating and the exemption are computationally the same, they actually differ in several aspects, to wit: ASETHC (a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax; (b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt. (c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while registration is optional for VAT-exempt persons.
Silicon Phil. vs. CIR, Western Mindanao Power Corp vs. CIR, Panasonic Communications vs. CIR - Failure to comply with the invoicing requirements is fatal to claims for refund. In this 3 cases, the petitioners failed to print “zero-rated” in their invoices. Refer to KEPCO ruling.
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Societas Spectra Legis Taxation Law 2 Compilation SUSPENSION OF BUSINESS OPERATIONS The CIR or his authorized representative is empowered to suspend the business operations and temporarily close the business establishment of any person for any of the following violations: a. In case of a VAT-registered person – 1. Failure to issue invoices or receipts 2. Failure to file VAT return 3. Understateent of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter b. Failure of any person to register who is mandatorily subject to VAT. The temporary closure of the establishment shall be for a duration of not less than 5 days and shall be lifted only upon compliance with whatever requirements prescribed by the CIR in the closure order.
OTHER PERCENTAGE TAX PRELIMINARY MATTERS ON OTHER PERCENTAGE TAX: OTHER PERCENTAGE TAX - It is a business tax - It is always imposed based on sales. So if it is not based on sales, gross receipts or gross sales, it could not be considered as a business tax. - Ex. When an LGU imposes a tax on producers of bottles and they based it on the volume of bottles produced, say for P 0.10 per bottle produced, it is not considered a percentage tax under the NIRC because it is not based on gross sales or receipts but based on the production of the bottle, there was not sale required to impose the tax. - The exemption for VAT under Sec. 109, except item (e), is also the exemptions for other percentage tax. Other Percentage Tax (Sections 116 – 128, NIRC) What is the nature of other percentage tax? - It is a direct and business tax. A excise tax. Tax on the privilege to engage in business. - A business tax based on given ratio between gross sales or receipts and burden imposed upon the taxpayer. Entities and/or activities that are subject to OPT? 1. Persons exempt from VAT 2. Domestic Carriers and Keepers and Garages 3. International carriers 4. Franchise Holders and Grantees 5. Persons paying for overseas communications service 6. Banks and Non-bank Financial Intermediaries 7. Finance Companies 8. Life Insurance Companies and Agents of Foreign Insurance Companies. 9. Proprietors, lessees, or operators of amusement places. 10. Winners of prizes in horse races and jai alai and owners of winning race horses. 11. Sellers or transferors of shares of stock listed and traded through local stock exchange. 12. Closely held corporations with respect to shares of stocks sold or otherwise disposed of through initial public offering of shares of stock in closely held corporations. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). - Any person whose sales or receipts are exempt under Section 109(z) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives shall be exempt from the three percent (3%)gross receipts tax herein imposed. We said that entities exempted from VAT under Sec. 109 are also exempt from OPT, so if that’s the case? To what type of persons does Sec. 116 refer? - If you are engage in business and your business does not exceed 1,919,500, you exempted from VAT but you maybe subjected to OPT, unless you also fall under the exemption of VAT of Sec. 109. So these go together. Take note of that. The rate is 3% based on gross quarterly receipts. Is there a definition on gross receipts? - anything received in the engagement of the business subject to no deductions but, of course, we allow returns, allowances and sales discounts. Chinabank vs CA "gross receipts" embraces the entire receipts without any deduction or exclusion. the amount of the final withholding tax on interest income should not be deducted from the bank's interest income for purposes of the gross receipts tax. Atty. A: Remember your interest income under Tax 1, it is subject to 20%. For example you have a deposit of 100k, what you can actually receive there is 80k because 20% of such amount is withheld by the bank for purposes of remittances to the government. The same way with your bank or financial institution, if you they have income in their services, like from deposits, they are also subject to this final withholding tax, so this (chinabank vs ca) case came about because they contented that since that amount is withheld for the government and they do not receive it, then they should not be subjected to gross receipts tax. But take note that who actually pays the amount of taxes, supposedly? The taxpayer. And had there be no withholding system, who would have pay the amount? It should be the bank. (….wa naku kasabot sa iya explanation ani nga part so I’ll skip it nalang…) The case talks about the bank being subject to final withholding tax. So under this case then, it can be said that the amount withheld from the income of the bank, for taxes, is actually owned by the bank and received constructively by the bank but it did not pass thru their hands physically because it’s already withheld by the withholding agent. And then remitted it to the BIR. So we talk about gross receipts, this amount that is actually received constructively by the bank falls under the said definition. How is the Chinabank case differentiated from the Manila Jockey case? (as discussed in Chinabank case) The Court ruled in Manila Jockey Club that receipts not owned by the Manila Jockey Club but merely held by it in trust did not form part of Manila Jockey Club's gross receipts. Conversely, receipts owned by the Manila Jockey Club would form part of its gross receipts. In the instant case, CBC owns the interest income which is the source of payment of the final withholding tax. The government subsequently becomes the owner of the money constituting the final tax when CBC pays the final withholding tax to extinguish its obligation to the government. This is the consideration for the transfer of ownership of the money from CBC to the government. Thus, the amount constituting the final tax, being originally owned by CBC as part of its interest income, should form part of its taxable gross receipts.
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Societas Spectra Legis Taxation Law 2 Compilation Atty A: (murag ang nahitabo ani kay aku raman ang gabasa) So what happened in Manila Jockey is that they receive income in horse racing but the proceeds will have to be divided into 87.5% as dividends to holders of winning tickets; 12.5% as 'commission' of the Manila Jockey Club, of which 0.5% was assigned to the Board of Races and 5% was distributed as prizes for owners of winning horses and authorized bonuses for jockeys. So these amounts are already earmarked for certain entities. But it is Manila Jockey who collects it and give it to the said entities based on the apportionment percentage. So SC said that these amounts that are already earmarked for the other entities are just held in trust by Manila Jockey and should not form part of its gross receipts for purposes of computing the OPT. They don’t received any benefits from it. Unlike in your Chinabank case, It earns the income and the benefit they receive is that their taxes are already being settled. The same as in CIR vs Solidbank. Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding. Amounts earmarked do not form part of gross receipts, because, although delivered or received, these are by law or regulation reserved for some person other than the taxpayer. On the contrary, amounts withheld form part of gross receipts, because these are in constructivepossession and not subject to any reservation, the withholding agent being merely a conduit in the collection process. The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never became the property of the race track. Unlike these amounts, the interest income that had been withheld for the government became property of the financial institutions upon constructive possession thereof. Possession was indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough. The government subsequently becomes the owner of the money when the financial institutions pay the FWT to extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer of ownership of the FWT from these institutions to the government. It is ownership that determines whether interest income forms part of taxable gross receipts. Being originally owned by these financial institutions as part of their interest income, the FWT should form part of their taxable gross receipts. SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. - Cars for rent or hire driven by the lessee, transportation contractors, including persons who transport passengers for hire, and other domestic carriers by land, air or water, for the transport of passengers, except owners of bancas and owner of animaldrawn two wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts. The gross receipts of common carriers derived from their incoming and outgoing freight shall not be subjected to the local taxes imposed under Republic Act No. 7160, otherwise known as the Local Government Code of 1991. In computing the percentage tax provided in this Section, the following shall be considered the minimum quarterly gross receipts in each particular case: Jeepney for hire 1. Manila and other cities – P 2,400 2. Provincial - 1,200 Public utility bus – Not exceeding 30 passengers - 3,600 Exceeding 30 but not exceeding 50 passengers - 6,000 Exceeding 50 passengers - 7,200 University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Taxis 1. Manila and other cities - P 3,600 2. Provincial - 2,400 Car for hire (with chauffer) - 3,000 Car for hire (without chauffer) - 1,800 Atty. A: Actually this is so boring to discuss because you just have to read the provision. The amounts provided in this section accounts for the minimum quarterly gross receipts. Meaning, if you are an operator for jeepney for hire, your gross receipts tax couldn’t be less than 2,400, if you’re in Manila and other cities, and 1,200, if you’re in the provinces. So that would 2,400 or 1,200 multiply by 3% for your OPT. so the 2,400 or 1,200, that’s your minimum gross receipts. Not the tax yet. Take note that this is just the minimum, so it could be more. And if the question asked is quarterly, you multiply it by 4. SEC. 118 Percentage Tax on International Carriers. (A) International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts. (B) International shipping carriers doing business in the Philippines shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts. This applies to air and water carriers. How about land? Land carriers are already subject to VAT. And the rate is still 3%. SEC. 119. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000.00), subject to Section 236 of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise: Provided, however, That radio and television broadcasting companies referred to in this Section shall have an option to be registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That once the option is exercised, it shall not be revoked. The grantee shall file the return with, and pay the tax due thereon to the Commissioner or his duly authorized representative, in accordance with the provisions of Section 128 of this Code, and the return shall be subject to audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding. This refers to all franchises on radio, television, electric, gas and water. For radio and television franchise, there’s a threshold amount of 10M. If you do not exceed to 10M, you are subject to 3% percentage tax. But if you exceed 10M, you may opt to register in VAT, but once you choose to be VAT-registered, it shall not be revoked. It’s perpetual. For electric, gas and water utilities, there is no threshold amount.
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Societas Spectra Legis Taxation Law 2 Compilation SEC. 120. Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines. (A) Persons Liable. - There shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment service, a tax of ten percent (10%) on the amount paid for such services. The tax imposed in this Section shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each quarter. (B) Exemptions. - The tax imposed by this Section shall not apply to: (1) Government. - Amounts paid for messages transmitted by the Government of the Republic of the Philippines or any of its political subdivisions or instrumentalities; (2) Diplomatic Services. - Amounts paid for messages transmitted by any embassy and consular offices of a foreign government; (3) International Organizations. - Amounts paid for messages transmitted by a public international organization or any of its agencies based in the Philippines enjoying privileges, exemptions and immunities which the Government of the Philippines is committed to recognize pursuant to an international agreement; and (4) News Services. - Amounts paid for messages from any newspaper, press association, radio or television newspaper, broadcasting agency, or newstickers services, to any other newspaper, press association, radio or television newspaper broadcasting agency, or newsticker service or to a bona fide correspondent, which messages deal exclusively with the collection of news items for, or the dissemination of news item through, public press, radio or television broadcasting or a newsticker service furnishing a general news service similar to that of the public press. The tax for overseas dispatch, message, or conversation originating from the Philippines is 10% on the amount paid for such service. CIR vs PAL So is PAL subject to Overseas Communications Tax (OCT)? No. The language of PHILIPPINE AIRLINES, INC’s franchise is clearly all-inclusive --- the basic corporate income tax or franchise tax paid by respondent shall be "in lieu of all other taxes” except only real property tax. It is not the fact of tax payment that exempts it, but the exercise of its option. PAL’s franchise exempts it from paying any tax other than the option it chooses: either the “basic corporate income tax” or the 2% gross revenue tax. There being no qualification to the exercise of its options, then Respondent is free to choose basic corporate income tax, even if it would have zero liability. SEC. 121. Tax on Banks and Non-bank Financial Intermediaries. - There shall be a collected tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: (a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived: Short-term maturity (non in excess of two (2) years) - 5%
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Societas Spectra Legis Taxation Law 2 Compilation Medium-term maturity (over two (2) years but not exceeding four (4) years) - 3% Long-term maturity (1) Over four (4) years but not exceeding seven (7) years - 1% (2) Over seven (7) years - 0% (b) On dividends - 0% (c) On royalties, rentals of property, real or personal, profits, from exchange and all other items treated as gross income under Section 32 of this Code - 5% Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long-term and the correct rate of tax shall be applied accordingly. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities. Atty. A: Just read this provision, but take note that most of the cases involving OPT deals with GRT on Banks and Non-banks Financial Intermediaries. Even BSP is subject to this GRT. SEC. 122. Tax on Finance Companies. - There shall be collected a tax of five percent (5%) on the gross receipts derived by all finance companies, as well as by other financial intermediaries not performing quasi-banking functions dong business in the Philippines, from interest, discounts and all other items treated as gross income under this Code: Provided, That interests, commissions and discounts from lending activities, as well as income from financial leasing, shall be taxed on the basis of the remaining maturities of the instruments from which such receipts are derived, in accordance with the following schedule: Short-term maturity (non in excess of two (2) years) – 5% Medium-term maturity (over two (2) years but not exceeding four (4) years) - 3% Long-term maturity (1) Over four (4) years but not exceeding seven (7) years - 1% (2) Over seven (7) years - 0% Provided, however, That in case the maturity period is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long-term and the correct rate of tax shall be applied accordingly. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar financing activities. The tax on these other financial intermediaries is 5% on the gross receipts. Then there’s this issue on whether pawnshops are subject to gross receipts tax (GRT) as decided in the case of Lhuillier.
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Societas Spectra Legis Taxation Law 2 Compilation CIR vs Lhuiller Pawnshops are not subject to GRT because they are not lending investors as defined by the NIRC. Under Section 157(u) of the NIRC of 1986, as amended, the term lending investor includes “all persons who make a practice of lending money for themselves or others at interest.” A pawnshop, on the other hand, is defined under Section 3 of P.D. No. 114 as “a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.” While it is true that pawnshops are engaged in the business of lending money, they are not considered “lending investors” for the purpose of imposing the 5% percentage taxes. SEC. 123. Tax on Life Insurance Premiums. - There shall be collected from every person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines a tax of five percent (5%) of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money; but premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts; nor shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon doing business outside the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such premium is imposed by the foreign country where the branch is established nor upon premiums collected or received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on variable contracts (as defined in section 232(2) of Presidential Decree No. 612), in excess of the amounts necessary to insure the lives of the variable contract workers. Cooperative companies or associations are such as are conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit. Life insurance premiums are subject to 5% of the total premiums collected. Take note of the exemptions here: - premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason - reinsurance by a company that has already paid the tax - upon doing business outside the Philippines on account of any life insurance of the insured, who is a nonresident. (a domestic corporation which has a branch abroad. And that branch is selling life insurance in that foreign country) - upon premiums collected or received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the Philippines - upon that portion of the premiums collected or received by the insurance companies on variable contracts (as defined in section 232(2) of Presidential Decree No. 612. SEC. 124. Tax on Agents of Foreign Insurance Companies. - Every fire, marine or miscellaneous insurance agent authorized under the Insurance Code to procure policies of insurance as he may have previously been legally authorized to transact on risks located in the Philippines for companies not authorized to transact business in the Philippines shall pay a tax equal to twice the tax imposed in Section 123: Provided, That the provision of this Section shall not apply to reinsurance: Provided, however, That the provisions of this Section shall not affect the right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said owner does not make use of the services of any agent, company or corporation residing or doing business in the Philippines. In all cases where owners of property obtain insurance directly with foreign companies, it shall be the University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation duty of said owners to report to the Insurance Commissioner and to the Commissioner each case where insurance has been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner required by Section 123. So agents of foreign insurance companies are subject to tax equal to twice the tax imposed in Sec. 123. So that would be 10%. But this does not include re-insurance. SEC. 125. Amusement Taxes. - There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax equivalent to: (a) Eighteen percent (18%) in the case of cockpits; (b) Eighteen percent (18%) in the case of cabarets, night or day clubs; (c) Ten percent (10%) in the case of boxing exhibitions: Provided, however, That boxing exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions are promoted by a citizen/s of the Philippines or by a corporation or association at least sixty percent (60%) of the capital of which is owned by such citizens; (d) Fifteen percent (15%) in the case of professional basketball games as envisioned in Presidential Decree No. 871: Provided, however, That the tax herein shall be in lieu of all other percentage taxes of whatever nature and description; and (e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective, of whether or not any amount is charged for admission. For the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income from television, radio and motion picture rights, if any. A person or entity or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it. The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor, lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter, to make a true and complete return of the amount of the gross receipts derived during the preceding quarter and pay the tax due thereon. Familiar with the rates. Basin mugawas sa MCQ. SEC. 126. Tax on Winnings. - Every person who wins in horse races shall pay a tax equivalent to ten percent (10%) of his winnings or 'dividends', the tax to be based on the actual amount paid to him for every winning ticket after deducting the cost of the ticket: Provided, That in the case of winnings from double, forecast/quinella and trifecta bets, the tax shall be four percent (4%). In the case of owners of winning race horses, the tax shall be ten percent (10%) of the prizes. The tax herein prescribed shall be deducted from the 'dividends' corresponding to each winning ticket or the 'prize' of each winning race horse owner and withheld by the operator, manager or person in charge of the horse races before paying the dividends or prizes to the persons entitled thereto. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation The operator, manager or person in charge of horse races shall, within twenty (20) days from the date the tax was deducted and withheld in accordance with the second paragraph hereof, file a true and correct return with the Commissioner in the manner or form to be prescribed by the Secretary of Finance, and pay within the same period the total amount of tax so deducted and withheld. Tax winnings on horse races is subject to 10% of his winnings except if double, forecast/quinella and trifecta bets, it shall be 4%. SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange or through Initial Public Offering. (A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange. There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor. So the rate here is ½ of 1% based on gross selling price. This is in lieu of your income tax. So you will not be subjected to income tax anymore. Unless you are engaged in selling stocks, a dealer in securities. Take note that this is based on your gross selling price, as opposed to your capital gains tax which is 5% - 10% based on net gains. (B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. - There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations, as defined herein, a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange: Up to twenty-five percent (25%) - 4% Over twenty-five percent (25%) but not over thirty-three and one third percent (33 1/3%) - 2% Over thirty-three and one third percent (33 1/3%) - 1% The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering. For purposes of this Section, the term 'closely held corporation' means any corporation at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent (505) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied: (1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation (2) Family and Partnership Ownerships. - An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family, or by or for his partner. For purposes of the paragraph, the 'family of an individual' includes only his brothers and sisters (whether by whole or half-blood), spouse, ancestors and lineal descendants. (3) Option. - If any person has an option acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be considered as an option to acquire such stock. (4) Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the application of paragraph (1) or (3) hereof shall, for purposes of applying paragraph (1) or (2), be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock. Initial Public Offering (IPO) means that you are selling your shares for the first time to the public in the local stock exchange. These rates (referring to Subsection B) will only apply to closely held corporation. 'Closely Held Corporation' means any corporation at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. So is it possible that you will be conducting an IPO but you will not be subject to this tax? Yes, when you are NOT a closely held corporation. Meaning, there is this family corporation owned by more than 20 individuals. In this kind of situation, the tax that will apply to you is ½ of 1%. In short, subsection A will apply to you. (C) Return on Capital Gains Realized from Sale of Shares of Stocks. (1) Return on Capital Gains Realized from Sale of Shares of Stock Listed and Traded in the Local Stock Exchange. - It shall be the duty of every stock broker who effected the sale subject to the tax imposed herein to collect the tax and remit the same to the Bureau of Internal Revenue within five (5) banking days from the date of collection thereof and to submit on Mondays of each week to the secretary of the stock exchange, of which he is a member, a true and complete return which shall contain a declaration of all the transactions effected through him during the preceding week and of taxes collected by him and turned over to the Bureau Of Internal Revenue. (2) Return on Public Offerings of Share Stock. - In case of primary offering, the corporate issuer shall file the return and pay the corresponding tax within thirty (30) days from the date of listing of the shares of stock in the local stock exchange. In the case of secondary offering, the provision of Subsection (C)(1) of this Section shall apply as to the time and manner of the payment of the tax. (D) Common Provisions. - any gain derived from the sale, barter, exchange or other disposition of shares of stock under this Section shall be exempt from the tax imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this Code and from the regular individual or corporate income tax. Tax paid under this Section shall not be deductible for income tax purposes.
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Societas Spectra Legis Taxation Law 2 Compilation SEC. 128. Returns and Payment of Percentage Taxes. (A) Returns of Gross Sales, Receipts or Earnings and Payment of Tax. (1) Persons Liable to Pay Percentage Taxes. - Every person subject to the percentage taxes imposed under this Title shall file a quarterly return of the amount of his gross sales, receipts or earnings and pay the tax due thereon within twenty-five (25) days after the end of each taxable quarter: Provided, That in the case of a person whose VAT registration is cancelled and who becomes liable to the tax imposed in Section 116 of this Code, the tax shall accrue from the date of cancellation and shall be paid in accordance with the provisions of this Section. (2) Person Retiring from Business. - Any person retiring from a business subject to percentage tax shall notify the nearest internal revenue officer, file his return and pay the tax due thereon within twenty (20) days after closing his business. (3) Exceptions. - The Commissioner may, by rules and regulations, prescribe: (a) The time for filing the return at intervals other than the time prescribed in the preceding paragraphs for a particular class or classes of taxpayers after considering such factors as volume of sales, financial condition, adequate measures of security, and such other relevant information required to be submitted under the pertinent provisions of this Code; and (b) The manner and time of payment of percentage taxes other than as hereinabove prescribed, including a scheme of tax prepayment. (4) Determination of Correct Sales or Receipts. - When it is found that a person has failed to issue receipts or invoices, or when no return is filed, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales, receipts or other taxable base of other persons engaged in similar businesses under similar situations or circumstances, or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. (B) Where to File. - Except as the Commissioner otherwise permits, every person liable to the percentage tax under this Title may, at his option, file a separate return for each branch or place of business, or a consolidated return for all branches or places of business with the authorized agent bank, Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where said business or principal place of business is located, as the case may be. When do you file your return? Within 25 days after the end of each taxable quarter. When is the payment? Upon filing.
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DOCUMENTARY STAMP TAX Documentary Stamp Tax (DST) (Sections 173-201, NIRC, as amended by RA No. 9243) What’s the basic rate of DST? Generally, P15. When does DST apply? Read Section 173. SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. - Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax. So what’s the nature of DST? It is an excise tax because it is impose on the privilege to enter into a transaction. Atty. A: It is not a tax on the document because under Sec. 173 it says wherever the document is made, signed, issued, etc… so it’s really on the transaction itself. But of course, it is evidenced by the document made. That’s why it’s called Documentary Tax. It is called stamp tax because the payment of this tax ordinarily entitles to a certain stamp, like brown, green or white (kana’ng ipamilit sa mga documents). Cge beh, who wants to volunteer? Who read the cases? (Ms. Papa volunteer as a tribute ) Phil. Banking Corp. vs CIR Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. A DST is actually an excise tax because it is imposed on the transaction rather than on the document. A DST is also levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. Hence, in imposing the DST, the Court considers not only the document but also the nature and character of the transaction. Atty. A: memorize this word per word (referring to the emphasized sentence above). If anything will come out in the exam in DST. This should appear. A lot of the cases assigned to you have this on its decisions. SEC. 174. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on organization, reorganization or for any lawful purpose, of shares of stock by any association, company or corporation, there shall be collected a documentary stamp of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the par value, of such shares of stock: Provided, That in the case of the original issue of shares of stock without par value, the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration for the issuance of such shares of stock: Provided, further, That in the case of stock dividends, on the actual value represented by each share.
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Societas Spectra Legis Taxation Law 2 Compilation The basis for the DST is the par value of the share. JAKA Investment Corp vs CIR the documentary stamp tax imposition is essentially addressed and directly brought to bear upon the document evidencing the transaction of the parties which establishes its rights and obligations, which in the case at bar, was established and enforceable upon the execution of the Amended Subscription Agreement and Deed of Assignment of Property in Payment of Subscription. Moreover, the documentary stamp tax is imposed on the entire subscription (i.e., subscribed capital stock) which is the amount of the capital stock subscribed whether fully paid or not. It connotes an original subscription contract for the acquisition by a subscriber of unissued shares in a corporation, which in this case is equivalent to a total par value of Php508,806,200.00. the DST attaches upon acceptance of the stockholder's subscription in the corporation's capital stock regardless of actual or constructive delivery of the certificates of stock. when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face. The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. The certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the documentary stamp tax must be paid. Atty. A: DST is paid for every issuance of shares. And take note that it is not the issuance of the stock certificate that is important because the mere subscription agreement will hold you responsible for the payment of the DST. CIR vs First Express Pawnshop the deposit on stock subscription as reflected in respondent's Balance Sheet as of 1998 is not a subscription agreement subject to the payment of DST. The deposit on stock subscription is merely an amount of money received by a corporation with a view of applying the same as payment for additional issuance of shares in the future, an event which may or may not happen. The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between the subscriber and the corporation. SEC. 175. Stamp Tax on Sales, Agreements to Sell. Memoranda of Sales, Deliveries or Transfer of Shares or Certificates of Stock. - On all sales, or agreements to sell, or memoranda of sales, or deliveries. Or transfer of shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such stock, or to secure the future payment of money, or for the future transfer of any stock, there shall be collected a documentary stamp tax of Seventy-five-centavos (P0.75) on each Two hundred pesos (P200), or fractional part thereof, of the par value of such stock: Provided, That only one tax shall be collected on each sale or transfer of stock from one person to another, regardless of whether or not a certificate of stock is issued, indorsed, or delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock. SEC. 176. Stamp Tax on Bonds, Debentures, Certificate of Stock or Indebtedness Issued in Foreign Countries. On all bonds, debentures, certificates of stock, or certificates of indebtedness issued in any foreign country, there University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation shall be collected from the person selling or transferring the same in the Philippines, such as tax as is required by law on similar instruments when issued, sold or transferred in the Philippines. SEC. 177. Stamp Tax on Certificates of Profits or Interest in Property or Accumulations. - On all certificates of profits, or any certificate or memorandum showing interest in the property or accumulations of any association, company or corporation, and on all transfers of such certificates or memoranda, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional part thereof, of the face value of such certificate or memorandum. Phil. Banking Corp. vs CIR In this case, SC said SSDA, a super/special savings deposit account, falls under Sec. 178 of NIRC on ‘certificates of deposits drawing interest’ because of SSDA’s features. And thus, applying said provision, DST is imposed on Certificates of Deposits Bearing Interest including a special savings account evidenced by a passbook. Moreover, a certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other person or his order. From the use of the conjunction or, instead of and, the negotiable character of a certificate of deposit is immaterial in determining the imposition of DST. International Exchange Bank vs CIR It is well-settled that certificates of time deposit are subject to the DST and that a certificate of time deposit is but a type of a certificate of deposit drawing interest. Thus, in resolving the issue before Us, it is necessary to determine whether petitioner's Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and characteristics as a time deposit. The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit. To claim that time deposits evidenced by passbooks should not be subject to DST is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of DST on documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest. SEC. 178. Stamp Tax on Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, and Other Instruments. - On each bank check, draft, or certificate of deposit not drawing interest, or order for the payment of any sum of money drawn upon or issued by any bank, trust company, or any person or persons, companies or corporations, at sight or on demand, there shall be collected a documentary stamp tax of One peso and fifty centavos (P1.50). SEC. 179. Stamp Tax on All Debt Instruments. - On every original issue of debt instruments, there shall be collected a documentary stamp tax on One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ration of its term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan. For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government of any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation. SEC. 180. Stamp Tax on All Bills of Exchange or Drafts. - On all bills of exchange (between points within the Philippines) or drafts, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange or draft. SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. - Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent to such value, if expressed in foreign currency. SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of Credit. - On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three (3) or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign currency. SEC. 183. Stamp Tax on Life Insurance Policies. - On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional part thereof, of the amount of premium collected. CIR vs Manila Bankers’ Life Insurance Corp. the documentary stamp tax on insurance policies, though imposed on the document itself, is actually levied on the privilege to conduct insurance business. Under Section 173, the documentary stamp tax becomes due and payable at the time the insurance policy is issued, with the tax based on the amount insured by the policy as provided for in Section 183. it is clear from the text of the guaranteed continuity clause that what the respondent was actually offering in its Money Plus Plan was the option to renew the policy, after the expiration of its original term. Consequently, the acceptance of this offer would give rise to the renewal of the original policy. And thus, it is indisputably subject to the imposition of documentary stamp tax under Section 183 as an insurance renewed upon the life of the insured. For group life insurance plan, whenever a master policy admits of another member, another life is insured and covered. This means that by approving the addition of another member to its existing master policy, it is once more exercising its privilege to conduct the business of insurance, because it is yet again insuring a life. It does not matter that it did not issue another policy to effect this change. Group insurance plan is embodied in a contract which includes not only the master policy, but all documents subsequently attached to the master policy. The assessment for deficiency documentary stamp tax is being upheld not because the additional premium payments or an agreement to change the sum assured during the effectivity of an insurance plan are subject to documentary stamp tax, but because documentary stamp tax is levied on every document which establishes that insurance was made or renewed upon a life.
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Societas Spectra Legis Taxation Law 2 Compilation CIR vs Lincoln Philippine Life Insurance Co. It is clear from Section 173 that the payment of documentary stamp taxes is done at the time the act is done or transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 183 is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary measurement. The subject insurance policy at the time it was issued contained an “automatic increase clause.” Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the “junior estate builder policy” called the “automatic increase clause” already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age. The said increase however is imposable with documentary stamp taxes. The original documentary stamps tax paid by Lincoln Philippine covers the original amount of the policies without the projected increase. The said increase was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy. The deficiency of documentary stamp tax imposed on private respondent is definitely not on the amount of the original insurance coverage, but on the increase of the amount insured upon the effectivity of the "Junior Estate Builder Policy." SEC. 184. Stamp Tax on Policies of Insurance Upon Property. - On all policies of insurance or other instruments by whatever name the same may be called, by which insurance shall be made or renewed upon property of any description, including rents or profits, against peril by sea or on inland waters, or by fire or lightning, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Four pesos (P4.00), or fractional part thereof, of the amount of premium charged: Provided, however, That no documentary stamp tax shall be collected on reinsurance contracts or on any instrument by which cession or acceptance of insurance risks under any reinsurance agreement is effected or recorded. SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies. - On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage or liability made or renewed by any person, association, company or corporation transacting the business of accident, fidelity, employer’s liability, plate, glass, steam, boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Four pesos (P4.00), or fractional part thereof, of the premium charged. Philippine Health Care vs CIR the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or liability. For taxation purposes, SC said that HMO contracts are not insurance contracts and should not be subject to DST under Sec. 185. Atty. A: SC said that HMO contract is not an insurance contract, for tax purposes, because DST applies if, first, the document is an insurance policy or an obligation in the nature of indemnity. Second, the maker should be University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation transacting the business of accident, fidelity, employer’s liability, plate, glass, steam, boiler, burglar, elevator, automatic sprinkler, or other branch of insurance. HMO companies are not engage in the business of insurance, so it will not comply with the 2nd requirement. So their HMO contracts is not an insurance contract, and thus, not subject to DST. Lastly, SC said that in HMO contracts, there is no distribution of risks but only reduction of cost. SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need Plans. - On all policies of annuities, or other instruments by whatever name the same may be called, whereby an annuity may be made, transferred or redeemed, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional part thereof, of the premium or installment payment or contract price collected. On pre-need plans, the documentary stamp tax shall be Twenty centavos (P0.20) on teach Two hundred pesos (P200), or fractional part thereof, of the premium or contribution collected. SEC. 187. Stamp Tax on Indemnity Bonds. - On all bonds for indemnifying any person, firm or corporation who shall become bound or engaged as surety for the payment of any sum of money or for the due execution or performance of the duties of any office or position or to account for money received by virtue thereof, and on all other bonds of any description, except such as may be required in legal proceedings, or are otherwise provided for herein, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Four pesos (P4.00), or fractional part thereof, of the premium charged. SEC. 188. Stamp Tax on Certificates. - On each certificate of damages or otherwise, and on every certificate or document issued by any customs officer, marine surveyor, or other person acting as such, and on each certificate issued by a notary public, and on each certificate of any description required by law or by rules or regulations of a public office, or which is issued for the purpose of giving information, or establishing proof of a fact, and not otherwise specified herein, there shall be collected a documentary stamp tax of Fifteen pesos (P15.00). SEC. 189. Stamp Tax on Warehouse Receipts. - On each warehouse receipt for property held in storage in a public or private warehouse or yard for any person other than the proprietor of such warehouse or yard, there shall be collected a documentary stamp tax of Fifteen pesos (P15.00): Provided, That no tax shall be collected on each warehouse receipt issued to any one person in any one calendar month covering property the value of which does not exceed Two hundred pesos (P200). SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or Other Authorized Numbers Games. - On each jaialai, horse race ticket, lotto, or other authorized number games, there shall be collected a documentary stamp tax of Ten centavos (P0.10): Provided, That if the cost of the ticket exceeds One peso (P1.00), an additional tax of Ten centavos (P0.10) on every One peso (P1.00, or fractional part thereof, shall be collected. SEC. 191. Stamp Tax on Bills of Lading or Receipts. - On each set of bills of lading or receipts (except charter party) for any goods, merchandise or effects shipped from one port or place in the Philippines to another port or place in the Philippines (except on ferries across rivers), or to any foreign port, there shall be collected documentary stamp tax of One peso (P1.00), if the value of such goods exceeds One hundred pesos (P100) and does not exceed One Thousand pesos (P1,000); Ten pesos (P10), if the value exceeds One thousand pesos (P1,000): Provided, however, That freight tickets covering goods, merchandise or effects carried as accompanied baggage of passengers on land and water carriers primarily engaged in the transportation of passengers are hereby exempt. SEC. 192. Stamp Tax on Proxies. - On each proxy for voting at any election for officers of any company or association, or for any other purpose, except proxies issued affecting the affairs of associations or corporations organized for religious, charitable or literary purposes, there shall be collected a documentary stamp tax of Fifteen pesos (P15.00). University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation SEC. 193. Stamp Tax on Powers of Attorney. - On each power of attorney to perform any act whatsoever, except acts connected with the collection of claims due from or accruing to the Government of the Republic of the Philippines, or the government of any province, city or municipality, there shall be collected a documentary stamp tax of Five pesos (P5.00). SEC. 194. Stamp tax on Leases and Other Hiring Agreements. - On each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp tax of Three pesos (P3.00) for the first Two thousand pesos (P2,000), or fractional part thereof, and an additional One peso (P1.00) for every One Thousand pesos (P1,000) or fractional part thereof, in excess of the first Two thousand pesos (P2,000) for each year of the term of said contract or agreement. SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. - On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing of forborne to be paid, being payable and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates: (a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20.00). (b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional tax of Ten pesos (P10.00). On any mortgage, pledge, or deed of trust, where the same shall be made as a security for the payment of a fluctuating account or future advances without fixed limit, the documentary stamp tax on such mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust. However, if subsequent advances are made on such mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is specified in such mortgage, pledge or deed of trust, the documentary stamp tax prescribed in this Section shall be paid and computed on the full amount of the loan or credit granted. Lhullier Pawnshop vs CIR Section 195 of the National Internal Revenue Code (NIRC) imposes a DST on every pledge regardless of whether the same is a conventional pledge governed by the Civil Code or one that is governed by the provisions of P.D. No. 114. All pledges are subject to DST, unless there is a law exempting them in clear and categorical language. This explains why the Legislature did not see the need to explicitly impose a DST on pledges entered into by pawnshops. These pledges are already covered by Section 195 and to create a separate provision especially for them would be superfluous. It is for this reason why the definition of pawnshop ticket, as not an evidence of indebtedness, is inconsequential to and has no bearing on the taxability of contracts of pledge entered into by pawnshops. For purposes of Section 195, pawnshop tickets need not be an evidence of indebtedness nor a debt instrument because it taxes the same as a pledge instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it from the imposition of DST. It was correctly defined as such because the University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation ticket itself is not the security but the pawn or the personal property pledged to the pawnbroker. SEC. 196. Stamp tax on Deeds of Sale and Conveyances of Real Property. - On all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement, or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting parties is the Government the tax herein imposed shall be based on the actual consideration. (a) When the consideration, or value received or contracted to be paid for such realty after making proper allowance of any encumbrance, does not exceed One thousand pesos (P1,000) - fifteen pesos (P15.00). (b) For each additional One thousand Pesos (P1,000), or fractional part thereof in excess of One thousand pesos (P1,000) of such consideration or value - Fifteen pesos (P15.00). When it appears that the amount of the documentary stamp tax payable hereunder has been reduced by an incorrect statement of the consideration in any conveyance, deed, instrument or writing subject to such tax the Commissioner, provincial or city Treasurer, or other revenue officer shall, from the assessment rolls or other reliable source of information, assess the property of its true market value and collect the proper tax thereon. Atty. A: this is a very important provision. This is very common especially in selling real properties. Let’s recall, in transaction involving real properties, the tax implications are: - If it is a capital asset, subject to: (1) CGT at a rate of 6% based on FMV, zonal or assessed, or gross selling price, whichever is higher; and (2) DST at a rate of 15pesos for every 1000pesos. -
If it is an ordinary asset, subject to: (1) income tax collected thru creditable withholding tax at a rate of 6%; (2) VAT or OPT (depending on the value); and (3) DST at a rate of 15pesos for every 1000pesos.
Fort Bonifacio vs CIR The Special Patent absolutely and irrevocably grant and convey" the legal title over the land to FBDC. In effect, the Republic admitted that the Deed of Absolute Sale was only a formality, not a vehicle for conveying ownership. DST is by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law. These privileges may cover the creation, modification or termination of contractual relationships by executing specific documents like deeds of sale, mortgages, pledges, trust and issuance of shares of stock. The sale of Fort Bonifacio land was not a privilege but an obligation imposed by law which was to sell lands in order to fulfill a public purpose. To charge DST on a transaction which was basically a compliance with a legislative mandate would go against its very nature as an excise tax. Atty. A: this tells us then that there’s an exception from DST – when the transaction is pursuant to a legal obligation. SEC. 197. Stamp Tax on Charter Parties and Similar Instruments. – On every charter party, contract or agreement for the charter of any ship, vessel or steamer, or any letter or memorandum or other writing between the captain, master or owner, or other person acting as agent of any ship, vessel or steamer, and any other person or persons for or relating to the charter of any such ship, vessel or steamer, and on any renewal or University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation transfer of such charter, contract, agreement, letter or memorandum, there shall be collected a documentary stamp tax at the following rates: (a) If the registered gross tonnage of the ship, vessel or steamer does not exceed one thousand (1,000) tons, and the duration of the charter or contract does not exceed six (6) months, Five hundred pesos (P500); and for each month or fraction of a month in excess of six (6) months, an additional tax of Fifty pesos (P50.00) shall be paid. (b) If the registered gross tonnage exceeds one thousand (1,000) tons and does not exceed ten thousand (10,000) tons, and the duration of the charter or contract does not exceed six (6) months, One thousand pesos (P1,000); and for each month or fraction of a month in excess of six (6) months, an additional tax of One hundred pesos (P100) shall be paid. (c) If the registered gross tonnage exceeds ten thousand (10,000) tons and the duration of the charter or contract does not exceed six (6) months, One thousand five hundred pesos (P1,500); and for each month or fraction of a month in excess of six (6) months, an additional tax of One hundred fifty pesos (P150) shall be paid. SEC. 198. Stamp Tax on Assignments and Renewals of Certain Instruments. - Upon each and every assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there shall be levied, collected and paid a documentary stamp tax, at the same rate as that imposed on the original instrument. SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The provisions of Section 173 to the contrary notwithstanding, the following instruments, documents and papers shall be exempt from the documentary stamp tax: (a) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit. (b) Certificates of oaths administered to any government official in his official capacity or of acknowledgment by any government official in the performance of his official duties, written appearance in any court by any government official, in his official capacity; certificates of the administration of oaths to any person as to the authenticity of any paper required to be filed in court by any person or party thereto, whether the proceedings be civil or criminal; papers and documents filed in courts by or for the national, provincial, city or municipal governments; affidavits of poor persons for the purpose of proving poverty; statements and other compulsory information required of persons or corporations by the rules and regulations of the national, provincial, city or municipal governments exclusively for statistical purposes and which are wholly for the use of the bureau or office in which they are filed, and not at the instance or for the use or benefit of the person filing them; certified copies and other certificates placed upon documents, instruments and papers for the national, provincial, city or municipal governments, made at the instance and for the sole use of some other branch of the national, provincial, city or municipal governments; and certificates of the assessed value of lands, not exceeding Two hundred pesos (P200) in value assessed, furnished by the provincial, city or municipal Treasurer to applicants for registration of title to land. (c) Borrowing and lending of securities executed under the Securities Borrowing and lending Program of a registered exchange, or in accordance with regulations prescribed by the appropriate regulatory authority: Provided, however, That any borrowing or lending of securities agreement as contemplated hereof shall be duly covered by a master securities borrowing and lending agreement acceptable to the appropriate regulatory University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation authority, and which agreements is duly registered and approved by the Bureau of Internal Revenue. (BIR). (d) Loan agreements or promissory notes, the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000), or any such amount as may be determined by he Secretary of Finance, executed by an individual for his purchase on installment for his personal use or that of his family and not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set by the Secretary of Finance shall be in accordance with a relevant price index but not to exceed ten percent (10%) of the current amount and shall remain in force at least for three (3) years. (e) Sale, barter or exchange of shares of stock listed and traded through the local stock exchange for a period of five (5) years from the effectivity of this Act. (f) Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no change in the maturity date or remaining period of coverage from that of the original instrument. (g) Fixed income and other securities traded in the secondary market or through an exchange. (h) Derivatives: Provided, That for purposes of this exemption, repurchase agreements and reverse repurchase agreements shall be treated similarly as derivatives. (i) Interbranch or interdepartmental advances within the same legal entity. (j) All forebearances arising from sales or service contracts including credit card and trade receivables: Provided, That the exemption be limited to those executed by the seller or service provider itself. (k) Bank deposit accounts without a fixed term or maturity. (l) All contracts, deeds, documents and transactions related to the conduct of business of the Banko Sentral ng Pilipinas. (m) Transfer of property pursuant to Section 40(c)(2) of the National Internal Revenue Code of 1997, as amended. (n) Interbank call loans with maturity of not more than seven (7) days to cover deficiency in reserves against deposit liabilities, including those between or among banks and quasibanks. SEC. 200. Payment of Documentary Stamp Tax. – (A) In General. - The provisions of Presidential Decree No. 1045 notwithstanding, any person liable to pay documentary stamp tax upon any document subject to tax under Title VII of this Code shall file a tax return and pay the tax in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. (B) Time for Filing and Payment of the Tax. - Except as provided by rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, the tax return prescribed in this Section shall be filed within ten (10) days after the close of the month when the taxable document was made, signed, issued, accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is filed.
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Societas Spectra Legis Taxation Law 2 Compilation Atty. A: as what is being practiced now and as what can be found in the BIR website, the filing of return and payment is always within the 5th day of the month following the month of the transaction. (C) Where to File. - Except in cases where the Commissioner otherwise permits, the aforesaid tax return shall be filed with and the tax due shall be paid through the authorized agent bank within the territorial jurisdiction of the Revenue District Office which has jurisdiction over the residence or principal place of business of the taxpayer. In places where there is no authorized agent bank, the return shall be filed with the Revenue District Officer, collection agent, or duly authorized Treasurer of the city or municipality in which the taxpayer has his legal residence or principal place of business. (D) Exception. - In lieu of the foregoing provisions of this Section, the tax may be paid either through purchase and actual affixture; or by imprinting the stamps through a documentary stamp metering machine, on the taxable document, in the manner as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. SEC. 201. Effect of Failure to Stamp Taxable Document. - An instrument, document or paper which is required by law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps are affixed thereto and cancelled. Atty. A: memorize the rates and tax base of the provisions I mentioned. And then take note on those transactions which are exempt from DST (Sec. 199). If you issue shares of stock thru the local stock exchange, will it be subject to DST? No, it is not subject to DST. There’s a new law extending this exemption. COVERAGE: All of VAT, OPT and DST.
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THE BUREAU OF INTERNAL REVENUE CHIEF OFFICIALS OF THE BUREAU OF INTERNAL REVENUE 1. Commissioner 2. Four (4) assistant chiefs to be known as Deputy Commissioners.
POWERS AND DUTIES OF THE BUREAU OF INTERNAL REVENUE 1. Assessment and collection of all national internal revenue taxes, fees, and charges. It cannot collect Local Taxes as well as the taxes imposed under the Tariff and Customs Code. 2. Enforcement of all forfeitures, penalties, and fines connected therewith 3. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. 4. Give effect to and administer the supervisory and police powers conferred to it by this Code or other laws.
POWERS OF THE COMMISSIONER 1) Interpret Tax Laws and to Decide Tax Cases, subject to review by the Secretary of Finance. How? Through the recommendation of the Commissioner, the Secretary of Finance issues Revenue Regulations. Revenue regulation: refers to the general interpretation and implementation of the Tax Code. (Legislative function). This comes first before any other issuances by the BIR or the Secretary of Finance. Revenue ruling: refers to the ruling of the Commissioner based on specific sets of facts and you want to know the tax implication based on the transaction you are engaged in. (Interpretative) If you want to question the ruling of the Secretary of Finance, you go to the Office of the President. CASC 2) The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. CTASC 3) Obtain Information, and to Summon, Examine, and Take Testimony of Persons i. To examine any book, paper, record, or other data which may be relevant or material to such inquiry ii. To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. a. Must be a third party which a taxpayer has relations. iii. To summon the person liable for tax. iv. To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry. 4) Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. Best Evidence obtainable - in case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. 1. Refers to third party information which are relevant. Authority to Conduct Inventory-taking, Surveillance. 1. Basis: if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. 2. Usually applicable to entities subject to Excise tax. Authority to Prescribe Presumptive Gross Sales and Receipts. 1. Basis: if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. 2. BIR usually looks at all the other entities within the same industry in order to compare figures. 3. Example: X is engaged in furniture making, and there are other entities which are also engaged in the same business. If BIR notices that the sale of X is declining while all the other business’ sale are increasing, then BIR make impose presumptive sales on X. 4. The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct. Authority to Terminate Taxable Period 1. Authority to issue an assessment (Jeopardy Assessment) right away without the benefit of an audit when the BIR believes that the prescriptive period for making an assessment is about to expire and the government will be prejudice for reason of the delay attributable to the taxpayer. 2. Usually resorted to when taxpayer is: Retiring from business subject to tax Intending to leave the Philippines Intending to remove his property therefrom or to hide or conceal his property, Performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately. Power to prohibit the withdrawal of returns, statements or declarations filed with the BIR. 1. Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn Provided: That within three (3) years from the date of such filing, the same may be modified, changed, or amended; That no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer. 5) Authority of the Commissioner to Prescribe Real Property Values The CIR is authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. 1. Taxes which requires the BIR to determine the values: CGT on real property transactions Estate taxes Donor taxes For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of: 1) the fair market value as determined by the Commissioner; or 2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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7) 8) 9)
BIR has no power over assessors. Authority of the Commissioner to Inquire into Bank Deposit Accounts Notwithstanding any contrary provision of Republic Act No. 1405 and other general or special laws, the Commissioner is hereby authorized to inquire into the bank deposits of: 1) a decedent to determine his gross estate; and 2) any taxpayer who has filed an application for compromise of his tax liability under Sec. 204(A)(2) (Compromise) of this Code by reason of financial incapacity to pay his tax liability. Condition before a bank may into such account: The taxpayer who filed such application must waive in writing his privilege under Republic Act No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer. 3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of: Provided, That the information obtained from the banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes. (R.A. No. 10021) Conditions before a bank may into such account: i. The exchange of information shall be done in a secure manner to ensure confidentiality thereof ii. A statement that the requesting foreign tax authority has exhausted all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties. Authority to Accredit and Register Tax Agents Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements. Catch all provision. Authority of the Commissioner to Delegate Power What are those powers which the Commissioner is prohibited from delegating? 1. Recommend the promulgation of rules and regulations by the Secretary of Finance Recommendation can only be made by the CIR. 2. Issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; There has been no ruling on such particular subject matter. 3. Compromise or abate, under Sec. 204(A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal violations, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; Example: A taxpayer has a total assessment for income tax of P850,000 (basic tax of P500,000 and a surcharge of P125,000 and an interest of P200,000). This does not fall under the exclusive power of the CIR because you only account for the basic deficiency taxes in determining whether or not if falls under the exclusive power of the CIR. GROUNDS FOR COMPROMISE 1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or A minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
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Societas Spectra Legis Taxation Law 2 Compilation 2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. A minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax. TN: Where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. GROUNDS FOR ABATEMENT 1. The tax or any portion thereof appears to be unjustly or excessively assessed; 2. The administration and collection costs involved do not justify the collection of the amount due. COMPROMISE ABATEMENT A reduction of your tax liability A cancellation of your tax liability TN: Under the Revenue Regulation, it appears that what is just allowed to be abated are only the penalties. 4. The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. BIR does not want their personnel to establish close relationship with these entities subject to excise tax.
AGENCIES INVOLVED IN TAX ADMINISTRATION 1. BIR 2. Customs 3. Local Government Unit’s Loca treasurers can be delegated by the Commissioner. Usually happens in remote areas.
REMEDIES OF A TAXPAYER AFTER ASSESSMENT BUT BEFORE PAYMENT IS MADE 1. Protest of the assessment - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation. i. Motion for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. ii. Motion for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. 2. Enter into a compromise or request for abatement.
REMEDIES OF A TAXPAYER AFTER PAYMENT HAS BEEN MADE 1. Claim for refund or tax credit. Instances when you can ask for refund/ tax credit: i. Any taxes erroneously or illegally assessed or collected. ii. Any penalty claimed to have been collected without authority. iii. Any sum alleged to have been excessively or in any manner wrongfully collected University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Tax credit shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance This tax credit certificate can be used to pay other National Internal Revenue taxes. Tax credit certificate are not transferrable.
WHEN CAN YOU CLAIM TAX REFUND OR TAX CREDIT:
Take note: Provision for refund under remedies chapter should not apply to vat refunds because it is not erroneously paid or excessively collected. (Aichi case) This applies: o SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been: erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. xxx
REQUISITE FOR YOU TO FILE A TAX REFUND OR TAX CREDIT: show proof of payment such as your ITR must be in writing claim for refund must be claim within 2 years from the DATE OF PAYMENT
2 YEAR PERIOD FOR REFUND: BOTH ADMINISTRATIVE & JUDICIAL Does this 2 year period to file a claim include both admin & judicial claim? SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - xxx In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.
Example: April 15 2001 paid income tax for 2000 of 500,000. It should have been only 50,000. o 1st step: He must be able to file a tax refund to the BIR on or before April 15 2003. There must FIRST BE AN ADMINSTRATIVE CASE with BIR. o BIR DENIES within the 2 years: If within the 2 yr, let say 5/15/2002 the BIR denies your claim your remedy is to APPEAL with the CTA within a period of 30 days. So appeal on or before 6/14/2002. Then if the CTA denies the appeal at 7/15/2002, your remedy is rule 45 with the SC within 15 days from denial. o As a rule, this 2-year period should be both for administrative & judicial, but if the BIR DENIES exactly at April 15,2003 or there is inaction of BIR. Are you barred to appeal because your period to start and finish the judicial remedy has lapsed?
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o
No. It is NOT REQUIRED that the entire JUDICIAL PROCESS be finished within the 2 yr period. It is enough that you COMMENCE the judicial proceedings within the 2 yr period. The moment you made an appeal to CTA at April 15, 2003 the 2-year period is tolled. Then wait for the CTA decision and if unfavorable you have 15 days to appeal such decision with the SC. TAKE NOTE because this is where the trick is, you do not wait for the decision of the BIR if you know that the 2-year period is about to lapse because they might make a decision after the 2 year period. So before the end of the period and still you do not get an answer from the BIR, you should file your appeal with the CTA to toll the running of the period. Can you simultaneously file your judicial and administrative claim, so in the example its 4/15/2003 which is the last day, can you make an appeal with CTA on top of your filing in the BIR. Is this allowed? It is allowed considering the 2 year period is about to lap, you don’t have any other option but to pursue them together. BUT YOU CANNOT GO DIRECTLY to Judicial. There is a requirement that an administrative claim must also be filed. If it is 4/12/2003, you cannot yet file with the judicial because you have no cause to pursue the judicial claim because there is still time. It may be filed on the 14th of April, it is a matter of justifying that there is no more time to file the judicial claim if you wait for the decision of the BIR but again the CTA may deny the filing by saying that you still have a day to wait for the BIR. So to be safe the ground to file a judicial despite the lack of decision from the BIR is when you have NO OTHER OPTION, such as on the day of the deadline.
EFFECTIVITY PERIOD OF THE TAX REFUND:
SEC. 230. Forfeiture of Cash Refund and of Tax Credit. (A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the pertinent provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund. (B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund.
CHECK or WARRANT 5 years from the date the said warrant or check was mailed or delivered or issued to taxpayer TAX CREDIT CERTIFICATE 5 years from issue UNLESS revalidated for another 5 years
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Societas Spectra Legis Taxation Law 2 Compilation ADMINISTRATIVE & JUDICIAL PROCESS OF PROTESTING: PROCESS: 1. Taxpayer is served by the BIR with a Letter of Authority or Notice (LOA) for them to be audit and the taxpayer to produce some documents. (but not a strict requirement, may or may not be issued) 2. Upon meetings with BIR, most likely you will disagree, so The taxpayer is issued by the BIR with a PreAssessment Notice (PAN). And you must give a REPLY within 15 days. Failure to reply within 15 days PAN will be considered as final, executor and demandable so a (Final Assessment Notice) FAN will be issued. If the BIR does not agree with your reply still the BIR will issue a FAN. Importance of the giving a reply is to get the cooperation of the BIR in assessing your deficiency rather than do nothing. GR: PAN is part of the due process of the taxpayer therefore there must first be a PAN before a FAN. o EXC: PAN is not required in certain instances: SEC. 228. Protesting of Assessment. – xxx. That a pre-assessment notice shall not be required in the following cases: i. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or
(Ex. instead of you tax due is supposed to be 10K but you wrote there 1K) ii. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (the agent tries defraud the gov. by not remitting) iii. 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; or iv. When the excise tax due on exciseable articles has not been paid; or v. When the 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. (TECHNICAL IMPORTATION) NEW RULES: Informal Conference is not required anymore.
3. File a protest with the CIR (in manila or a NR individual/NR Foreign Corpo) or BIR-RDO where you file your return within 30 days from RECEIPT of FINAL LETTER OF DEMAND (FLD)/FINAL ASSESSMENT NOTICE (FAN). TYPES OF PROTEST: Motion for reconsideration – there were documents submitted already; o Under the new rule, MR the 60 days to file your supporting documents do not apply. Motion for reinvestigation - re-evaluation but based on new evidence or additional evidence; o 60 days to file your supporting documents. o Who determines these documents? At whose option is this? Can the BIR say “this is not the supporting documents you are looking for”(matching Jedi voice)? These are supporting documents, which are necessary to support the position of the taxpayer, which is determined by the taxpayer himself. o Failure to file the supporting documents will simply continue the process with the same documents they will not automatically deny your protest but again your wasting the time of the BIR and aggravates more reason to deny your protest.
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Societas Spectra Legis Taxation Law 2 Compilation 4. After the submitting the supporting documents within 60 days (if reinvestigation) or after the lapse of the 30 days (if reconsideration), the BIR is given 180 days to make their decision on your protest. a. Total No. of Days: 15 (PAN) + 30 (FAN) + 60 +180 = 285 days. (re-investigation) b. Total No. of Days: 15 (PAN) + 30 (FAN) + 180 reconsideration 5. After the 180 days: a. LASCONA CASE: if BIR did not do anything within the 180 day period and it will lapse, the taxpayer has two options which are mutually exclusive: i. File a petition with CTA from the lapse of the 180 days ii. Wait for the BIR decision b. If within the 180 days BIR denies, your only option is to file a Petition for Review (Rule 43)with the CTA 30 days from the receipt of the decision. 6. After the CTA and decision is adverse, go to the SC under rule 45 on Petition for Review on Certiorari
REMEDIES OF THE GOVERNMENT:
Administrative o Distraint of personal property or levy on real property o Enforcement of lien over the property o Enforcement of forfeiture o Compromise o Abatement o Suspension of business operation o Imposition of penalties and fines Judicial
TAX LIEN Charge on the property of the taxpayer. Law did not make a distinction whether personal or real as long as you have a tax liability. The implication of this is the government has a claim over the property and in fact it is superior. DISTRAINT Personal property that can be carried by the BIR ACTUAL DISTRAINT How is this effected: o This is a summary remedy; there is no need for face-to-face encounter. Automatically effected by the authority. o Who commences: More than 1M CIR 1M or less RDO o PROCEDURE: the CIR/RDO will cause the service of warrant of distraint the sherrif will make a report on the distraint possession of the property will then be divested from the taxpayer the distraint property may be sold at a public auction CONSTRUCTIVE DISTRAINT this is effected when the personal property is so big that it would be unwise to transfer such property such as big machineries. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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PROCEDURE: o After service of the warrant of constructive distraint, the taxpayer or any person having possession of the particular property has to sign a receipt covering the property distrained. In addition, by signing such receipt the person undertakes and obligates himself to preserve the property intact and unaltered and not to dispose of the property in any manner without the express authority of the BIR. o If the peson refuses to sign, the officer who served the constructive warrant has to prepare a list describing the particular property and in the presence of two witnesses, leave a copy of the list of the distraint where the property is located. WHEN REQUIRED: o SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion: is retiring from any business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.
GARNISHMENT still a form of distraint HOW EFFECTED: o SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale. o Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities. o Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient authority to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits. o Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government. LEVY ON REAL PROPERTY After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed real property may be levied upon, before simultaneously or after the distraint of personal property belonging to the delinquent. any internal revenue officer designated by the Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Said certificate shall operate with the force of a legal execution throughout the Philippines.
WHEN CAN BE EFFECTED:
Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the o Register of Deeds for the province or city where the property is located and o upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question. If still the taxpayer will not pay, it will make an advertisement of the sale and conduct the public sale of the property
CAN IT BE DONE TOGETHER WITH DISTRAINT?
After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed real property may be levied upon, before simultaneously or after the distraint of personal property belonging to the delinquent.
FORFEITURE Divestiture of property without compensation The only condition is that THERE IS NO OTHER BIDDER or BID is NOT ENOUGH TO PAY THE TAX LIABILITY. COMPROMISE Contract whereby parties making reciprocal concessions to avoid litigation or put an end to one the has already commenced REQ: o There must be a tax liability o There must be an offer on the part of the tax payer o BIR must accept the offer WHO CAN ENTER INTO A COMPROMISE: o CIR o Regional Evaluation Board Basic Deficiency tax(BDT) is 500K or less & minor violations discovered by regional and district officials Grounds: 1. Doubtful validity of the taxed assessed (40% of the basic assessed tax) or 2. Financial position of the tax payer demonstrates a clear inability to pay the assessed tax (10-20-40% depend on the financial position of the taxpayer, 10% lowest) o National Evaluation Board when the BDT exceeds 1M or where the settlement offered is less than the prescribed minimum rates WHEN IS COMPROMISE ALLOWED: (hanging question not ans.: ANS based on net) o Before the complaint is filed with the prosecutor’s office: the CIR has full discretion to compromise EXCEPT those involving FRAUD o After the complaint is filed with the prosecutor BUT BEFORE the information is filed with the court: CIR can still compromise PROVIDED with consent of the prosecutor o After the information is filed with the court: NO LONGER ALLOWED TO COMPROMISE
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Societas Spectra Legis Taxation Law 2 Compilation SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. Distraint applies to personal properties. Under what the instances may the government resort to constructive distraint? 3. 4. 5. 6. 7. 8.
Taxpayer is delinquent
The taxpayer is retiring from any business subject to tax; He intends to leave the Philippines;
He removes his property therefrom;
Taxpayer hides or conceals his property;
He performs any act tending to obstruct the proceedings for collecting the tax due or which may be due from him
Sir: Constructive distraint can also be effected if there is delinquency. It’s just that not in all instances will it be required that there is delinquency because as a matter of fact, this remedy is granted in order to forestall any delinquency in the payment of tax. Matter of fact, constructive distraint can be resorted to even if there the TP is not delinquent but he falls under the instances (as mentioned above). How is it affected? Sec. 206. (par. 2 and 3). The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same ;in any manner whatever, without the express authority of the Commissioner. In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. General Rule: - Affected on any person, whether it’s the TP or other person, having possession or control of such property - By letting him sign a receipt - Obligate himself to preserve and not dispose the said property without the express authority of the Commissioner Exception: when there is refusal or failure to sign the receipt, the revenue officer will— - Prepare a list of such property - in the presence of two witnesses, leave a copy in the premises where property distrained is located What if no one is interested to buy the distrained property? - The government will purchase the said property. That’s why there’s no forfeiture proceeding.
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Societas Spectra Legis Taxation Law 2 Compilation LEVY (B) Levy on Real Property.- After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the distraint of personal property belonging to the delinquent. To this end, any internal revenue officer designated by the Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the Philippines. Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question. In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint, proceed with the levy on the taxpayer's real property. Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That the Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy issued in accordance with the provisions hereof. Levy applies to real properties. Is it required that there should be an assessment before levy can be affected? - Yes, it is necessary because delinquency is a requirement How is effected? (1) The internal revenue officer shall prepare a duly authenticated certificate— - with the name of the TP; and - amount of tax and penalty due (2) Write the description of the property to be levied in the certificate (3) A written notice of levy shall be served upon— - the registry of deeds of the province or city where the property is located; and - upon the delinquent taxpayer; or o if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose; or o if there be none, to the occupant of the property in question. Is there forfeiture in levy proceedings? University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Yes, there is.
What is forfeiture? - Forfeiture is the divestiture of property without compensation, in consequence of a default or offense. Forfeiture applies to what type of property? - Real property. Sir: That’s why it falls under levy proceedings when the government wants to resort to forfeiture. So does that mean then that there’s no forfeiture in distraint proceedings? - No. What happens in distraint when there is no satisfaction of tax liability? - This is the time it can resort to levy because levy can be done before, simultaneous or after the execution of the distraint What if no one is interested to buy the levied property? - The property is forfeited to the Government. Distraint Personal property No assessment is required
Levy Real property Assessment is required before levy can be effected
No forfeiture
Forfeiture is authorized
SUSPENSION OF BUSINESS OPERATIONS IN VIOLATION OF VAT LAWS (SEC. 115) A business may be temporarily suspended for a period of not less than 5 days for any of the following violations: 1) Of a VAT-registered person – a) Failure to issue receipts or invoices;
b) Failure to file a VAT return;
c) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter. 2) Failure of any person to register as required under the Tax Code
COMPROMISE (A) Compromise the Payment of any Internal Revenue Tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. What are the grounds for compromise? (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. Sir: For the 1st ground of there’s a reasonable doubt as to the validity of the claim against the taxpayer exists, the 40% based on the basic assessed tax is the minimum compromise rate. Example: if there is total liability of 100K, so you pay 40K. For the 2nd ground of financial incapacity, the rate is 10%. So in the example, you pay 10K. What if the rate of the compromise is less than the prescribed minimum rate? - It can be allowed provided that there’s approval of the National Evaluation Board. Under what other instances do you need approval of the NEB? - When the basic tax involved is more than 1M. What are the cases which compromise is allowed? 1. Delinquent accounts 2. Cases under administrative protests when PAN has already been issued and the case is pending with the BIR 3. Civil tax cases being disputed before the courts 4. Collection cases filed in courts 5. Criminal violations not yet filed in court General Rule: Criminal cases may be compromised EXCEPTIONS: - Those already filed in court; - Those involving tax fraud (absolute prohibition) What are the cases NOT allowed to be compromise? 1) Withholding tax cases; - Because taxpayer is merely the tax imposed is not the withholding agent’s tax liability. Rather, it is his obligation to remit.
- EXCEPTION: If withholding agent can invoke provision of law that casts doubt on whether or not he is really liable and he has not withheld the tax, he may offer compromise. - EXCEPTION TO EXCEPTION: If he has already withheld the tax, no longer compromisable.
Criminal tax fraud cases whether or not filed in court;
Criminal violations already filed in court;
Delinquent accounts with duly approved schedule of installment payments;
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Societas Spectra Legis Taxation Law 2 Compilation Why is it not allowed to be compromised? Because these withholding taxes are readily available. This is not your own tax liability, you’re mere obligation is just to remit it. So that’s why it cannot be compromised. 2) Criminal tax fraud cases whether or not filed in court 3) Criminal violations already filed in court 4) Delinquent accounts with duly approved schedule of installment payments - There’s already a concession between the gov’t and the TP on the installment payments and yet the TP still committed delinquency. 5) Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision. - By giving his conformity to the revised assessment, the taxpayer admits the validity of the assessment and his capacity to pay the same. (The TP already agreed to the revised assessment) - If a revised FAN has been issued but the taxpayer disagrees thereto, the same is still compromisable. 6) Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment;
- If a judgment has become final and executory but on ground of financial incapacity, insolvency, receivership, suspension of payment, etc. (ground is not reasonable doubt), the case is still compromisable. 7) Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.
ABATEMENT When is abatement allowed? Sec. 204(B) 1) The tax or any portion thereof appears to be unjustly or excessively assessed; a. When the filing of the return/payment is made at the wrong venue; b. When the taxpayer’s mistake in payment of his tax is due to erroneous written official advice of a revenue officer;
c. When the taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute, force majeure, legitimate business reverses, provided, however, the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Sec. 249 of the Code; d. When the assessment is brought about or the result of taxpayer’s non-compliance with the law due to a difficult interpretation of said law.
e. When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control, provided, however, the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Sec. 249 of the Code;
f. Late payment of the tax under meritorious circumstances (ex. Failure to beat bank cut-off time, surcharge erroneously imposed, etc.)
2) The administration and collection costs involved do not justify the collection of the amount due. Abatement of penalties on assessment confirmed by the lower court but appealed by the taxpayer to a higher court
b. Abatement of penalties on withholding tax assessment under meritorious circumstances c. Abatement of penalties on delayed installment payment under meritorious circumstances
d. Abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment; and
a.
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Such other circumstances which the Commissioner may deem analogous to the enumeration above.
JUDICIAL REMEDIES What are the judicial remedies of the government? - Filing of a civil action or criminal action CIVIL ACTION There are 2 instances where the government gets to participate thru civil action: (1) By filing a civil case for the collection of a sum of money with the proper court; and - This is initiated by the government itself (2) By filing an answer to the petition for review filed by the taxpayer with the CTA. - If the BIR does not grant your protest, you have an option to file a petition for review with the CTA within 30 days after receipt of the decision or after the lapse of the 180 days. CRIMINAL ACTION Is it required that there be prior assessment before a criminal action can be filed for willful attempt to defeat and evade income tax? - An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. Ungab vs Cusi Take note of Fortune Tobacco case which seems to modify the rule. SC said that it is required that there should be an assessment before a criminal action can be filed. But under this case, there was failure of the BIR to establish clear probable cause intent to evade taxes. Unlike in the Ungab case, where the BIR has established a clear case of tax evasion. So then, as a general rule, as enunciated in the case of Adamson and case of Ungab, it is not required that there be an assessment before criminal case may be filed. Now, what if there is a criminal case filed against you and there was an assessment preceding it. So the BIR is trying to be very cautious. But the case was already filed in court. And then you made payment. Will that exculpate you from the criminal liability? - No. Because take note that tax evasion is separate and distinct from your payment of taxes obligation. What could be reduced by your payment of tax liability is the civil aspect. But the criminal liability stands. What should the judgment in the criminal case include? - In addition to the imposition of penalty of imprisonment from the criminal action, it should include an order of payment of taxes.
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Societas Spectra Legis Taxation Law 2 Compilation STATUTE OF LIMITATIONS FOR TAX REMEDIES Prescriptive Period: 3 years after the last day prescribed by law for the filing of the return or the day you default. Sir: there are these 2 dates that you must be mindful of: (a) when is the deadline of the payment of the taxes; (b) when is the return filed. Example: If the return is filed on April 20, 2015 for the 2014 taxes, the last day of assessment April 20, 2018 because the last day for filing April 15, 2015. But what if it was filed on April 10, 2015, the last day of assessment is on April 15, 2018. Take note that the taxes due for filing and payment on year 2015 are your 2014 tax liabilities. So be mindful as to when it is supposed to be filed. In summary and as a GENERAL RULE: If you made late filing which is beyond the deadline, your reckoning point is the date you actually filed.
If you filed the return before or on time, the reckoning point will be the deadline prescribed by law of the filing of the return.
EXCEPTIONS: (Sec. 222) Within 10 years after the discovery— - When you file a false return - When you file a fraudulent return - When you failed to file a return - When there is no return filed What happens if there is an amendment of the return? Does it affect the prescriptive period? It depends.
If the amendment is substantial (affects the tax liability of the taxpayer): you count from the date when the amended return was filed Sir: it affects the TP’s tax liability when it increases or decreases your sales or expenses. Either way.
If the amendment is not substantial: you count from the date when the original return was filed
Example 1: if I file a return on April 15, 2015 for my 2014 taxes and I committed a mistake on my registered address. So I amended it to reflect my correct address on April 30, 2015. When is the last day for the government to issue its assessment? April 15, 2018. Example 2: there is a return where it bears a loss of 100K filed on April 15, 2015. It committed a mistake, the loss incurred was actually 300K. So it filed an amended return on April 30, 2015. When is the last day of assessment? April 30, 2018. It should be from the day the amended return was filed. Losses affects your tax liability because it will allow you to claim more net operating loss carry over (NOLCO). Sir: But the book of Ricalde suggests that the test of substantiality that affects tax liability is when the increase or decrease in sales or deductions or expenses is more than 30%. But for me, it is when your tax liability is affected. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation When do you say that there is an assessment made? How do we know that the prescriptive period has already started? - When the FAN has already been RELEASED, MAILED and SENT. Sir: So if within the 3-year period there was PAN issued to the taxpayer but the FAN was issued the day after the expiration of the 3-year period, there is no valid assessment. Because assessment here refers to the FINAL Assessment Notice.
SUSPENSION OF PRESCRIPTIVE PERIOD FOR ASSESSMENT Instances: a. When the CIR is prohibited from making the assessment or beginning distraint and levy or a proceeding in court and for sixty (60) days thereafter; Example: So the TP was served a writ of levy on March 1, 2015. So in order that the writ will not reached the TP, he will have goons before his gate, so the BIR personnel never served the writ. So 1 year after, no more goons, so the writ was successfully served. When will the statute of limitation begin to run again? - 60 days after March 1, 2016. Take note that there’s no question that the CIR was prohibited to serve the assessment. So from that date, there is suspension of the prescriptive period. It’s March 1, 2016 because the law says “and for 60 days thereafter”. b. When the taxpayer requests for the reinvestigation which is granted by the CIR; c. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected; provided, that if the taxpayer informs the CIR of any change in address, the running of the Statute of Limitations will not be suspended; -
Under RR-18-2013, it mentions WHERE it can be served— On the registered address in the return; or On a KNOWN address
So even if you do not register with the BIR but BIR knows you are actually operating in such an address, then the BIR can serve your assessment there. So it follows, that the moment the BIR has knowledge about your known address, even if you did not re-register such address, the prescriptive period begins to run again. d. 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 could be located; and e. When the taxpayer is out of the Philippines
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Societas Spectra Legis Taxation Law 2 Compilation FOR COLLECTION If there is return filed: 3 years from the FAN If the return filed is false or fraudulent, or failure to file a return, or no return is filed at all: 5 years from the date of the FAN If there is NO assessment made: 10 years from the discovery Grounds: same as that for assessment— (letters a to e above) FOR JUDICIAL REMEDIES OF THE GOVERNMENT In criminal cases: Violations of the Code shall prescribe after five (5) years, which shall run from— - the commission or violation of the law or if the same is not known at the time from discovery thereof AND
- the institution of judicial proceedings for its investigation and punishment. It is as if it is imprescriptible because: - The Government may allege the violation as a later discovery by the internal revenue officers; or - It would depend on the institution as well of the judicial proceedings Can the taxpayer enjoin the collection of taxes? GR: NO, otherwise, it will hamper the operations of the government. (lifeblood doctrine) Sec. 218, NIRC – “(n)o court shall have the authority to grant injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.”
EXCEPTION: Suspension of the collection of the tax liability is allowed when all of the following conditions concur:
- Issued only by the CTA;
- Issued by the CTA in its appellate jurisdiction; and
- Collection may jeopardize the interest of the Government and/or the taxpayer. Suspension of collection may be granted by the CTA upon this ground but the taxpayer must either deposit the amount of taxes assessed or file a bond amounting to not more than twice the value of the tax being assessed
ADDITIONS TO THE TAX DUE (Sec. 247-252, NIRC) These are increments to the basic tax incident due to the taxpayer’s non-compliance with certain legal requirements. A. KINDS OF ADDITIONS TO THE TAX 1. CIVIL PENALTY OR SURCHARGE The payment of the surcharge is mandatory and the CIR is not vested with any authority to waive or dispense with the collection thereof. 25% Civil Penalty or Surcharge a. Failure to file any return and pay the tax due thereon; or University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation b. filing a return with an internal revenue officer other than those with whom the return is required to be filed; or -filing the return in a wrong revenue officer (sec 248 a) c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or d. Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment. (Sec. 248) 50% Civil Penalty or Surcharge The 50% surcharge is not a criminal penalty but a civil or administrative sanction provided primarily as a safeguard for the protection of the State revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from the taxpayer’s fraud (Castro vs. CIR, L-12174, Apr. 26, 1962) a. In case of willful neglect to file the return within the period prescribed by the Code, or -
will not apply in case a taxpayer, without notice from the Commissioner, or his duly authorized representative, voluntarily files the said return (only 25% shall be imposed)
-
50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the Commissioner or his duly authorized representative (Sec. 4.2, Rev. Reg. 12-99)
b. in case a false or fraudulent return is willfully made Test whether willfully not filling or fraudulently filing a return (Prima Facie Evidence – rebuttable) - UNDER reporting sales (or income or receipts) for more than 30% (substantial underdeclaration) -
OVER reporting of deductions for more than 30% (substantial overstatement ) (Sec. 248)
2. 20% INTEREST (per annum) For purposes of taxation, 1 year is 365 days (based on BIR’s computation) -> follow this o but there is a jurisprudence that says, for purposes of taxation, it is the administrative code that is followed, not the civil code provision that says 1 year is 360 days. But the admin code only says that 1 year is composed of 12 months. The interest shall be computed only on the basic deficiency tax (surcharge is not included in the computation). a. Deficiency Interest Any deficiency in the tax due shall be subject to the interest of 20% per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof (Sec. 249[B], NIRC).
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Societas Spectra Legis Taxation Law 2 Compilation b. Delinquency Interest – In case of failure to pay: o The amount of the tax due on any return required to be filed; or o o
The amount of the tax due for which no return is required; or A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the CIR (Sec. 249[C], NIRC).
Deficiency vs Deliquency Deficiency is based on self-assessment and the law. If based on self-assessment and provision of the law you are to pay taxes on this particular period, yet you failed to pay the full amount, whether there is a partial payment or none at all, you are subject to deficiency interest. Delinquency is based on assessment. When there is already an assessment and a schedule for payment, there is already a demand from the government, you are subject to delinquency interest. c. Interest of Extended Payment – An interest of 20% p.a. shall be assessed and collected in the following cases: o When a taxpayer elects to pay the tax on installment but fails to pay the tax or any installment thereof on or before the date prescribed for its payment; o
Where the CIR has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof (Sec. 249[D], NIRC).
3. COMPROMISE PENALTY It is a penalty imposed in settlement of a tax liability to get away from any criminal prosecution. In practice, this is imposed whenever there is a criminal violation of the tax code. Maximum: P 25,000 per taxable year (but there is a table, need not be memorized) 4. OTHER CIVIL PENALTIES AND ADMINISTRATIVE FINES (from mhealler notes; not discussed by atty A) The Government can impose administrative fines and penalties for specific and different violations. Example of violations: Failure to file certain information returns (Sec. 250, NIRC) Failure of a Withholding Agent to collect and remit tax (Sec. 251, NIRC). Failure of a Withholding Agent to refund excess withholding tax (Sec. 252, NIRC). Failure to register on time. Failure to file an ITR during an income tax holiday (liable for penalties but not for surcharge or interest because there is no basis for tax liability; taxpayer is on income tax holiday) In the foregoing examples, the erring taxpayer will be subjected to fines or penalties but the penalties are not increments to the basic tax due.
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COURT OF TAX APPEALS APPLICABLE LAW A. REPUBLIC ACT NO. 1125 o o o
The Law Creating the Court of Tax Appeals. Enacted on June 16, 1954 It only have 3 judges, 1 division
B. REPUBLIC ACT NO. 9282 o o
An Act Expanding the Jurisdiction of the Court of Tax Appeals, Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership 6 justices (1 presiding justice and 5 associate justices), 2 divisions
C. REPUBLIC ACT NO. 9503 o o o
An Act Enlarging the Organizational Structure of the Court of Tax Appeals 9 justices (1 presiding justice and 8 associate justices), 3 divisions, 3 justices per division Current presiding justice: Justice del Rosario
JURISDICTION OF THE CTA RA 1125, as amended by RA 9282 Sec. 7. Jurisdiction. - The CTA shall exercise: "a. Exclusive appellate jurisdiction to review by appeal, as herein provided: "1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; "2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; "3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; "4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs; "5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals; "6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code; "7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties. "b. Jurisdiction over cases involving criminal offenses as herein provided: "1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount o taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized. "2. Exclusive appellate jurisdiction in criminal offenses: "a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction. "b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. "c. Jurisdiction over tax collection cases as herein provided: "1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court. "2. Exclusive appellate jurisdiction in tax collection cases: "a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction. "b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction." ATTY A: (wala ko ka-gets asa ni gi-kuha ni sir, it’s not entirely the same sa provisions, or wa lang jd ko kita :p) JURISDICTION OF CTA UNDER RA 1125: 1. decisions of CIR involving disputed assessments or inactions 2. decisions of commissioner of customs 3. automatic review of decisions of Commissioner of Customs incase the decision is unfavorable to the government; and 4. decisions of secretary of trade and industry
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Societas Spectra Legis Taxation Law 2 Compilation UNDER RA 9282 additional cases: 1. criminal cases 2. RTC decision on local tax cases 3. Decisions of Central Board of Assessment appeals 4. Collection cases
A.M. No. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS JURISDICTION OF CTA En Banc (Rule 4, Sec. 2) SEC. 2. Cases within the jurisdiction of the Court en banc. – The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal the following: (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture; (2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction; and (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and penalties claimed is less than one million pesos; (b) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their appellate jurisdiction; (c) Decisions, resolutions or orders of the Regional Trial Courts in tax collection cases decided or resolved by them in the exercise of their appellate jurisdiction; NOTE: if the RTC is in the exercise of their appellate jurisdiction, you go directly to CTA En Banc. Reason: to have a uniform number of appeals – that is 2 appeals, from MTC to RTC to CTA En Banc. If it will still pass through CTA Division, the number of appeals in cases falling under the original jurisdiction of MTC will become three (3) – that is from MTC to RTC to CTA Division to CTA En Banc. It will be unfair for those cases falling under the original jurisdiction of the RTC because it can only appeal the decision twice – that is from RTC to CTA Division to CTA En Banc. (d) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over tax collection cases; (e) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals; Reason: to have a uniform number of appeals – that is 2 appeals, from treasurer automatically reviewed by the Local Board of Assessment Appeal to CBAA (first appeal) to CTA En Banc (second appeal). Note that review from treasurer to LBAA is not counted because it is an automatic review. REMEMBER: there are only TWO (2) levels of Appeal.
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Societas Spectra Legis Taxation Law 2 Compilation This is also the same for criminal cases (for tax violation cases). Only two levels of appeal. So if it falls under the original jurisdiction of the MTC, it will be appealed to RTC then to CTA En Banc. If it falls under the original jurisdiction of the RTC, it will be appealed to the CTA Division then to CTA En Banc. (f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs; (g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; and (h) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their appellate jurisdiction over criminal offenses mentioned in subparagraph (f). (n) JURISDICTION OF CTA Division (Rule 4, Sec. 3) SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code; (3) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their original jurisdiction; RTC Original jurisdiction: Involve amount exceeding 300k for outside metro manila or 400k for metro manila (4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures of other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs; University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation (5) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs adverse to the Government under Section 2315 of the Tariff and Customs Code; and (6) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture, in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties; (b) Exclusive jurisdiction over cases involving criminal offenses, to wit: (1) Original jurisdiction over all criminal offenses arising from violations of the National internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue of the Bureau of Customs, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is one million pesos or more; and (2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial Courts in their original jurisdiction in criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than one million pesos or where there is no specified amount claimed; *ORIGINAL JURISDICTION: 300k/400k or less – MTC Less than 1M but more than 300k/400k – RTC 1M or more – CTA Division Note: In determining jurisdiction, do not include the penalties or surcharges; look at the basic deficiency taxes. (c) Exclusive jurisdiction over tax collections cases, to wit: (1) Original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is one million pesos or more; and (2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them within their respective territorial jurisdiction. (n)
NO INJUNCTION RULE in tax collection GR: No court shall have the authority to grant an injunction to restrain the collection of any internal revenue tax, fee or charge imposed by the Tax Code. (Sec. 218) EXCEPTION: The CTA may suspend or restrain the collection of the tax when in its opinion, the collection of the tax may jeopardize the interest of the Government and/or the taxpayer. (Rule 58 – preliminary injuction)
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Societas Spectra Legis Taxation Law 2 Compilation MANDAMUS, PROHBITION or CERTIORARI. CTA cannot issue writs of MANDAMUS, PROHBITION or CERTIORARI. So, where to file? If the grave abuse of discretion is committed: By RTC – go to CA By CTA division – go to CA By CTA En Banc – go to SC *CTA in Division is not equal with the CA. CTA En Banc is equal with the CTA.
DECLARATORY RELIEF GR: file with the RTC, because it is an action incapable of pecuniary estimation. Case: British American Tobacco vs. Camacho, GR No. 263583, Aug 20, 2008 SC: Assessment, if it’s already made by the CIR, and the taxpayer, in disputing or contesting the deficiency assessment, raises the defense of a question of constitutionality or validity, the CTA can decide or pass upon the validity or constitutionality of the said law or ordinance. TN: There must be an assessment. Therefore, the CTA cannot decide on its own, as part of its original appellate jurisdiction, declaratory relief.
INDEPENDENT CPA When do you need an independent CPA? - When a party desires to introduce evidence involving voluminous documents or long accounts, upon motion and approval of the court, may refer the same to an independent CPA. - In practice, whenever you make an appeal before the CTA, it always involves an independent CPA because you need to have 100% audit when you appeal to the CTA. - You need to be accredited and commissioned by the CTA before you can become an independent CPA and take cases before the CTA. A.M. No. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS RULE 12 SEC. 5. Presentation of voluminous documents or long accounts. – In the interest of speedy administration of justice, the following rules shall govern the presentation of voluminous documents or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts: (a) Summary and CPA certification. – The party who desires to introduce in evidence such voluminous documents or long accounts must, upon motion and approval by the Court, refer the voluminous documents to an independent Certified Public Accountant (CPA) for the purpose of presenting: (1) a summary containing, among other matters, a chronological listing of the numbers, dates and amounts covered by the invoices or receipts and the amount(s) of taxes paid and (2) a certification of an independent CPA attesting to the correctness of the contents of the summary after making an examination, evaluation and audit of voluminous receipts, invoices or long accounts.
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Societas Spectra Legis Taxation Law 2 Compilation The name of the Certified Public Accountant or partner of a professional partnership of certified public accountants in charge must be stated in the motion. The Court shall issue a commission authorizing him to conduct an audit and, thereafter, testify relative to such summary and certification. (b) Pre-marking and availability of originals. – The receipts, invoices, vouchers or other documents covering the said accounts or payment to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness of the summary and CPA certification. The original copies of the voluminous receipts, invoices or accounts must be ready for verification and comparison in case doubt on its authenticity is raised during the hearing or resolution of the formal offer of evidence. (n) How do you appeal from the CTA to the SC? Rule 45, ROC – verified petition for Review on Certiorari
QUORUM CTA Division Quorum: at least 2 justices To promulgate a decision: at least 2 affirmative votes If the vote of 2 cannot be obtained, the case would be referred to the CTA En Banc. CTA En Banc Quorum: 5 justices Decision or resolution - Affirmative vote of majority of justices present in case of simple decisions. -
Affirmative vote of 5 members for the reversal or modification of an existing decision.
(Sec. 2, RA 1125, as amended)
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LOCAL TAX (Sections 128 to 196 of R.A. No. 7160)
LOCAL GOVERNMENT UNITS & SCOPE OF LOCAL TAXATION Territorial jurisdiction: 1. Provinces 2. Cities 3. Municipalities 4. Barangays 5. ARMM 6. CAR Dual Status of LGUs 1. Governmental Functions – agents of the state 2. Proprietary Functions – considered as any other legal entity
POWER TO CREATE SOURCES OF REVENUE (Art. 10, Sec. 5, 1987 Constitution)
Power to tax of the LGUs is NOT an inherent power. It is a delegated power from direct authority of the Constitution and not by Congress. Without the Constitution, LGUs have no power to tax. Local Government Code is a product of an enactment by Congress of a law for local taxation as authorized by the Constitution. Inherent and Constitutional limitations of taxation applies to Local Taxes.
WHO may exercise Local Taxing Powers
Provinces – Sangguniang Panlalawigan City – Sangguniang Panlunsod Municipalities – Sangguniang Bayan Barangay – Sangguniang Pambarangay
Objectives for imposing limitations on Local Taxation 1. 2. 3. 4.
To have its own source of income, fair share of available resources The national government resources will not be disturbed The taxpayers will not be over burdened with so much taxation To ensure uniform and fair taxes
FUNDAMENTAL PRINICIPLES (Sec. 130) What are the fundamental principles (Sec. 130)? 1. Taxation shall be uniform in each LGU 2. Taxes, fees, charges and other impositions shall: a. be equitable and based as far as practicable on the TP’s ability to pay b. be levied and collected only for public purposes public purpose – not necessarily the entire public will benefit, it is sufficient that the general majority benefits; includes social welfare University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation c. not unjust, excessive, oppressive, or confiscatory; and d. not be contrary to law, public policy, national economic policy, or in restraint of trade 3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person Unlike taxes under the national government (BIR), the collection can be delegated to Authorized Agent Banks (AAB), for local taxes, this cannot be delegated by the LGUs It is one of the differences between local taxes and national taxes. In local taxation, both RP and local taxes, the collection of taxes cannot be delegated to any private firm, including banks. Public funds cannot be used to hire private lawyers 4. The revenue collected shall inure solely to the benefit of and be subject to disposition by the LGU levying the tax, fee, charge or imposition unless otherwise provided in the LGC 5. Each LGU shall, as far as practicable, evolve a progressive system of taxation. Progressive system -
WHEN ARE YOUR REQUIRED TO REGISTER WITH THE BIR Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer: 1. Employee - Within ten (10) days from date of employment, or 2. Self-employed individual, Professional, Estate Trust, Branches of a Corporation - On or before the commencement of business, or 3. Corporation - Before payment of any tax due, or 4. Partnership, Association, Cooperative, Government Agencies, Instrumentalities, GOCC’s - Upon filing of a return, statement or declaration as required in this Code. TN: Every January 31, an annual registration fee in the amount of Five hundred pesos (P500) for every separate or distinct establishment or place of business, including facility types where sales transactions occur, shall be paid upon registration and every year thereafter on or before the last day of January: Provided, however, That cooperatives, individuals earning purely compensation income, whether locally or abroad, and overseas workers are not liable to the registration fee herein imposed. Distinct establishment or place of business: refers to venues of sale or warehouses.
TAXPAYER’S IDENTIFICATION NUMBER Only one Taxpayer Identification Number (TIN) shall be assigned to a taxpayer. Any person who shall secure more than one Taxpayer Identification Number shall be criminally liable under the provisions of Section 275 on 'Violation of Other Provisions of this Code or Regulations in General.
KEEPING OF BOOKS OF ACCOUNTS AND RECORDS 1. Simplified set of bookkeeping records - for those whose quarterly sales, earnings, receipts, or output do not exceed Fifty thousand pesos (P50,000) 2. Journal and a ledger or their equivalents - for those whose quarterly sales, earnings, receipts, or output exceed Fifty thousand pesos (P50,000) but do not exceed One hundred fifty thousand pesos (P150,000). 3. Books of accounts audited and examined yearly by independent Certified Public Accountants - for those whose gross quarterly sales, earnings, receipts or output exceed One hundred fifty thousand pesos (P150,000).
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Societas Spectra Legis Taxation Law 2 Compilation LANGUAGE IN WHICH BOOKS ARE TO BE KEPT 1. In a native language or 2. English or 3. Spanish
ISSUANCE OF RECEIPTS OR SALES OR COMMERCIAL INVOICES All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service.
ACCOUNTING PERIOD 1. Individuals – Calendar only 2. Corporations – Calendar or Fiscal year
ACCOUNTING METHOD 1. Cash basis – You will only record gross income at the time it is received and you record expenses when actually paid. 2. Accrual basis – When revenues are earned, you will record it on the year it is earned/accrued, regardless of payment. When expenses are incurred, you will record it on the year it is incurred, regardless of payment. 3. Percentage of completion basis - Usually applies to contracts which extends to more than a year (e.g. construction contract). The recording of revenues or expenses depends on the percentage of completion. How do you determine the percentage of completion? Cost incurred under the contract as at the end of the taxable year/Estimated contract cost. Example: Cost incurred for that year is P1M and the estimated contract cost is P20M. P1M/P20M = That is the percentage to be used for purposes of determining how much you can account as expense for that particular year. 4. Installment basis – Under taxation, if the initial payment exceeds 25%, it should considered installment. However, if it does not exceed 25%, it is considered as deferred sale or casual sale. Initial payment refers to the total cash received for one calendar year. Example: On July 1, 2015, you have a sale with a total price of P1M. You require a down payment of 10% of P1M or P100,000. If the excess amount is supposed to be divided into 9 equal payments (P100,000 per month), for that particular year, the initial payment would be P700,000 (consisting of P100K downpayment + P100,000 per month from July to December). % of initial payment would P700,000/P1,000,000 = 70%. Therefore it is no longer considered as installment basis. 5. Crop year basis – refers to farmers engaged in the production of crops which takes for than a year from the time of planting to the process of gathering and disposal.
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Societas Spectra Legis Taxation Law 2 Compilation WHAT WILL COMPOSE YOU FINANCIAL STATEMENT 1. 2. 3. 4. 5. 6.
Balance sheet Income statement Statement of cash flows Statement of changes in equity Notes to financial statement All other supporting documents
PAY AS YOU FILE SYSTEM - the taxpayer assesses himself, files his return and is required to pay the tax as shown in his return upon filing thereof. If your total tax liability is more than P2000, you are entitled to installment payment. One on April 15 and another on July 15.
INDIVIDUALS REQUIRED TO FILE INCOME TAX RETURNS You are a Filipino citizen living in the Philippines, receiving income from sources within or outside the Philippines, and if— 1. You are employed by two or more employers, any time during the taxable year. 2. You are self-employed, either through conduct of trade or professional practice. 3. You are deriving mixed income. This means you have been an employee and a self-employed individual during the taxable year. 4. You derive other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax. 5. You are married, employed by a single employer, and your income has been correctly withheld—the tax due is equal to the tax withheld—but your spouse is not entitled to substituted filing. GR: As much as possible, married individuals are required to file one (1) consolidated return. EXC: If not possible, they can file separately. 6. You are a marginal income earner. 7. Your income tax during the past calendar year was not withheld correctly—if the tax due is not equal to the tax withheld.
YOU ARE NOT REQUIRED TO FILE AN INCOME TAX RETURN, IF: 1. You are a minimum wage earner. 2. Your gross income (total earned for the past year – purely compensation income) does not exceed your total personal and additional exemptions. 3. Your income derived from a single employer does not exceed P60,000 and the income tax on which has been correctly withheld. 4. Your income has been subjected to final withholding tax.
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LOCAL GOVERNMENT TAXATION HOW A LOCAL GOVERNMENT UNIT IMPOSE A TAX The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.
LIMITATIONS OF THE RESIDUAL TAXING POWER OF LGUS (SUBSTANTIAL COMPLIANCE): 1. 2. 3. 4. 5.
Constitutional Limitation Fundamental Principles Public Hearing requirement Principle of Pre-emption or Exclusionary Rule Common limitations on the taxing power of LGUs
PROCEDURE FOR APPROVAL AND EFFECTIVITY OF TAX, ORDINANCES AND REVENUE MEASURES 1. 2. 3. 4.
Public hearings shall be conducted for the purpose prior to the enactment thereof. Once everything is put into order, the Sanggunian will now pass the ordinance. Approval by the Local Chief Executive. If it requires an implementing rules and regulations, the law may not be implemented until such implementing rules and regulations are issued.
EXCLUSIONARY RULE – refers to the pre-emption of one government unit on the right of another government unit to impose a tax. Once a tax has been imposed by the National Government, it can longer be imposed by the LGU. As a rule, the National Government pre-empts the taxing role of the Local Government unit unless otherwise provided. A LGU can pre-empt other LGU.
COMMON LIMITATIONS ON THE TAXING POWERS OF LOCAL GOVERNMENT UNITS The exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: a) Income tax, except when levied on banks and other financial institutions; Banks are exempted because they are highly profitable. b) Documentary stamp tax; c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except Local Transfer Tax. d) Customs duties, registration fees of vessel 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; Private individuals using the wharves of the LGU will have to pay wharfage dues. Another exemption would be when the local municipality will impose a tax on fishing vessel with a weight 3 tonnes. e) Taxes, fees, and charges and other impositions upon goods carried into or out of, 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; Read the case. f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Just read the enumeration… you will notice that these are taxes already imposed by the National Government.
TAXES WHICH MAY BE IMPOSED BY THE PROVINCE 1) Tax on Transfer of Real Property Ownership. Basis: consideration Rate: Not exceeding fifty percent (50%) of the one percent (1%) It does not matter who owns the property because this is an excise tax on the privilege to transfer real property. Example: If USC, a non-stock non-profit organization [exempt from property tax , income tax, customs duties, VAT], transfers a portion of their land to foundation, such transfer will be subject to Local Transfer Tax because it does not matter who owns the property. The mere transfer will subject it to LTT. Deadline for payment: Within sixty (60) days from the date of the execution of the deed or from the date of the decedent's death. TN: The Local Register of Deeds cannot register a transfer of a real property unless this Local Transfer Tax has been paid. 2) Tax on Business of Printing and Publication Not a tax on the business of selling books Rate: 1st year of operation – capital investment; Succeeding years - fifty percent (50%) of one percent (1%) of the gross annual receipts. 3) Franchise Tax Tax on businesses enjoying a franchise. Entities exempted from National Franchise Tax are still subject to Local Franchise Tax because this is a separate tax. It’s not double taxation because you have different taxing authority). Basis: Gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. Rate: Not exceeding fifty percent (50%) of one percent (1%) For purposes of imposing Franchise Tax, A Certificate of Public Convenience is not considered a Franchise. 4) Tax on Sand, Gravel and Other Quarry Resources Rate: Not more than ten percent (10%) Basis: Fair market value in the locality Coverage: those extracted from public lands. The proceeds of the revenues generated shall be distributed as follows: i. Province - Thirty percent where the sand, gravel, and other quarry resources are extracted (30%); ii. Component City or Municipality where the sand, gravel, and other quarry resources are extracted - Thirty percent (30%) iii. Barangay where the sand, gravel, and other quarry resources are extracted - Forty percent (40%). TN: Only the province can impose this type of tax. 5) Professional Tax GR: Impose on persons engaged in the exercise or practice of his profession requiring government examination. i. Does not include Civil Service Exam because such exam is merely a qualification to work for the government. EXC: Professionals exclusively employed in the government.
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Societas Spectra Legis Taxation Law 2 Compilation i. Example: Justice Ingles or Judge Singco are not exempted because they are not exclusively employed by the gov’t. Situs of the tax: Province where he practices his profession or where he maintains his principal office in case he practices his profession in several places. i. Example: You are a practicing CPA and you become a lawyer and you become a practicing lawyer, you get to pay 2 professional taxes. TN: Only the province can impose this type of tax. 6) Amusement Tax Rate: 10% Basis: gross receipts Who are subject to this tax: proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement o Exception: Those holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations Exception to the exception: pop, rock, or similar concerts Cockpits – subject already under the NIRC on Amusement Tax, thus, they are already exempted here. Beach resort (came out in the mock bar last sem) – not subject to amusement tax because it’s a place of amusement. The definition of amusement place here refers to one which is exhibited, one to look at. (read peliz roy case) 7) Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products Who are taxable: every truck, van or any vehicle used by manufacturers, producers, wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan, to sales outlets, or consumers. o These trucks, are they subject to peddlers tax? No.
TAXES WHICH MAY BE IMPOSED BY THE MUNICIPALITIES 1) Fees and Charges SEC. 147. 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. -
Who are taxable: impose on any person engage in business, or occupation, or practice of any profession or calling o Except: those who are already subject to professional tax under Sec. 139 TN: so any profession that was not subject to professional tax under the province’s power to tax will be subject to this kind of tax.
2) Fees for Sealing and Licensing of Weights and Measures SEC. 148. Fees for Sealing and Licensing of Weights and Measures. - (a) The municipality may levy fees for the sealing and licensing of weights and measures at such reasonable rates as shall be prescribed by the University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation sangguniang bayan. (b) The sangguniang bayan shall prescribe the necessary regulations for the use of such weights and measures, subject to such guidelines as shall be prescribed by the Department of Science and Technology. The sanggunian concerned shall, by appropriate ordinance, penalize fraudulent practices and unlawful possession or use of instruments of weights and measures and prescribe the criminal penalty therefor in accordance with the provisions of this Code. Provided, however, That the sanggunian concerned may authorize the municipal treasurer to settle an offense not involving the commission of fraud before a case therefor is filed in court, upon payment of a compromise penalty of not less than Two hundred pesos (P=200.00). 3) Fishery Rentals, Fees and Charges SEC. 149. Fishery Rentals, Fees and Charges- (a) Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters and impose rentals, fees or charges therefor in accordance with the provisions of this Section. (b) The sangguniang bayan may: (1) Grant fishery privileges to erect fish corrals, oyster, mussels or other aquatic beds or bangus fry areas, within a definite zone of the municipal waters, as determined by it: Provided, however, That duly registered organizations and cooperatives of marginal fishermen shall have the preferential right to such fishery privileges: Provided, further, That the sangguniang bayan may require a public bidding in conformity with and pursuant to an ordinance for the grant of such privileges: Provided, finally, That in the absence of such organizations and cooperatives or their failure to exercise their preferential right, other parties may participate in the public bidding in conformity with the above cited procedure. (2) Grant the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of other species and fish from the municipal waters by nets, traps or other fishing gears to marginal fishermen free of any rental, fee, charge or any other imposition whatsoever. (3) Issue licenses for the operation of fishing vessels of three (3) tons or less for which purpose the sangguniang bayan shall promulgate rules and regulations regarding the issuances of such licenses to qualified applicants under existing laws. Provided, however, That the sanggunian concerned shall, by appropriate ordinance, penalize the use of explosives, noxious or poisonous substances, electricity, muro-ami, and other deleterious methods of fishing and prescribe a criminal penalty therefor in accordance with the provisions of this Code: Provided, finally, That the sanggunian concerned shall have the authority to prosecute any violation of the provisions of applicable fishery laws. -
Who are taxable? o Those who were granted fishery privileges o Granted the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of other species and fish from the municipal waters o Issue licenses for the operation of fishing vessels of three (3) tons or less
4) Local Business Tax - Can only be imposed by the municipality and city - LBT is a tax based on gross receipts or gross sales not on income. It is a tax on the operation of the business and also as under the police power of LGUs in regulating the business - It is not an income tax because this is impose to regulate the business. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Just look at what is the minimum and maximum rate for every type of business that is subject to local business tax. LBT is imposed on the gross sales or gross receipts based on the preceding year. TN: regardless of the accounting period used by the business, this type of tax is always imposed on a calendar year basis.
Who are subject to this LBT? Manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature o There is a fixed tax up to the point of the highest bracket wherein it becomes already a percentage tax of 37 1⁄2 % of 1%.
Wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature o These are businessmen who do not have anything to do with the manufacturing or production or processes of the products that they are dealing, distributing, or delivering wholesale. o They shall be taxed at fixed amount of taxes depending on its bracket of sales or receipts but the highest bracket is not exceeding 50% of 1%. However, such rate may be raised by the cities to more than the limit provided so long as it’s not more than 50% higher.
Exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder: 1) Rice and corn 2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt and other agricultural, marine, and fresh water products, whether in their original state or not 3) Cooking oil and cooking gas 4) Laundry soap, detergents, and medicine 5) Agricultural implements, equipment and post- harvest facilities, fertilizers, pesticides, insecticides, herbicides and other farm inputs 6) Poultry feeds and other animal feeds 7) School supplies; and 8) Cement
Retailers
Contractors and other independent contractors o General Professional Partnership (GPP) is subject to this tax because they fall under independent contractors.
Banks and other financial institutions o RATE: Not exceeding 50% of 1% on the gross receipts of the preceding calendar year
Peddlers engaged in the sale of any merchandise or article of commerce
Any business not otherwise specified - Catch all provison
o
Tax rates within the Metro Manila Area (Sec. 144)
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Societas Spectra Legis Taxation Law 2 Compilation SEC. 144. Rates of Tax within the Metropolitan Manila Area. - The municipalities within the Metropolitan Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates prescribed in the preceding Section. o
Retirement of Business SEC. 145. 4 Retirement of Business. - A business subject to tax pursuant to the preceding sections shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired. -
o
The tax rates within the Metro Manila Area may be 50% more than what the municipalities can impose. The rate for municipalities within Metro Manila Area is the same as a city.
Submit sworn statement of gross sales or gross receipts for the current year (but this is just the estimated tax to be paid because you are retiring from business this year) But under the 2nd sentence of the provision, we must look at how much is the tax paid this year based on the preceding year’s sales and how much is the gross sales this year. And the difference of the preceding year’s tax and this year’s estimated tax, provided that last year’s tax was bigger than this year, must be paid. This is addition to the tax you already paid this year. If this year’s tax is greater than that of last year’s, you don’t need to pay the LBT.
Payment of Business Taxes SEC. 146. Payment of Business Taxes. - (a) The taxes imposed under Section 143 shall be payable for every separate or distinct establishment or place where business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. The tax on a business must be paid by the person conducting the same. (b) In cases where a person conducts or operates two (2) or more of the businesses mentioned in Section 143 of this Code which are subject to the same rate of tax, the tax shall be computed on the combined total gross sales or receipts of the said two (2) or more related businesses. (c) In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 of this Code which are subject to different rates of tax, the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. Example 1: You are a manufacturer and an independent contractor – So you will be taxed separately. Example 2: you have 2 manufacturing plants in the same locality – if it’s on the same business, you group or consolidate everything and subject it to one tax rate based on the total gross receipts on that business
o
Situs of Business Tax SEC. 150. Situs of the Tax. - (a) For purposes of collection of the taxes under Section 143 of this Code, 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
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Societas Spectra Legis Taxation Law 2 Compilation 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. (b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: (1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and (2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or city or municipality where the factory is located; and (c) In case of a plantation located at a place other than the place where the factory is located, said 70% mentioned in subparagraph (b) of subsection (2) above shall be divided as follows: (1) 60% to the city or municipality (2) 40% to the city or municipality where the plantation is located (d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. (e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plan is located. Situs for LBT: It’s the place where the sale is consummated Example 1: In a catering business, if you have a sale in Lapu-Lapu City but you’re business is registered in Cebu City – you will pay your LBT in the place where you’re business is registered, in Cebu City, because you do not have a sales outlet in Lapu-Lapu City. Example 2: If you have a sales outlet or branch in Lapu-Lapu – the situs will be at that sales outlet or branch Example 3: Cement Factory, prinicipal office in Ayala, plant in San Fernando. The total sales of the current year is 1M. How much can be collected as LBT? For City of Cebu – 300K (30%); For San Fernando – 700K (70%). Example 4: In connection with example 3, Aside from San Fernando, it has a plant in Naga City. The distribution will be pro-rated based on the volume of production. Example 5: you’re engage in production of corn kernel in can. Principal place in Cebu City, factory in Madaue City, Plantation in Carcar. Total gross sales for the year is 1M. The allocation for the distribution will be 300K (30%) for Cebu City; For Madaue City is 420K (60% of the 70%); For Carcar is 280K (40% of the 70%). Example 6: In connection with Example 5, you have another factory in San Fernando, another plantation in Bogo City. The distribution now will be pro-rated based on the volume production. So we have a factories in Mandaue and San Fernando and plantations in Carcar and Bogo City. So 60% of the 70% will go to the factories and you divide it among them based on their productions---420K pro-rated based on University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation their productions. While the 40% of the 70% will go to the plantations and divide it among them based on their productions---280K pro-rated based on their productions. Just remember the allocation.
TAXES WHICH MAY BE IMPOSED BY THE CITIES SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. -
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All the taxes that we have discussed can be imposed by the City but usually the city will preclude the municipality if the city is already imposing the said taxes. This usually happens to provinces with component cities. Like Cebu Province, the component cities are Talisay, Mandaue, Bogo, Carcar. So the component city will pre-empt the Province it belongs to, to impose such taxes. The cities have the right to impose taxes 50% higher than what the municipalities and provinces can impose. Except for: 1. Professional tax (maximum is P300) 2. Amusement tax (10% of gross receipts from admissions) PT and AT remains fixed at what the LGC provides. The city cannot impose higher than what the municipalities and provinces can impose. Example: when Mandaue City imposes professional tax to Mandaue-based lawyers, can the Province of Cebu impose also professional tax on the lawyer? No. because there is already pre-emption.
TAXES WHICH MAY BE IMPOSED BY THE BARANGAYS SEC. 152. Scope of Taxing Powers. - The barangays may levy taxes, fees, and charges, as provided in this Article, which shall exclusively accrue to them: (a) Taxes - On stores or retailers with fixed business establishments with gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P=50,000.00) or less, in the case of cities and Thirty thousand pesos (P=30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts. - Who are taxable: only stores or retailers with gross receipts of— o P50,000 or less if located in city o P30,000 or less if located in municipality - Rate: not exceeding 1% - Basis: on gross sales or receipts - Usually applies to sari-sari stores (b) Service Fees or Charges - barangays may collect reasonable fees or charges for services rendered in connection with the regulation or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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You look at what properties or facilities are being used. So it must be owned by the barangay.
(c) Barangay Clearance - No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall be acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued within the said period, the city or municipality may issue the said license or permit. (d) Other Fees and Charges - The barangay may levy reasonable fees and charges: (1) On commercial breeding of fighting cocks, cockfights and cockpits; (2) On places of recreation which charge admission fees; and (3) On billboards, signboards, neon signs, and outdoor advertisements. -
Take note that cockpits are subject to amusement tax under the NIRC and yet the barangay is allowed to impose tax of cockpits. On recreation places – this refers to discoral in the barangay level.
AUTHORITY OF LGUS TO ADJUST RATES OF TAX ORDINANCES (Sec. 191) SEC. 191. Authority of Local Government Units to Adjust Rates of Tax ordinances. - Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code. - Not oftener than once every 5 years, the rates may be increased but such adjustments or increase shall not exceed 10% of the rates fixed.
COMMON REVENUE-RAISING POWERS SEC. 153. Service Fees and Charges. - Local government units may impose and collect such reasonable fees and charges for services rendered. SEC. 154. Public Utility Charges. - Local government units may fix the rates for the operation of public utilities owned, operated and maintained by them within their jurisdiction. - It has to be owned, operated and maintained by the LGU concerned. SEC. 155. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. - Take note of the exceptions
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COMMUNITY TAX CERTIFICATE: WHO MAY LEVY COMMUNITY TAX:
Only cities and municipalities may levy community tax. SEC. 156. Community Tax. - Cities or municipalities may levy a community tax in accordance with the provisions of this Article.
TO WHOM IT MAY BE IMPOSED: INDIVIDUALS (LGC. 157) o Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or o who is engaged in business or occupation, or o who owns real property with an aggregate assessed value of One thousand pesos (P=1,000.00) or more, or o who is required by law to file an income tax return shall pay: an annual community tax of Five pesos (P=5.00) and an annual additional tax of One peso (P=1.00) for every One thousand pesos (P=1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P=5,000.00). o MAXIMUM AMOUNT DUE IS 5,005 (basic 5 + maximum additional of 5000) o TAX BASE: income of the individual or if no income based on real property’s aggregate assessed value or both In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. You account together only for the purpose of computing the additional community tax, individually they are still subject to separate CTC.
JURIDICAL PERSON (LGC. 158) o Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax Non resident foreign corporation are not subject to CTC o TAX BASE: on the valuation used for the payment of the real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated gross receipts or earnings derived by it from its business in the Philippines during the preceding year The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation. o TAX RATE: Basic of Five hundred pesos (P=500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P=10,000.00) MAXIMUM AMOUNT DUE IS 10,500 (basic 500 + maximum additional 10,000) For every Five thousand pesos (P=5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation additional Two pesos (P=2.00); University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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For every Five thousand pesos (P=5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P=2.00). EX. a corp. has: an income of 1M during the year, it received dividend income from another corp of 1M, total real property of 3M pesos; how much is the CT due? 5M total value of the corp divided by 5000 times 2 2,000 Plus the basic community tax of 500 TOTAL OF 2,500
EXEMPT FROM COMMUNITY TAX:
SEC. 159. Exemptions. - The following are exempt from the community tax: o (1) Diplomatic and consular representatives; ABSOLUTE EXEMPTION o (2) Transient visitors when their stay in the Philippines does not exceed three (3) months. RELATIVE EXEMPTION note: those below 18 are not exempted from CTC but are EXCLUDED from CTC.
WHERE TO PAY CTC:
Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located
WHEN DUE:
INDIVIDUALS: o GR: The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the last day of February of each year. o EXC: If a person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such age or upon the day the exemption ends. o However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax without becoming delinquent. o Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of July of any year, or who cease to belong to an exempt class on or after the same date, shall not be subject to the community tax for that year Ex. you qualify to be subject on Jan. 15 2015 deadline is February 28, 2015 Another Ex: Bday is Feb 9 Deadline is March 1, 2015 So take note that as a rule it is always 20 days after you qualify BUT in the 1 st example if you follow the rule, 20 days after jan 15 is Feb. 5 which is supposed to be your deadline but again the deadline by law is Feb. 28 so you would be prejudiced. That is why you make a distinction on the day when you qualify to be subject to CTC. RULE: Qualify on Jan 1 to Feb. 8/9if leap year Deadline is Feb. 28 if leap year Feb. 29 because the law states last day of Feb. Qualify after Feb 8/9 to March 31 20 days after he/she qualifies Qualify after March 31 to June 30 upon the day the exemption ends Qualify on July 1 to Dec. 31 shall not be subject to community tax for the year FOR CORPORATION Same period applies
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Societas Spectra Legis Taxation Law 2 Compilation CONSEQUENCE FOR FAILURE TO PAY ON DUE DATE:
If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of twenty-four percent (24%) per annum from the due date until it is paid.
PERSON NOT SUBJECT TO COMMUNITY TAX MAY STILL GET A CTC:
A community tax certificate shall be issued to every person or corporation upon payment of the community tax. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of One peso (P=1.00).
WHY PRESENT CTC FOR NOTARIAL PURPOSES:
SEC. 163. Presentation of Community Tax Certificate On Certain Occasions. - When an individual subject to the community tax acknowledges any document before a notary public, takes the oath of office upon election or appointment to any position in the government service; receives any license, certificate, or permit from any public authority; pays any tax or fee; receives any money from any public fund; transacts other official business; or receives any salary or wage from any person or corporation, o it shall be the duty of any person, officer, or corporation with whom such transaction is made or business done or from whom any salary or wage is received to require such individual to exhibit the community tax certificate. o The presentation of community tax certificate shall not be required in connection with the registration of a voter It is NOT A COMPETENT EVIDENCE OF IDENTITY based on the Notarial Rules but YOU ARE STILL REQ. to present one based on the sec. 163 of the LGC
OTHER INSTANCE WHERE CTC NEEDS TO BE PRESENTED:
When, through its authorized officers, any corporation subject to the community tax o receives any license, certificate, or permit from any public authority, pays any tax or fee, receives money from public funds, or transacts other official business, it shall be the duty of the public official with whom such transaction is made or business done, to require such corporation to exhibit the community tax certificate The presentation of community tax certificate shall not be required in connection with the registration of a voter
WHO PRINTS THE CTC:
BIR
HOW DO YOU DISTRIBUTE THE INCOME DERIVED FORM THE CTC:
shall accrue entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: o (1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and o (2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.
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The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in their respective jurisdictions: o Provided, however, That said barangay treasurer shall be bonded in accordance with existing laws
COLLECTION OF TAXES FOR LOCAL TAXATION: WHEN DOES LOCAL TAX ACCRUE: GR: all local taxes, fees, and charges shall accrue on the first (1st) day of January of each year. EXC: However, new taxes, fees or charges, or changes in the rates thereof, shall accrue on the first (1st) day of the quarter next following the effectivity of the ordinance imposing such new levies or rates. DEADLINE FOR PAYMENT: all local taxes, fees, and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter, as the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time for payment of such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six (6) months WHAT ACCOUNTING PERIOD IS FOLLOWED FOR PURPOSE OF LOCAL TAXATION: Calendar year SEC. 165. Tax Period and Manner of Payment. - Unless otherwise provided in this Code, the tax period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly installments. SURCHARGES & INTEREST FOR LATE PAYMENT: The sanggunian may impose a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fees or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. MAXIMUM 72% interest chargeable WHO ARE AUTHORIZE TO COLLECT LOCAL TAXES: All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly authorized deputies. “duly authorized deputies” can it be the bank? NO. because it basic fundamental that collection shall not be left to private individuals o this duly authorized is “The provincial, city or municipal treasurer may designate the barangay treasurer as his deputy to collect local taxes, fees, or charges.” When the brgy treasurer is deputized a bond is set up which is paid by the provincial, city or municipality. “In case a bond is required for the purpose, the provincial, city or municipal government shall pay the premiums thereon in addition to the premiums of bond that may be required under this Code”
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Societas Spectra Legis Taxation Law 2 Compilation CAN LOCAL TREASURER LOOK AT THE BOOKS OF THE TAXPAYER: The provincial, city, municipal or barangay treasurer may, by himself or through any of his deputies duly authorized in writing, examine the books, accounts, and other pertinent records of any person, partnership, corporation, or association subject to local taxes, fees and charges in order to ascertain, assess, and collect the correct amount of the tax, fee, or charge. Such examination shall be made during regular business hours, only once for every tax period, and shall be certified to by the examining official.
CIVIL REMEDIES FOR COLLECTION OF REVENUES: LOCAL GOVERNMENT LIEN Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative or judicial action, not only upon any property or rights therein which may be subject to the lien but also upon property used in business, occupation, practice of profession or calling, or exercise of privilege with respect to which the lien is imposed. o Even if the property is not owned by the taxpayer like it is only leased, same is subject to local governments lien. So long it is used in business or occupation or profession the lien attaches. o AS DISTINGUISHED: NIRC LIEN Only Properties of the tax payer LGT LIEN extend to All Properties used in the business, occupation or profession of the tax payer The lien may only be extinguished upon full payment of the elinquent local taxes fees and charges including related surcharges and interest
CIVIL REMEDIES FOR COLLECTION OF LGT:
By administrative action: o thru distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and o by levy upon real property and interest in or rights to real property; and (b) By judicial action. Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local government unit concerned
ADMINISTRATIVE: LOCAL GOVERNMENT DISTRAINT VS LEVY DISTRAINT LEVY PUBLICATION CONTAINS: specifying the time and place CONTAINS: The advertisement shall contain of sale, and the articles distrained the amount of taxes, fees or charges, and penalties due thereon, and the time and place TIME: The time of sale shall not be less of sale, the name of the taxpayer against than twenty (20) days after notice to the whom the taxes, fees, or charges are levied, owner or possessor of the property as and a short description of the property to be above specified and the publication or sold. posting of the notice. POSTION: posting a notice at the main POSTING: The officer shall forthwith cause entrance of the municipal building or city hall, University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation a NOTIFICATION to be exhibited in not less than three (3) public and conspicuous places in the territory of the local government unit where the distraint is made,. One place for the posting of the notice shall be at the office of the chief executive of the local government unit in which the property is distrained. WHAT HAPPENS Not Automatic sold to the government. IF THERE IS NO BIDDER Should the property distrained be not disposed of within one hundred and twenty (120) days from the date of distraint, the same shall be considered as sold to the local government unit concerned for the amount of the assessment made thereon by the Committee on Appraisal and to the extent of the same amount, the tax delinquencies shall be cancelled.
and in a public and conspicuous place in the barangay where the real property is located, and by publication once a week for three (3) weeks in a newspaper of general circulation in the province, city or municipality where the property is located.
Automatic Sold to the government In case there is no bidder for the real property advertised for sale as provided herein, or if the highest bid is for an amount insufficient to pay the taxes, fees, or charges, related surcharges, interests, penalties and costs: the local treasurer conducting the sale shall purchase the property in behalf of the local government unit concerned to satisfy the claim and within two (2) days thereafter shall make a report of his proceedings which shall be reflected upon the records of his office. It shall be the duty of the Registrar of Deeds concerned upon registration with his office of any such declaration of forfeiture to transfer the title of the forfeited property to the local government unit concerned without the necessity of an order from a competent court.
EXCESS SALE
REDEMPTION PERIOD
The balance over and above what is required to pay the entire claim shall be returned to the owner of the property sold NONE Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the property by paying to the local treasurer the full amount of the taxes, fees, charges, and related surcharges, interests, or penalties, and the costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be fully vested on the local government unit concerned
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Societas Spectra Legis Taxation Law 2 Compilation PROPERTIES THAT CANNOT BE LEVIED OR DISTRAINT: Tools and the implements necessarily used by the delinquent taxpayer in his trade or employment; One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and necessarily used by him in his ordinary occupation; His necessary clothing, and that of all his family; Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P=10,000.00); Provisions, including crops, actually provided for individual or family use sufficient for four (4) months; The professional libraries of doctors, engineers, lawyers and judges; One fishing boat and net, not exceeding the total value of Ten thousand pesos (P=10,000.00), by the lawful use of which a fisherman earns his livelihood; and Any material or article forming part of a house or improvement of any real property. JUDICIAL REMEDIES Through civil action within: o w/o ASSESSMENT: Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. (BECAME DUE) o w/ ASSESSMENT: Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. (date of assessment) o In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment. (DISCOVERY) CAN LOCAL GOVERNMENT UNITS ISSUE TAXES WHICH ARE NOT PROVIDED UNDER THE LGC: o They can. Under this catch all provision: o SEC. 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power 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 Code, as amended, or other applicable laws: o Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: o Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose. o How long is the Public Hearing: non-provided by the law. But you can question the legality of such ordinance within 30 days from the effectivity of such ordinance.
QUESTIONING THE TAX ORDINANCE: o
o o o
question the legality or constitutionality of such ordinance within 30 days from the effectivity of such ordinance. PETITION with the Sec. of Justice. This is only a precursor to an action in court; SOJ then is given a period to decide of 60 days. If denied: file a PETITION FOR DECLARATORY RELIEF with the RTC within 30 days from denial. Because you are questioning the constitutionality of a local tax ordinance. If inaction of the SOJ: file a PETITION FOR DECLARATORY RELIEF with the RTC within 30 days after the lapse of 60 days for the SOJ to decide.
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Societas Spectra Legis Taxation Law 2 Compilation QUESTIONING THE CONSTITUTIONALITY OR LEGALITY OF THE ORDINANCE Go to the Secretary of Justice – 30 days from the period of effectivity, Sec. of Justice has 60 days to decide. Appeal to the RTC 30 days from the denial or 30 days after the lapse of the period of 60 days. PUBLICATION FOR TAX ORDINANCE Section 188. Publication of Tax Ordinances and Revenue Measures. - Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. AUTHORITY TO GRANT TAX EXEMPTION Section 192. Authority to Grant Tax Exemption Privileges. - Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary. QUESTIONING THE ASSESSMENT -protest the assessment Section 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable. Local Treasurer -
notice of assessment; 60 days to file the protest 60 days to decide the protest
30 days from denial or lapse of 60 days period, appeal to RTC / MTC
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Societas Spectra Legis Taxation Law 2 Compilation File within 2 years from payment of the tax liability a TAX CREDIT to the LOCAL TREASURER. (administrative claim first) Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit. -
Not the same as the NIRC because it accounts for a supervening event – “or from the date the taxpayer is entitled to a refund or credit.”. so that if within the 2-year period, the taxpayer is precluded from asking for a tax credit or tax refund such as: When there is a case filed regarding the constitutionality or legality of a tax measure. Because in this case, in questioning the ordinance, it will not stay the effectivity of the ordinance as well as the accrual and payment of the taxes. Therefore, the local treasurer can continue to make assessment and collect taxes under such tax ordinance. That being the case, you still have to pay the taxes. So if you question the tax ordinance in 2015 and the case takes more than two years before it was decided, you can still ask for a refund or credit because this is a supervening event. Once it is already declared as illegal, that is the time that you are already entitled for the refund or credit – last phrase “or from the date the taxpayer is entitled to a refund or credit.”
Illustration: Mr. X paid his Community tax on Feb 28, 2015 Deadline for refund: Feb 28, 2017 If there is no assessment, 5 years from the date the tax is due. So memorize the deadline for payments!
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REAL PROPERTY TAX Who gets to impose real property tax? - Local Government
Fundamental Principles (Sec. 198) SECTION 198.Fundamental Principles. — 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; - Primarily, it is the assessor who determines the current and fair market value of the real property. But it is dependent on the zoning ordinance to be issued by your sangguniang bayan because the zoning the classification of a real property affects its value. (i.e. properties located in the commercial zone or industrial zone are more expensive than those located in the residential zone) (b) Real property shall be classified for assessment purposes on the basis of its actual use; - You should memorize or internalize by heart that the basis for the assessment is ALWAYS its ACTUAL USE. - So you don’t account who is the owner of the property. - What you account is who gets to use the said property. (c) Real property shall be assessed on the basis of a uniform classification within each local government unit; - As mentioned, you’re LGU, the sangguniang bayan, determines the zoning classification of the properties. This zoning classification only extends to the jurisdiction of such LGU. So you don’t expect to have the same classification of properties of all LGU because each LGU has its own unique classification of said properties. So you don’t apply the zoning classification of City A to City B.
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and - This is the same as your local taxes. So banks cannot accept payments for your real property taxes. (e) The appraisal and assessment of real property shall be equitable. - Equitable is understood to be that it’s based on the taxpayer’s capacity to pay. But when you make the appraisal for the real property, you don’t actually look who’s the owner so you cannot completely say it’s equitable. However, because the property is appraised first then later it will be subject to real property tax and the real property tax code provides for a schedule of rate so it will end up that those who owns lesser real properties are taxed less than those who owns bigger lands. So in a way, that is still equitable.
Definition of Terms (Sec. 199) Atty. A: these are the important terms (in bold letters). (a) "Acquisition Cost" for newly-acquired machinery not yet depreciated and appraised within the year of its purchase, refers to the actual cost of the machinery to its present owner, plus the cost of transportation, handling, and installation at the present site; University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation (b) "Actual Use" refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof; (c) "Ad Valorem Tax" is a levy on real property determined on the basis of a fixed proportion of the value of the property; (d) "Agricultural Land" is land devoted principally to the planting of trees, raising of crops, livestock and poultry, dairying, salt making, inland fishing and similar aquacultural activities, and other agricultural activities, and is not classified as mineral, timber, residential, commercial or industrial land; (e) "Appraisal" is the act or process of determining the value of property as of a specified date for a specific purpose; (f) "Assessment" is the act or process of determining the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties; (g) "Assessment Level" is the percentage applied to the fair market value to determine the taxable value of the property; (h) "Assessed Value" is the fair market value of the real property multiplied by the assessment level. It is synonymous to taxable value; (i) "Commercial Land" is land devoted principally for the object of profit and is not classified as agricultural, industrial, mineral, timber, or residential land; (j) "Depreciated Value" is the value remaining after deducting depreciation from the acquisition cost; (k) "Economic Life" is the estimated period over which it is anticipated that a machinery or equipment may be profitably utilized; (l) "Fair Market Value" is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy; (m) "Improvement" is a valuable addition made to a property or an amelioration in its condition, amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further purposes; (n) "Industrial Land" is land devoted principally to industrial activity as capital investment and is not classified as agricultural, commercial, timber, mineral or residential land; (o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes; (p) "Mineral Lands" are lands in which minerals, metallic or non-metallic, exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials; University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation (q) "Reassessment" is the assigning of new assessed values to property, particularly real estate, as the result of a general, partial, or individual reappraisal of the property; (r) "Remaining Economic Life" is the period of time expressed in years from the date of appraisal to the date when the machinery becomes valueless; (s) "Remaining Value" is the value corresponding to the remaining useful life of the machinery; (t) "Replacement or Reproduction Cost" is the cost that would be incurred on the basis of current prices, in acquiring an equally desirable substitute property, or the cost of reproducing a new replica of the property on the basis of current prices with the same or closely similar material; and (u) "Residential Land" is land principally devoted to habitation
Administration of RPT (Sec. 4) SECTION 200. Administration of the Real Property Tax. — The provinces and cities, including the municipalities within the Metropolitan Manila Area, shall be primarily responsible for the proper, efficient and effective administration of the real property tax. Who gets to administer RPT? - Provinces, Cities or Municipalities. However, municipalities are only limited to those located in Metro Manila. That means, as a general rule, municipalities outside Metro Manila cannot impose RPT. (2013 Bar Exam Question) - But an exception is when there is a special levy is not limited to municipalities within Metro Manila. Special levy, as a general imposition, can be imposed by municipalities outside Metro Manila.
Appraisal and Asssesment of Real Property SECTION 201.Appraisal of Real Property. — All real property, whether taxable or exempt, shall be appraised at the current and fair market value prevailing in the locality where the property is situated. The Department of Finance shall promulgate the necessary rules and regulations for the classification, appraisal, and assessment of real property pursuant to the provisions of this Code. - This means that that the LGU can actually make their own determination of the classification. SECTION 202.Declaration of Real Property by the Owner or Administrator. — It shall be the duty of all persons, natural or juridical, owning or administering real property, including the improvements therein, within a city or municipality, or their duly authorized representative, to prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the true value of their property, whether previously declared or undeclared, taxable or exempt, which shall be the current and fair market value of the property, as determined by the declarant. Such declaration shall contain a description of the property sufficient in detail to enable the assessor or his deputy to identify the same for assessment purposes. The sworn declaration of real property herein referred to shall be filed with the assessor concerned once every three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with the calendar year 1992. - It is the duty of the owner or administrator to declare the real property - What you declare is the real property as well as the improvements - Take note that a building has a separate declaration from the land University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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When to file: once every 3 years during January 1 to June 30. But look at Section 203, you have to file the declaration within 60 days from the acquisition, completion or occupancy of the improvement, whichever comes first.
SECTION 203.Duty of Person Acquiring Real Property or Making Improvement Thereon. — It shall also be the duty of any person, or his authorized representative, acquiring at any time real property in any municipality or city or making any improvement on real property, to prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the true value of subject property, within sixty (60) days after the acquisition of such property or upon completion or occupancy of the improvement, whichever comes earlier. SECTION 204.Declaration of Real Property by the Assessor. — When any person, natural or juridical, by whom real property is required to be declared under Section 202 hereof, refuses or fails for any reason to make such declaration within the time prescribed, the provincial, city or municipal assessor shall himself declare the property in the name of the defaulting owner, if known, or against an unknown owner, as the case may be, and shall assess the property for taxation in accordance with the provision of this Title. No oath shall be required of a declaration thus made by the provincial, city or municipal assessor. - The assessor can make his/her own declaration when the person who is required to declare refuses or fails to make such declaration SECTION 205.Listing of Real Property in the Assessment Rolls. — (a) In every province and city, including the municipalities within the Metropolitan Manila Area, there shall be prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the territorial jurisdiction of the local government unit concerned. Real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having legal interest in the property. (b) The undivided real property of a deceased person may be listed, valued and assessed in the name of the estate or of the heirs and devisees without designating them individually; and undivided real property other than that owned by a deceased may be listed, valued and assessed in the name of one or more co-owners: Provided, however, That such heir, devisee, or co-owner shall be liable severally and proportionately for all obligations imposed by this Title and the payment of the real property tax with respect to the undivided property. - So you can have a tax declaration under the name of the heirs of deceased. (c) The real property of a corporation, partnership, or association shall be listed, valued and assessed in the same manner as that of an individual. (d) Real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the public entity if such property has been acquired or held for resale or lease. - This provision applies when the real property owned by the government is used by the private entity. The beneficial use is with private entity. - It has to be listed or recorded in the name of the said private person using such property because for taxation purposes and because the beneficial use is vested to the private entity, even if the real owner is the government, it is taxable and the one liable is the private entity.
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Societas Spectra Legis Taxation Law 2 Compilation SECTION 206.Proof of Exemption of Real Property from Taxation. — Every person by or for whom real property is declared, who shall claim tax exemption for such property under this Title shall file with the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, title of ownership, articles of incorporation, by-laws, contracts, affidavits, certifications and mortgage deeds, and similar documents. If the required evidence is not submitted within the period herein prescribed, the property shall be listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be dropped from the assessment roll. - What do you have to present as proof of exemption? (documents for exemption) o Articles of incorporation for non-stock, non profit educational institution, or religious corporation, or charitable institutions, so long as the property is actually directly and exclusively used for educational, or religious, or charitable purpose, because they are exempt from real property taxes. - You will know that it is exempted because there is a stamp in the Tax Declaration that it is exempted. - Reglementary period for filing of proof of exemption: within 30 days from the issuance of the tax declaration. SECTION 207.Real Property Identification System. — All declarations of real property made under the provisions of this Title shall be kept and filed under a uniform classification system to be established by the provincial, city or municipal assessor. - So there’s a tax declaration number for every property. Just remember that there is this system. SECTION 208.Notification of Transfer of Real Property Ownership. — Any person who shall transfer real property ownership to another shall notify the provincial, city or municipal assessor concerned within sixty (60) days from the date of such transfer. The notification shall include the mode of transfer, the description of the property alienated, the name and address of the transferee. - Purpose: so that there would be another declaration issued in such transferee. SECTION 209.Duty of Registrar of Deeds to Apprise Assessor of Real Property Listed in Registry. — (a) To ascertain whether or not any real property entered in the Registry of Property has escaped discovery and listing for the purpose of taxation, the Registrar of Deeds shall prepare and submit to the provincial, city or municipal assessor, within six (6) months from the date of effectivity of this Code and every year thereafter, an abstract of his registry, which shall include brief but sufficient description of the real properties entered therein, their present owners, and the dates of their most recent transfer or alienation accompanied by copies of corresponding deeds of sale, donation, or partition or other forms of alienation. (b) It shall also be the duty of the Registrar of Deeds to require every person who shall present for registration a document of transfer, alienation, or encumbrance of real property to accompany the same with a certificate to the effect that the real property subject of the transfer, alienation, or encumbrance, as the case may be, has been fully paid of all real property taxes due thereon. Failure to provide such certificate shall be a valid cause for the Registrar of Deeds to refuse the registration of the document. - As you can see, the Local Board of Assessment Appeal, which where you usually lodge your protest in case your petition is denied by the Local Treasurer, is headed by the Registrar of Deeds of that locality. Because the RD must always be knowledgeable of the properties that gets to transferred within his locality, in his area.
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Societas Spectra Legis Taxation Law 2 Compilation SECTION 210.Duty of Official Issuing Building Permit or Certificate of Registration of Machinery to Transmit Copy to Assessor. — Any public official or employee who may now or hereafter be required by law or regulation to issue to any person a permit for the construction, addition, repair, or renovation of a building, or permanent improvement on land, or a certificate of registration for any machinery, including machines, mechanical contrivances, and apparatus attached or affixed on land or to another real property, shall transmit a copy of such permit or certificate within thirty (30) days of its issuance, to the assessor of the province, city or municipality where the property is situated. - Even the public official who issues building permit etc. helps in the administration of the real property tax by transmitting a copy of such permit or certificate from 30 days of the issuance thereof to the assessor where the property is situated. SECTION 211.Duty of Geodetic Engineers to Furnish Copy of Plans to Assessor. — It shall be the duty of all geodetic engineers, public or private, to furnish free of charge to the assessor of the province, city or municipality where the land is located with a white or blue print copy of each of all approved original or subdivision plans or maps of surveys executed by them within thirty (30) days from receipt of such plans from the Lands Management Bureau, the Land Registration Authority, or the Housing and Land Use Regulatory Board, as the case may be. SECTION 212.Preparation of Schedule of Fair Market Values. — Before any general revision of property assessment is made pursuant to the provisions of this Title, there shall be prepared a schedule of fair market values by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two (2) other conspicuous public places therein. - It is the provincial, city or municipal assessor who will prepare the schedule of FMV. But because there will be an ordinance to be enacted by the sanggunian concerned, the schedule made by the assessor will be dependent on such ordinance made by the sanggunian as well as the zoning ordinance. - Take note where it will be posted: (1) posted in the seat of power—capitol or city hall or brgy. Hall; (2) 2 conspicuous public places. SECTION 213.Authority of Assessor to Take Evidence. — For the purpose of obtaining information on which to base the market value of any real property, the assessor of the province, city or municipality or his deputy may summon the owners of the properties to be affected or persons having legal interest therein and witnesses, administer oaths, and take deposition concerning the property, its ownership, amount, nature, and value. SECTION 214.Amendment of Schedule of Fair Market Values. — The provincial, city or municipal assessor may recommend to the sanggunian concerned amendments to correct errors in valuation in the schedule of fair market values. The sanggunian concerned shall, by ordinance, act upon the recommendation within ninety (90) days from receipt thereof. - When can there be amendment of the schedule? Upon the recommendation of the assessor to the sanggunian in cases when there is a need to correct some errors and such should be acted by the sanggunian within 90 days from receipt. SECTION 215.Classes of Real Property for Assessment Purposes. — 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 sanggunian, shall have the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in accordance with their zoning ordinances. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Classes of property for purposes of assessment: CARMITS (please memorize) o Commercial - land devoted principally for the object of profit and is not classified as agricultural, industrial, mineral, timber, or residential land o Agricultural - land devoted principally to the planting of trees, raising of crops, livestock and poultry, dairying, salt making, inland fishing and similar aquacultural activities, and other agricultural activities, and is not classified as mineral, timber, residential, commercial or industrial land o Residential - land principally devoted to habitation o Mineral - lands in which minerals, metallic or non-metallic, exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials o Industrial - land devoted principally to industrial activity as capital investment and is not classified as agricultural, commercial, timber, mineral or residential land o Timberland o Special
SECTION 216.Special Classes of Real Property. — 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. - Special classes of real property applies only to: 1) land, buildings and improvements that are actually, directly and exclusively (ADE) used for hospitals, cultural or scientific purposes 2) lands, buildings and improvements owned and used by local water districts 3) lands, buildings and improvements owned and used by GOCC rendering essential public service in the supply and distribution of water 4) lands, buildings and improvements owned and used by GOCC rendering essential public service in the generation and transmission of electric power - Why are they called special? Because they are subjected to a special rate of taxes in terms of assessment levels SECTION 217.Actual Use of Real Property as Basis for Assessment. — Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it. - This provision reminds us that the assessment is always base on its ACTUAL USE
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Societas Spectra Legis Taxation Law 2 Compilation SECTION 218.Assessment Levels. — The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following: (a) On Lands: CLASS Residential Agricultural Commercial Industrial Mineral Timberland
ASSESSMENT LEVELS 20% 40% 50% 50% 50% 20%
(b) On Buildings and Other Structures: (1) Residential Fair Market Value Over
Not Over
P0 P175,000.00 300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00
P175,000.00 300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00 5,000,000.00 10,000,000.0 0
5,000,000.00 10,000,000.00
Assessment Levels 0% 10% 20% 25% 30% 35% 40% 50% 60%
(2)Agricultural Fair Market Value Over
Not Over
P0 P300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00
P300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00
Assessment Levels 25% 30% 35% 40% 45% 50%
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Societas Spectra Legis Taxation Law 2 Compilation (3) Commercial/Industrial Fair Market Value Over
Not Over
P0 P300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00
P300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00 5,000,000.00 10,000,000.0 0
5,000,000.00 10,000,000.00
Assessment Levels 30% 35% 40% 50% 60% 70% 75% 80%
(4) Timberland Fair Market Value Over
Not Over P300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00
P300,000.00 500,000.00 750,000.00 1,000,000.00 2,000,000.00
Assessment Levels 45% 50% 55% 60% 65% 70%
(c) On Machineries Class
Assessment Levels
Agricultura l Residential Commercia l Industrial
40% 50% 80% 80%
(d) On Special Classes: The assessment levels for all lands, buildings and other improvements; Actual Use Cultural Scientific Hospital Local water districts
Assessment Level 15% 15% 15% 10%
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Societas Spectra Legis Taxation Law 2 Compilation Government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power -
-
-
10%
Don’t have to memorize these rates, just familiarize lang. Just be mindful of this so-called zero assessment level which only applies to a residential land when the value does not exceed P175,000. (came out in the bar exam) Will the tank of water owned and used by the local water district be subject to real property tax? YES because it is used in the supply and distribution of water. Will it (the tank of water) under the special classification? The tank is not a land and definitely not a building. So you look at the definition of improvement and the definition of machinery. o Improvement – is a valuable addition made to a property or an amelioration in its condition, amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further purposes o Machinery – embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes; So where do you think the tank of water belong? It falls under the definition of machinery. This must be emphasized because this is usually the trick question in the exam. So then, if you’re talking about special classification of real property, you should not include machinery. So it follows that yes it is subject to real property tax but not subject to the special rate.
SECTION 219.General Revision of Assessments and Property Classification. — The provincial, city or municipal assessor shall undertake a general revision of real property assessments within two (2) years after the effectivity of this Code and every three (3) years thereafter. - The declaration of assessment of real property is once every 3 years during January to June 30. This refers to the part of the owner declaring such real property. - But on the part of the government, which makes the assessment and collection of RPT, they can generally amend or revise the assessment levels and the classifications of property. But this can only be done once every 3 years. SECTION 220.Valuation of Real Property. — In cases where (a) real property is declared and listed for taxation purposes for the first time; (b) there is an ongoing general revision of property classification and assessment; or (c) a request is made by the person in whose name the property is declared, the provincial, city or municipal assessor or his duly authorized deputy shall, in accordance with the provisions of this Chapter, make a classification, appraisal and assessment of the real property listed and described in the declaration irrespective of any previous assessment or taxpayer's valuation thereon: Provided, however, That the assessment of real property shall not be increased oftener than once every three (3) years except in case of new improvements substantially increasing the value of said property or of any change in its actual use.
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Instances where the assessor can make a VALUATION of the real property described in the declaration: a) When real property is declared and listed for the first time b) When there is an ongoing general revision of the classification and assessment of the property Reason: there might be an increase or decrease in the value of the property (e.g. from residential to commercial) c) When a request is made by the person (owner or administrator) whose name the property is declared
SECTION 221.Date of Effectivity of Assessment or Reassessment. — All assessments or reassessments made after the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year: Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major change in its actual use, or to any great and sudden inflation or deflation of real property values, or to the gross illegality of the assessment when made or to any other abnormal cause, shall be made within ninety (90) days from the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next following the reassessment. - Effectivity date of your assessment or reassessment: o If it’s made after January 1 – it shall take effect January 1 of the next year. o If there is a reassessment because of (1) total or partial destruction, or (2) major change in its actual use, or (3) great or sudden inflation or deflation of the value, or (4) gross illegality of the assessment, or (5) any abnormal causes – the reassessment shall take effect at the beginning of the quarter following the reassessment, provided, that it shall be made within 90 days from the date of such cause. SECTION 222.Assessment of Property Subject to Back Taxes. — Real property declared for the first time shall be assessed for taxes for the period during which it would have been liable but in no case for more than ten (10) years prior to the date of initial assessment: Provided, however, That such taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period. - How long can the assessor assess your property? o If you declare it for the 1st time: it can be assessed back taxes up to 10 years. Example: 2015, you bought a real property but you haven’t declared it. Then 20 years after, you still did not declare, however, you want to transfer it. So you made a declaration for the 1st time, but the city assessor will impose RPT on you because there were no taxes paid from 2015 to 2035. But because it’s your 1st time to declare, the city assessor can only impose RPT on you from year 2025 to 2035, in accordance with Sec. 222. You will not be liable for the RPT from year 2015 to 2024. If such taxes are paid on or before the end of the quarter following the date the notice of assessment was received by the owner or his representative, no interest for delinquency shall be imposed thereon; otherwise, such taxes shall be subject to an interest at the rate of two percent (2%) per month or a fraction thereof from the date of the receipt of the assessment until such taxes are fully paid. - This means that although you will be assessed for back taxes good for 10 years, you will be subject to penalty interest provided that you will make the payment on or before the end of the quarter of the date you made the declaration. - If you pay after the quarter of the date you made the declaration, you are subject to 2% interest. SECTION 223.Notification of New or Revised Assessment. — When real property is assessed for the first time or when an existing assessment is increased or decreased, the provincial, city or municipal assessor shall within thirty (30) days give written notice of such new or revised assessment to the person in whose name the property is declared. The notice may be delivered personally or by registered mail or through the assistance of the punong barangay to the last known address of the person to be served. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation SECTION 224.Appraisal and Assessment of Machinery. — (a) The fair market value of a brand-new machinery shall be the acquisition cost. In all other cases, the fair market value shall be determined by dividing the remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or reproduction cost. - Formula: Remaining Economic Replacement Life X Cost Estimated Useful Life Example: a machinery worth 2,000,000 has an estimated economic life is 10 years then on the 2nd year, there’s a better technology that can improve your production, so you will replace the said machinery with the new improved one. The value of the machinery now is 1,500,000. So when you sell the old machinery, the assessor will not record it at the same value 2 years ago when it was brand new. So the assessor will use the formula to record the value. 8 10
X
1,500,00 0
=
1,200,00 0
The replacement cost refers to the cost that would be incurred on the basis of current prices, in acquiring an equally desirable substitute property, or the cost of reproducing a new replica of the property on the basis of current prices with the same or closely similar material. (b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges, brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation, handling, and installation charges at the present site. The cost in foreign currency of imported machinery shall be converted to peso cost on the basis of foreign currency exchange rates as fixed by the Central Bank.
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Societas Spectra Legis Taxation Law 2 Compilation SECTION 225.Depreciation Allowance for Machinery. — For purposes of assessment, a depreciation allowance shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use: Provided, however, That the remaining value for all kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation. - The phrase “fixed at not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is useful and in operation” refers to the salvage value. - Salvage value means that although the property has already been fully depreciated, it can be sold at that value, which shall not be less than 20% of such original, replacement or reproduction cost. --- 20% Salvage Value - Example: (same facts of the previous example) diba the replacement cost is 1,200,000, you can depreciate it up to 5% every year. And let’s assume that the useful life is 20 years. o so, 1,200,000 x 5% = 60,000. And 60,000 x 20 years = 1,200,000. So technically, at the end of the 20th year, the useful life will now be 0. But the law tells us that although the value after the 20 th year is 0, you can sell it at its salvage value which should not be less than 20% of its cost. Here, the salvage value is 240,000. (1,200,000 x 20%) o when can you know that you will no longer recognize its depreciation? Formula (Straight Line Method): Depreciable Value – Salvage Value Economic Life To compute: 1,200,000 – 240,000 20 years
=
48,00 0
So 48,000 should be depreciation expense that you should recognize. But so long as you comply with 5% requirement, that would still be considered as reasonable.
ASSESSMENT OF RPT:
HOW TO MAKE ASSESSMENT OF RPT: o Owner or any person who has in possession of the property has to make a declaration which includes a statement of the value of his or her property TO THE ASSESSOR provincial, city or municipal o The assessor then will have to verify such value, he has to make the valuation himself. He can base it either on the schedule of FMV if it applies or rely on the statement of the owner. There must always be a valuation of the Current or Fair Market Value of the Property EXISTING & PREVAILING in the locality were the property is located. o CLASSIFICATION OF PROPERTIES by the assessor: Commercial, Agricultural, Residential, Mineral, Industrial, Timberland and Special (CARMITS) o Then upon classification and assessment you apply the assessment level Take Note: the steps mentioned are in total the ASSESSMENT LEVEL. This is important because there is a difference as to the remedy if what you question is the assessment or the tax imposed. When we mean assessment this is the act of the assessor valuing the property and setting the assessment level.
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Societas Spectra Legis Taxation Law 2 Compilation REMEDY AS TO ASSESSMENT: STEP: 1. City or provincial or municipal assessor assess you. 2. Not satisfied. Then go to the Local Board of Assessment Appeals within 60 days from the written notice of the assessment which is the tax declaration itself – a. SEC. 226. Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. b. This does not preclude you from first talking with the assessor but if you are never happy make sure that the 60 period has not elapsed. 3. The LBAA has 120 days to decide the appeal. a. SEC. 229. Action by the Local Board of Assessment appeals. - (a) The Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as adequate to support the conclusion. b. This is mandatory. They should decide within the 120 days. If not they will be held administratively liable. 4. Not satisfied. Within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment appeals CBAA a. The owner of the property or the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may, within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment appeals, as herein provided. The decision of the Central Board shall be final and executory. 5. Not satisfied. Appeal with the CTA En Banc within 30 days from receipt of decision 6. Appeal with the SC within 15 days. LBAA is headed by the REGISTER OF DEEDS. NOTE: what we are questioning here is simply the assessment and not the reasonableness or excessive assessment of real property taxes. Therefore in this part there is no need for payment under protest. SEC. 231. Effect of appeal on the Payment of Real Property Tax. - appeal on assessments of real property made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
THE REAL PROPERTY TAX ITSELF: BASIC REAL PROPERTY TAX: How much is the RPT: Basic RPT of: o Province at the rate not exceeding one percent (1%) of the assessed value of real property o city or a municipality within the Metropolitan Manila Area at the rate not exceeding University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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two percent (2%) of the assessed value of real property Tax Base: Assessed Value. this is what is question at the assessment process not the tax. o "Assessed Value" is the fair market value of the property prevailing within the locality where the property is located times the assessment level
EXEMPT REAL PROPERTIES: 1) GR: 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; This is an exception to the usual basis of rpt. Here the GR is you look at the ownership the exception is the USE. BAR EXAM: the municipality of balamban (MB) owns a parcel of land, which it leased out to private entity X corp to be used as a warehouse. After sometime, MB assessed X for real property tax. Does the municipality of balamban have the authority to impose rpt or does it have legal basis? o ANS: NO. it may have the legal basis to impose because the use was for a taxable person BUT such municipality is OUTSIDE of METRO MANILA therefore it does NOT have the authority to impose such rpt. o (REMEMBER THIS. You will come across this question again maybe in the finals, moot court, mock bar or the bar. So be mindful of this exception and the exception to the exception) 2) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; here you look at the USE and not ownership. Take note it is ONLY LANDS, BUILDINGS & IMPROVEMENTS (LIB). Does not apply to machineries. 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; Therefore when it is: o Land, Buildings & Improvements of Local Water Districts/GOCCs in supply & distri. Of water/transmission of electric power considered as a special class and subject to a special assessment o Machineries & equipment of Local Water Districts/GOCCs in supply & distri. Of water/transmission of electric power exempt 4) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938; 5) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. SPECIAL LEVY ON REAL PROPERTY TAX:
Additional Levy on Real Property for the Special Education Fund (SEF). – o A province or city, or a municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax.
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The proceeds thereof shall exclusively accrue to the Special Education Fund (SEF) of the LGU having jurisdiction for its public schools. SUMMARY OF ACTUAL RPT: Province: Basic 1% + SEF 1% = 2% Cities and municipalities: Basic 2% + SEF 1% = 3%
Additional Ad Valorem Tax on Idle Lands. – o A province or city, or a municipality within the Metropolitan Manila Area, may levy an annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value of the property which shall be in addition to the basic real property tax. o Is imposed to discourage owning properties which is not utilized for productive purposes. o CONDITIONS TO BE SUBJECT: (TAKE NOTE OF THE AREAS DURING EXAM) Agricultural lands: 1) more than one (1) hectare in area, 2) suitable for cultivation, dairying, inland fishery, and other agricultural uses, 3) one-half (1/2) of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein." a. EXECPTION: Agricultural lands planted with: i. permanent or perennial crops with at least fifty (50) trees to a hectare shall not be considered idle lands. (fruit bearing trees) ii. Lands actually used for grazing purposes shall likewise not be considered idle lands. Lands, other than agricultural, located in a city or municipality: o more than one thousand (1,000) square meters in area o one-half (1/2) of which remain unutilized or unimproved by the owner of the property or person having legal interest therein. Residential lots in subdivisions duly approved by proper authorities: o Regardless of land area o likewise apply, the ownership of which has been transferred to individual owners, who shall be liable for the additional tax: o Provided, however, That individual lots of such subdivisions, the ownership of which has not been transferred to the buyer shall be considered as part of the subdivision, and shall be subject to the additional tax payable by subdivision owner or operator. o Remember this. REGARDLESS OF AREA. (sa exam libogon nko mo. Land in maria luisa village LESS than 1000 hectare ¼ unused. Subject gihapon because this is a residential lot) o The basis of this should be on a per declaration basis.
o
SUMMARY OF ACTUAL RPT if subject to IDLE LAND TAX: Province: Basic 1% + SEF 1% = 2% + 5% = 7% Cities and municipalities: Basic 2% + SEF 1% = 3% + 5% = 8%
Idle Lands Exempt from Tax. - by reason of force majeure, civil disturbance, natural calamity or any cause or circumstance which physically or legally prevents the owner
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Special Levy by Local Government Units. – o A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned o GR: Only PROVINCES, CITIES & MUNICIPALITIES within the METRO MANILA AREA shall be primarily responsible for the proper and efficient and effective administration of RPT EX: Special Levy by LGU’s A province, city or municipality may impose a special levy on the lands o BASED: on project or improvement which raises the value of the land o RATE: That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property o EXEMPTION: That the special levy shall not apply: to lands exempt from basic real property tax and remainder of the land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements o May be paid in installments BUT number of annual installments for the payment of the special levy which in no case shall be less than five (5) nor more than ten (10) years. o GR for RPT no need for public hearing EXECPTION Special Levy because it will require public hearing. SEC. 242. Publication of Proposed Ordinance Imposing a Special Levy. - Before the enactment of an ordinance imposing a special levy, the sanggunian concerned shall conduct a public hearing thereon; notify in writing the owners of the real property to be affected or the persons having legal interest therein as to the date and place thereof and afford the latter the opportunity to express their positions or objections relative to the proposed ordinance.
REMEDY FOR SPECIAL LEVY o o
To the LBAA. Same as Assessement. BUT you Can only question the Legality or the correctness of why you are subjected to RPT. You do not question the amount of tax imposed on you. Because if you question the amount it will require payment under protest.
ACCRUAL OF SPECIAL LEVY: o The special levy shall accrue on the first day of the quarter next following the effectivity of the ordinance imposing such levy. o If imposed on February then you should pay it on the first day of APRIL. Or if JUNE then JULY.
COLLECTION OF REAL PROPERTY TAX ACCRUAL OF RPT: o accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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DEADLINE OF PAYMENT: depends on ordinance but there is required quarterly payments which are 31st day of March, June, September and December
COLLECTION OF TAXES: o shall be the responsibility of the city or municipal treasurer o The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on real property located in the barangay: Provided, That the barangay treasurer is properly bonded for the purpose: Provided, further, That the premium on the bond shall be paid by the city or municipal government concerned. o BUT his collection will be based on the assessment by the assessor. NOTICE OF COLLECTION OF TAX: o Made by The city or municipal treasurer o on or before the thirty-first (31st) day of January each year, in the case of the basic real property tax and the additional tax for the Special Education Fund (SEF), o post the notice of the dates when the tax may be paid without interest at a conspicuous and publicly accessible place at the city or municipal hall. o Said notice shall likewise be published in a newspaper of general circulation in the locality once a week for two (2) consecutive weeks. TAX DISCOUNT FOR ADVANCE PAYMENT: o If the basic real property tax and the additional tax accruing to the Special Education Fund (SEF) are paid in advance in accordance with the prescribed schedule of payment which is: o ANNUAL on or before the 31st day on January discount of not exceeding twenty percent (20%) of the annual tax due. o INSTALLMENT on or before the last day of the end of each quarter discount of 10% prompt payment
REMEDY OF COLLECTION o o
Here you are not happy with the assessment made by the TREASURER. Here you are questioning the reasonableness and excessive assessment of the real property tax the AMOUNT.
Payment Under Protest. – No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt. o This gives a notion that this remedy will not prescribed because it will be reckoned upon payment of the tax. Therefore, if I will not pay the tax the 30 days will not begin to run.
In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability. In the event that the protest is denied or upon the lapse of the sixty day period prescribed:
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Go to the LBAA within 60 days from the receipt of the decision of the local treasurer to the SC. Same as remedy of assessment.
Repayment of Excessive Collections. When an assessment of basic real property tax, or any other tax levied under this Title, is found to be illegal or erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment. The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. In case the claim for tax refund or credit is denied: go to LBAA SC same as assessment remedy.
REMEDY OF THE GOVERNMENT: ADMINISTRATIVE: 1. Distraint a. SEC. 254. Notice of Delinquency in the Payment of the Real Property Tax. – i. When the real property tax or any other tax imposed under this Title becomes delinquent, ii. the provincial, city or municipal treasurer shall immediately cause a notice of the delinquency to be posted at the main entrance of the provincial capitol, or city or municipal hall and in a publicly accessible and conspicuous place in each barangay of the local government unit concerned. iii. The notice of delinquency shall also be published once a week for two (2) consecutive weeks, in a newspaper of general circulation in the province, city, or municipality. iv. Such notice shall specify the date upon which the tax became delinquent and shall state that personal property may be distrained to effect payment. v. HOW IS THIS EFFECTED: same as in LGT, a certificate is issued by the treasurer which serves as a warrant to distraint such property. The person who has the personal property distraint undertakes to surrender possession of the property. vi. CAN HE REDEEM: Yes. right of the delinquent owner of the property or any person having legal interest therein to redeem the property within one (1) year from the date of sale. vii. INTEREST ON SUCH PROPERTY: payment of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: That in no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months. 72 % total interest. 2. LEVY a. The basic real property tax and any other tax levied under this Title constitutes a lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, the MOMENT THE RPT ACCURES b. real property subject to such tax may be levied upon through the issuance of a warrant on or before, or simultaneously with, the institution of the civil action for the collection of the delinquent tax. c. The provincial or city treasurer, or a treasurer of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant of levy shall prepare a duly authenticated certificate showing the name of the delinquent owner of the property or person having legal University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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d. e.
f.
g.
h.
i.
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interest therein, the description of the property, the amount of the tax due and the interest thereon. The warrant shall operate with the force of a legal execution throughout the province, city or a municipality within the Metropolitan Manila Area. The warrant shall be mailed to or served upon the delinquent owner of the real property or person having legal interest therein, or in case he is out of the country or cannot be located, to the administrator or occupant of the property. At the same time, written notice of the levy with the attached warrant shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or a municipality within the Metropolitan Manila Area where the property is located, who shall annotate the levy on the tax declaration and certificate of title of the property, respectively. Penalty for Failure to Issue and Execute Warrant. - Without prejudice to criminal prosecution under the Revised Penal Code and other applicable laws, any local treasurer or his deputy who fails to issue or execute the warrant of levy within one (1) year from the time the tax becomes delinquent or within thirty (30) days from the date of the issuance thereof, or who is found guilty of abusing the exercise thereof in an administrative or judicial proceeding shall be dismissed from the service. Redemption of Property Sold. - Within one (1) year from the date of sale, the owner of the delinquent real property or person having legal interest therein, or his representative, shall have the right to redeem the property upon payment to the local treasurer of the amount of the delinquent tax, including the interest due thereon, and the expenses of sale from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of sale to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the owner of the delinquent real property or person having legal interest therein shall be entitled to a certificate of redemption which shall be issued by the local treasurer or his deputy. From the date of sale until the expiration of the period of redemption, the delinquent real property shall remain in the possession of the owner or person having legal interest therein who shall be entitled to the income and other fruits thereof. The local treasurer or his deputy, upon receipt from the purchaser of the certificate of sale, shall forthwith return to the latter the entire amount paid by him plus interest of not more than two percent (2%) per month. Thereafter, the property shall be free from the lien of such delinquent tax, interest due thereon and expenses of sale.cralaw If no bidder Purchase of Property By the Local Government Units for Want of Bidder. - In case there is no bidder for the real property advertised for sale as provided herein, or if the highest bid is for an amount insufficient to pay the real property tax and the related interest and costs of sale the local treasurer conducting the sale shall purchase the property in behalf of the local government unit concerned to satisfy the claim and within two (2) days thereafter shall make a report of his proceedings which shall be reflected upon the records of his office. It shall be the duty of the Registrar of Deeds concerned upon registration with his office of any such declaration of forfeiture to transfer the title of the forfeited property to the local government unit concerned without the necessity of an order from a competent court. Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the property by paying to the local treasurer the full amount of the real property tax and the related interest and the costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be fully vested on the local government unit concerned.cralaw Resale of Real Estate Taken for Taxes, Fees, or Charges. - The sanggunian concerned may, by ordinance duly approved, and upon notice of not less than twenty (20) days, sell and dispose of the real property acquired under the preceding section at public auction. The proceeds of the sale shall accrue to the general fund of the local government unit concerned.cralaw
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Societas Spectra Legis Taxation Law 2 Compilation k. Levy may be repeated if necessary until the full amount due, including all expenses, is collected.cralaw JUDICIAL: Collection of Real Property Tax Through the Courts. - The local government unit concerned may enforce the collection of the basic real property tax or any other tax levied under this Title by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the period of 5 years for ordinary cases or 10 years if there is fraud. JURISDICTION: o If the amount is 300K/400K or less MTC appeal to RTC within 15 days appeal to CTA ENBANC within 30 days to SC within 15 days o If more than 300K/400K or less RTC CTA in division within 30 days CTA en banc within 15 days to SC within 15 days.
Action Assailing Validity of Tax Sale. – Can you question? Yes. But there is a condition that you tender the payment of the taxes to the court. No court shall entertain any action assailing the validity of any sale at public auction of real property or rights therein under this Title until the taxpayer shall have deposited with the court the amount for which the real property was sold, together with interest of two percent (2%) per month from the date of sale to the time of the institution of the action. Periods Within Which To Collect Real Property Taxes. – shall be collected within five (5) years from the date they become due. No action for the collection of the tax, whether administrative or judicial, shall be instituted after the expiration of such period. In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection of the same within ten (10) years from the discovery of such fraud or intent to evade payment. The period of prescription within which to collect shall be suspended for the time during which: o (1) The local treasurer is legally prevented from collecting the tax; o (2) The owner of the property or the person having legal interest therein requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect; and o (3) The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located.
SPECIAL PROVISIONS Condonation or Reduction of Real Property Tax and Interest. – In case of a general failure of crops or substantial decrease in the price of agricultural or agribased products, or calamity in any province, city, or municipality, the sanggunian concerned, by ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity. o If the calamity happened during the year. When will the condonation or reduction apply? Next Year if an ordinance was passed during the year. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Condonation or Reduction of Tax by the President of the Philippines. – The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila Area.cralaw Duty of Registrar of Deeds and Notaries Public to Assist the Provincial, City or Municipal Assessor. – It shall be the duty of the Registrar of Deeds and notaries public to furnish the provincial, city or municipal assessor with copies of all contracts selling, transferring, or otherwise conveying, leasing, or mortgaging real property received by, or acknowledged before them. Insurance Companies to Furnish Information. Insurance companies are hereby required to furnish the provincial, city or municipal assessor copies of any contract or policy insurance on buildings, structures, and improvements insured by them or such other documents which may be necessary for the proper assessment thereof. Fees in Court Actions. - All court actions, criminal or civil, instituted at the instance of the provincial, city or municipal treasurer or assessor under the provisions of this Code, shall be exempt from the payment of court and sheriff's fees. Fees in Registration of Papers or Documents on Sale of Delinquent Real Property to province, City or municipality. - All certificates, documents, and papers covering the sale of delinquent property to the province, city or municipality, if registered in the Registry of Property, shall be exempt from the documentary stamp tax and registration fees. Real Property Assessment Notices or Owner's Copies of Tax Declarations to be Exempt from Postal Charges or Fees. - All real property assessment notices or owner's copies of tax declaration sent through the mails by the assessor shall be exempt from the payment of postal charges or fees.
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TARRIFF and CUSTOMS deals with the imposition of taxes on the importation and exportation of goods. The tax on exportation except for logs has already been suspended. Tax on exportation of logs is more of a prohibition rather than imposition. The primary legal basis for TARRIFF and CUSTOMS duties would be the Constitution. For any other tax, its always the constitution and followed by the special laws. Section 28. (1) (Art. 6). The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (2) 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. (4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. Section 24 (Art. 6). All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. Section 27(2) (Art. 6). The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. Customs and duties is more of an indirect tax.
BASIS FOR THE IMPOSITION OF THE TARRIFFS and CUSTOMS PD 1464 as amended.
TARRIFF AND CUSTOMS CODE The body of law which codifies all customs law including tariff decreed by the President of the Philippines.
BASIS- BRUSSELS TARIFF NOMENCLATURE A list of classification of commodities for Customs purposes which is also used as a basis for their freight tariff by many shipping lines. Each commodity has a unique code known as a BTN number.
TARRIFF The small Spanish town of Tarifa is sometimes credited with being the origin of the word "tariff", since it was the first port in history to charge merchants for the use of its docks. The name "Tarifa" itself is derived from aFeudal Lord named Tarifibn Malik. However, other sources assume that the origin of tariff is the Italian word tariffa translated as "list of prices, book of rates," which is derived from the Arabic ta'rif meaning "making known" or "to define". As it is, it should be understood as an official list or schedule setting forth the several customs duties to be imposed on imports and exports.
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Societas Spectra Legis Taxation Law 2 Compilation CUSTOMS Refers to the habitual practice that we know of. Part of this habitual practice is that there is imposition of this customary tax whenever there is passage of goods from one territory to another.
BUREAU OF CUSTOMS The administrative agency tasked to assess and collect customs duties.
COMMISSIONER 1 Commissioner and 5 Deputy Commissioners.
PRIMARY FUNCTION OF THE BUREAU OF CUSTOMS 1. ADMINISTRATIVE FUNCTION - The assessment and collection of the lawful revenues from imported articles and all other dues, fees, charges, fines and penalties accruing under the tariff and customs laws. Lawful revenues – any kind of income or money that the BOC collect and receives. It may not come from tax. It may come from any activity they are engaged in like arrastre services. 2. The prevention and suppression of smuggling and other frauds upon the customs. Smuggling – an act of any person who shall fraudulently import or bring into the Philippines, or assist in so doing, any article contrary to law, or shall receive, conceal, buy, sell or in any manner facilitate the transportation, concealment, or sale of such article after importation, knowing the same to be imported contrary to law. It includes the exportation of articles in a manner contrary to law. i. If you don’t follow regulations on exports, you can be considered as engaged in smuggling. Requisites for smuggling: i. The merchandise must have fraudulently or knowingly imported contrary to law. ii. The defendant, if he is not the importer himself, must have received, concealed, bought, sold or in any manner facilitated transportation, concealment, or sale of the merchandise. iii. The defendant must be shown to have knowledge that the merchandise had been illegally imported. Mala in se – requires intent. Large-scale smuggling – if the determinable value of the goods or contraband is at least P5M. Smale-scale smuggling – if less than P5M. Smuggling by syndicate – carried out by a group of 3 more persons conspiring or confederating with one another in carrying out the unlawful act of smuggling. 3. ANCILLARY FUNCTION – The enforcement of the tariff and customs laws and all other laws, rules and regulations relating to the tariff and customs administration. Read the rest of Sec. 602
CUSTOMS TERRITORY The national territory of the Philippines outside of the proclaimed boundaries of the ECOZONES except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and/or free ports.
TERRITORIAL JURISDICTION For the due and effective exercise of the powers conferred by law and to the extent requisite therefor, said bureau shall have the right of supervision and police authority over all seas within the jurisdiction of the Philippines and over all coasts, ports, airports, harbors, bays, rivers and inland waters navigable from the sea.
DOCTRINE OF FRESH PURSUIT When a vessel becomes subject to seizure by reason of an act done in Philippine waters in violation of the tariff and customs laws, a pursuit of such vessel begun within the jurisdictional waters may continue beyond the University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation maritime zone, and the vessel may be seized on the high sea. Imported articles which may be subject to seizure for violation of the tariff and customs laws may be pursued in their transportation in the Philippines by land, water or air and such jurisdiction exerted over it at any place therein as may be necessary for the due enforcement of the law.
JURISDICTION OVER PREMISES USED FOR CUSTOMS PURPOSES The Bureau of Customs shall, for customs purposes, have exclusive control, direction and management of custom-houses, warehouses, offices, wharves, and other premises in the respective ports of entry, in all cases without prejudice to the general police powers of the city or municipality wherein such premises are situated.
CUSTOM HOUSES The house or office where commodities are entered for importation or exportation where the duties, drawbacks, payables and receivables upon such importation or exportation are paid or received, and where ships are cleared out.
POWER OF THE PRESIDENT TO SUBJECT PREMISES TO JURISDICTION OF BUREAU OF CUSTOMS The President of the Philippines may, by executive order, declare such premises to be under the jurisdiction of the Bureau of Customs, and thereafter the authority of such Bureau in respect thereto shall be fully effective.
WHEN IS A PARTICULAR ACTIVITY BE SUBJECT TO THE JURISDICTION OF BUREAU OF CUSTOMS When it reaches the port of entry.
COMMISSIONER TO MAKE RULES AND REGULATIONS The Commissioner shall, subject to the approval of the department head (Secretary of Finance), make all rules and regulations necessary to enforce the provisions of this Code.
CUSTOMS ADMINISTRATIVE ORDER Includes rules, regulations and instructions for information and guidance on all officials and employees, including the public in general, in the connection with the proper administration and operation of the BOC. Customs Administrative Order are subject to approval by the Secretary of Finance.
CUSTOMS MEMORANDUM ORDER Contains directives or instructions affecting the officials and employees of the BOC involving a more limited scope and requiring a definite compliance. This is equivalent to the RMO of the BIR.
CUSTOMS MEMORANDUM CIRCULAR Contains dissemination of instruction and other information for the guidance of all officials, employees and the public in general which circulates the following: 1. Laws or regulations of general interest. 2. Precedents, rulings or opinions of the DOJ. 3. Resolutions and decisions of courts. 4. Decisions or resolutions of the Civil Service Commission which affects the functions and duties of the BOC personnel. 5. Rules and regulations issued by the different government agency which may affect, one way or another, the functions of the BOC. CMC or CMO are not subject to the approval of the Secretary of Finance because it is more an internal directive. CMC will not include matters affecting valuation, appraisal, classification and liquidation of imported articles. This means these matters should be covered under CAO. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation PORT Any place at which merchandise can be imported, or any place designated by the executive order of the President at which the Custom officer is authorized to accept the merchandise, and to collect duties and to enforce the various provisions of the Customs and Navigation laws. Port of Entry (POE) – a domestic port, open to both foreign and coast-wise trade Principal POE – is the chief port of entry of the of the collection district, wherein it is situated as a permanent station of the collector of customs of such port. Sub POE - All other ports, if it is allowed coast-wise trading; coast-wise trading – not same as coast-wise shipping; it means that there is a coast to coast trading. FREE Port – area set aside for handling foreign goods without having to enter the customs house; meaning it is free of taxes Collector of Customs – executive officer who is the boss in a customs district/collection district and is the extension of personality of the commissioner of customs on matters affecting his/her district. - To whom to pay your taxes; to whom you lodge your protests/complaints Sec. 703. Collector of Customs at Port of Entry – At each principal port of entry, there shall be a Collector of Customs (hereinafter known as the “Collector”) who shall be responsible to the Commissioner, and who shall be the official head of the customs service in his port and district. The Collector shall have jurisdiction over all matters arising from the enforcement of tariff and customs laws within his collection district: Provided, however, That the Commissioner shall have authority to review any such action upon appeal as provided in section two thousand three hundred and thirteen of this Code. No appointment to any position under the collector shall be made without the recommendation of the collector concerned. Does the collector has the power to remit (condoning/remission of taxes) duties? Yes. Sec. 709. Authority of Collector to Remit Duties – A Collector shall have discretionary authority to remit the assessment and collection of customs duties, taxes and other charges when the aggregate amount of such duties, taxes and other charges is less than ten pesos, and he may dispense with the seizure of articles of less than ten pesos in value except in cases of prohibited importations or the habitual or intentional violation of the tariff and customs laws. Does the Commissioner of BOC have the power to remit customs duties? NO. Only the collector of customs can remit, however, the commissioner does compromise.
PRINCIPLES Life Blood Doctrine Taxes are the life blood of the nation. The primary purpose is to generate funds for the state to finance the needs of the citizenry and to advance the common ____. Therefore, you cannot NOT pay your taxes, because the state will die of anemia :D Doctrine of Primary Jurisdiction The courts cannot and will not determine a controversy involving a question which is within the jurisdiction of the administrative tribunal (in this case, the BOC) or one which is lodge in an administrative body because of its special competency. -the courts will not entertain/address a controversy without passing through the administrative body Doctrine of Exhaustion of Administrative Remedies If a particular controversy has to pass through the administrative agency before it goes to court, all administrative processes within this administrative line should be exhausted first. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Follow all administrative processes first before going to judicial action. If not followed, it will be dismissed for lack of cause of action. Doctrine of Fresh Pursuit (hot pursuit) Sec. 603, A. Of a Vessel When a vessel becomes subject to seizure by reason of an act done in the Philippine waters in violation of the tariff and customs laws, a pursuit of such vessel begun within the jurisdictional waters may continue beyond the maritime zone, and the vessel may be seized on the high sea. - If there is a violation of the customs laws within the customs territory, the vessel may be pursued even beyond the maritime zone. BUT when the vessel enters the territory of another state, the pursuit may no longer be continued. The pursuit is only up to the high seas. ->exam! (Hermes bag for mommy dionisia illustration) so: 1. There is a violation of the customs laws 2. Done within the Philippine waters The pursuit of the vessel shall began within the jurisdictional waters and may continue beyond the maritime waters up to the high seas. Sec. 603, B. Of all other imported articles Imported articles which may be subject to seizure for violation of the tariff and customs laws may be pursued in their transportation in the Philippines by land, water or air and such jurisdiction exerted over it at any pace therein as may be necessary for the due enforcement of the law. -
Because there is a violation of the customs code, it will not matter whether it is within the territorial jurisdiction. If the items were already taken out of the customs territory, they may still be seized anywhere if they are imported contrary to law.
Warrant? No, it will be warrantless. Reason: practicality and expedite seizure and forfeiture. Exception: dwelling place, warrant is required. Warehouse- not a dwelling place, thus no warrant required. Situation: for Chinese business people, usually their house is also where their business is (1st floor- warehouse; 2nd floor- home). As long as you will not go to the area used as their dwelling place, warrant is not required. (ayawugsakasataas! :D)
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Societas Spectra Legis Taxation Law 2 Compilation IMPOSITION OF TAX Customs Duties – duties charged upon the commodities upon their being imported to or exported from a country Importation, meaning SECTION 1202. When Importation Begins and Deemed Terminated. — Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs. ->memorize! verbatim! a. Importation BEGINS when the carrying vessel or aircraft: 1. Enters the jurisdiction of the Philippines 2. With intention to unlade therein b. Importation is deemed TERMINATED upon: 1. If subject to taxes or duties: a. payment of duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry; and b. the legal permit for withdrawal shall have been granted, 2. OR in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs. - Legally left if you are issued a permit of withdrawal, meaning you have already complied with the terms and conditions. SECTION 1201. Article to be Imported Only Through Customhouse. — All articles imported into the Philippines whether subject to duty or not shall be entered through a customhouse at a port of entry.
CLASSES OF IMPORTATION 1. Dutiable importation SECTION 100. Imported Articles Subject to Duty. — All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in other laws. TN: even if previously exported from the Philippines. Exceptions: a. When provided under the tariff and customs code; b. When granted under Special laws; c. When granted to Government agencies, instrumentalities, GOCCs with existing contracts, agreements, obligations or commitments with foreign countries; d. Those that may be granted by the president upon prior recommendation from NEDA in the interest of the national economy; and e. Those granted to international organizations or associations and institutions pursuant to agreements or special laws. WHO IS LIABLE? Owner of the imported article.
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Societas Spectra Legis Taxation Law 2 Compilation 2. Prohibited Importation Sec. 101.Prohibited Importations.— The importation into the Philippines of the following articles is prohibited: Summary a. b. c. d. e.
Weapons of war Gambling devices Narcotics or prohibited drugs Immoral, obscene or insidious articles Those prohibited under special laws
3. Conditionally-free importation Sec. 105.Conditionally-Free Importations. — SUMMARY 1. Animals and plants for scientific, experimental, propagation, botanical, breeding, zoological and national defense purposes; 2. Aquatic products including preparations or manufacturers, thereof, caught or gathered by vessels of Philippine registry; - TN: gathered by fishing vessel of Philippine registry, they are imported in such vessels or in crafts attached thereto, they have not been landed in any foreign territory or, if so landed, they have been landed solely for transshipment without having been advanced in condition 3. Samples in such quantity and of such dimensions or construction as to render them unsaleable or of no appreciable commercial value, models not adapted for practical use, and samples not for sale; 4. Articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon completion of the repair, processing or reconditioning; 5. Personal and household effects belonging to residents of the Philippines returning from abroad (please refer to pg 363 of vitug) 6. Wearing apparel, articles of personal adornment, toilet articles, portable tools and instruments, theatrical costumes, and similar personal effects accompanying travelers or tourist in their baggage or arriving within a reasonable time, in the discretion of the Collector of Customs, before or after the owner, in use of and necessary and appropriate for the wear or use of such persons according to their profession or position for the immediate purposes of their journey and their present comfort and convenience. WWW Added points: GR: importation or exportation merely passes a jurisdiction without an intention to unload it is not subject to customs duties. o HOWEVER: there is a prima facie determination of intention to unload when it involves UNMANIFESTED CARGOES. In these PROHIBITED IMPORTATION as a rule it is prohibited BUT there are some already allowed subject to government approval University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Gambling paraphernalia sanctioned by the PAGCOR For personal use even if immoral obscene things like sex toys as long as it is for personal use and not in commercial quantities. WHO HAS JURISDICTION over articles that are Prohibited Importation & conditionally-free: COLLECTOR OF CUSTOMS o Sec. 1207. Jurisdiction of Collector Over Articles of Prohibited Importation. — Where articles are of prohibited importation or subject to importation only upon conditions prescribed by law, it shall be the duty of the Collector to exercise such jurisdiction in respect thereto as will prevent importation or otherwise secure compliance with all legal requirements. o o
CONDITIONALLY- FREE IMPORTATION
take note most of these items require EXPORTATION within a period of 6 months. While you can bring them in the Philippines, because they are conditionally free, it is conditioned upon the importers undertaking to export it outside the country within 6 months.
ITEMS BROUGHT INTO THE PHILIPPINES FOR REPAIR o Articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon completion of the repair, processing or reconditioning. Provided, o CONDITIONS: 1. That the Collector of Customs shall require the giving of a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges thereon, 2. conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months from the date of acceptance of the import entry; o Note: you have an option here. DON’T RE-EXPORT IT you pay the taxes. It is no longer a free importation FOLLOW the conditions it becomes a free importation o Moreover, the provision states “RE-EXPORTED” this means that the item has been ORIGINALLY EXPORTED from the Philippines but because of certain defects it is IMPORTED BACK here in the Philippines for some repairs, processing or reconditioning. o PERSONAL BELONGINGS, HOUSEHOLD EFFECTS OF RESIDENTS OF THE PHILIPPINES RETURNING FROM ABROAD o Personal and household effects belonging to residents of the Philippines returning from abroad including jewelry, precious stones and other articles of luxury which are: o CONDITIONS: 1. DECLARE: formally declared and listed before departure and identified under oath before the Collector of Customs when exported from the Philippines by such returning residents upon their departure therefrom and during their stay abroad; 2. ITEM: refers to personal and household effects including wearing apparel, articles of personal adornment (except luxury items), toilet articles, portable appliances and instruments and similar personal effects, excluding vehicles, watercrafts, aircrafts, and animals purchased in foreign University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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3. 4.
5.
6. 7.
countries by residents of the Philippines which were necessary, appropriate and normally used for the comfort and convenience in their journey and during their stay abroad WHO: Belonging to RESIDENTS OF THE PHILIPPINES returning from abroad who must have stayed abroad for more than six (6) months and PERIOD: accompanying them on their return, or arriving within a reasonable time which, barring unforeseen circumstances, in no case shall exceed sixty (60) days before or after the owners' return: LIMIT: That the personal and household effects shall neither be in commercial quantities nor intended for barter, sale or hire and that the total dutiable value of which shall not exceed ten thousand pesos (P10,000.00): AVAILED: That the returning residents have not previously received the benefit under this section within one year from and after the last exemption granted: ADD ON: That a fifty (50) per cent ad valorem duty across the board shall be levied and collected on the personal and household effects (except luxury items) in excess of ten thousand pesos (P10,000.00) That the personal and household effects (except luxury items) of a returning resident who has not stayed abroad for six (6) months shall be subject to fifty (50)per cent ad valorem duty across the board, the total dutiable value of which does not exceed ten thousand pesos (P10,000.00); any excess shall be subject to the corresponding duty provided in this Code;
PERSONAL BELONGINGS, HOUSEHOLD EFFECTS OF TRAVELLERS & TOURISTS
o o
Wearing apparel, articles of personal adornment, toilet articles, portable tools and instruments, theatrical costumes and similar effects accompanying: CONDITIONS: WHO: travelers, or tourists. PERIOD: arriving within a reasonable time before and after their arrival in the Philippines, (same as resident returning: accompanying them on their return, or arriving within a reasonable time which, barring unforeseen circumstances, in no case shall exceed sixty (60) days before or after the owners' return) ITEMS: which are necessary and appropriate for the wear and use of such persons according to the nature of the journey, their comfort and convenience: That this exemption shall not apply to articles intended for other persons or for barter, sale or hire NO AMOUNT LIMIT o That the Collector of Customs may, in his discretion, require either a written commitment or a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within three (3) months from the date of acceptance of the import entry: And Provided finally, That the Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges for a term not exceeding three (3) months from the expiration of the original period;
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Societas Spectra Legis Taxation Law 2 Compilation PERSONAL BELONGINGS, HOUSEHOLD EFFECTS OF FOREIGN CONSULTANTS AND EXPERTS HIRED BY, AND/OR RENDERING SERVICE TO, THE GOVERNMENT O CONDITIONS: WHO: Personal and household effects and vehicles belonging to foreign consultants and experts hired by, and/or rendering service to, the government, and their staff or personnel and families, accompanying them or arriving within a reasonable time before or after their arrival in the Philippines, PERIOD: arriving within a reasonable time before and after their arrival in the Philippines, (same as resident returning: accompanying them on their return, or arriving within a reasonable time which, barring unforeseen circumstances, in no case shall exceed sixty (60) days before or after the owners' return) ITEMS: in quantities and of the kind necessary and suitable to the profession, rank or position of the person importing them, for their own use and not for barter, sale or hire provided that,
O
the Collector of Customs may in his discretion require either a written commitment or a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges upon the articles classified under this subsection; conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months after the expiration of their term or contract; And Provided, finally, That the Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges for term not exceeding six (6) months from the expiration of the original period;
COFFINS OR URNS CONTAINING HUMAN REMAINS, BONES OR ASHES o CONDITIONS: CONTAINING HUMAN REMAINS, BONES OR ASHES used personal and household effects (not merchandise) of the deceased person, except vehicles, t the value of which does not exceed ten thousand pesos (P10,000.00), There must be human remains inside the coffin or urns. Otherwise, all coffins or urns may be brought to the Philippines tax free. k. Importations for the official use of foreign embassies, legations, and other agencies of foreign governments: Provided, That those foreign countries accord like privileges to corresponding agencies of the Philippines; Articles imported for the personal or family use of the members and attaches of foreign embassies, legations, consular officers and other representatives of foreign governments: Provided, That such privilege shall be accorded under special agreements between the Philippines and the countries which they represent: And Provided, further, That the privilege may be granted only upon specific instructions of the Secretary of Finance in each instance which will be issued only upon request of the Department of Foreign Affairs; l. Imported articles donated to, or for the account of, any duly registered relief organization, not operated for profit, for free distribution among the needy, upon certification by the Department of Social Services and Development or the Department of Education, Culture and Sports, as the case may be; University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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RATES OF DUTIES As a general rule, the rate imposable must not exceed 100% ad valorem.
ADDITIONAL DUTY IMPOSED ON PRODUCTS OF FOREIGN COUNTRIES When a foreign country discriminates against the Philippine commerce or against goods coming from the Philippines and shipped to such foreign country, a special duty, in an amount not exceeding 100% ad valorem, impose by the President of the Philippines
METHODS TO DETERMINE THE BASIS OF DUTIES 1. Transaction value – the dutiable value of an imported article subject to an ad valorem rate of duty which shall be the “transaction value” which shall be the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by: 1) The following to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods: (a) Commissions and brokerage fees (except buying commissions); (b) Cost of containers; (c) The cost of packing, whether for labour or materials; (d) The value, apportioned as appropriate, of the following goods and services: materials, components, parts and similar items incorporated in the imported goods; tools; dies; moulds and similar items used in the production of imported goods; materials consumed in the production of the imported goods; and engineering, development, artwork, design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the production of imported goods, where such goods and services are supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods; (e) The amount of royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods to the buyer; (2) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller; (3) The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines; (4) Loading, unloading and handling charges associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines; and (5) The cost of insurance. All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable data.
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2.
3.
4.
5.
Transaction value does not simply refer to the value of the article itself. It includes all other cost necessary to bring such article to the Philippines or to its final destination. This the value you can see in the Import Entry Declaration. TN: That it is the importer who makes the declaration as to the value of these articles, all the Customs has to do is verify the amount. If it cannot make any verification on the goods itself because of lack of history, then it will resort to the other methods hereinafter. Transaction Value of Identical Goods – Where the dutiable value cannot be determined under method one, the dutiable value shall be the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. Identical goods - goods which are the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical. Example: Blue-black dress and a white-gold dress. Black and blue car from the same maker. Transaction Value of Similar Goods - Where the dutiable value cannot be determined under the preceding method, the dutiable value shall be the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued. Similar goods - goods which, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. The quality of the goods, their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. Example: Flat screen TVs of different brands. Deductive Value - The dutiable value of the imported goods under this method shall be the deductive value which shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the Philippines, in the same condition as when imported, in the greatest aggregate quantity, at or about the time of the importation of the goods being valued, to persons not related to the persons from whom they buy such goods, subject to deductions. Computed Value - The dutiable value under this method shall be the computed value which shall be the sum of: (1) The cost or the value of materials and fabrication or other processing employed in producing the imported goods; (2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the Philippines; (3) The freight, insurance fees and other transportation expenses for the importation of the goods; (4) Any assist, if its value is not included under paragraph (1) hereof; and (5) The cost of containers and packing, if their values are not included under paragraph (1) hereof.
TN: Deductive Value and Computed Value may be interchanged in terms of the order of priority. 6. Fallback Value - If the dutiable value cannot be determined under the preceding methods described above, it shall be determined by using other reasonable means and on the basis of data available in the Philippines. If the importer so requests, the importer shall be informed in writing of the dutiable value determined under Method Six and the method used to determine such value. No dutiable value shall be determined under Method Six on the basis of: (1) The selling price in the Philippines of goods produced in the Philippines; University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation (2) A system that provides for the acceptance for customs purposes of the higher of two alternative values;cralaw (3) The price of goods in the domestic market of the country of exportation; (4) The cost of production, other than computed values, that have been determined for identical or similar goods in accordance with Method Five hereof; (5) The price of goods for export to a country other than the Philippines; (6) Minimum customs values; or (7) Arbitrary or fictitious values.
BASES OF DUTIABLE WEIGHT 1. When articles are dutiable by the gross weight, the dutiable weight thereof shall be the weight of same, together with the weight of all containers, packages, holders and packing, of any kind, in which said articles are contained, held or packed at the time of importation. 2. When articles are dutiable by the legal weight thereof shall be the weight of same, together with the weight of the immediate containers, holders and/or packing in which such articles are usually contained, held or packed at the time of importation and/or, when imported in retail packages, at the time of their sale to the public in usual retail quantities: Provided, That when articles are packed in single container, the weight of the latter shall be included in the legal weight. 3. When articles are dutiable by the net weight, the dutiable weight thereof shall be only the actual weight of the articles at the time of importation, excluding the weight of the immediate and all other containers, holders or packing in which such articles are contained, held or packed. Example: iPhone placed inside a box. When that phone is shipped to the Philippines, it would be placed in a crate. That crate is included in determining the specific duty if the article is dutiable by the gross weight. If its legal weight, you only include the iPhone box. It the article is dutiable by the net weight, you only include the iPhone. 4. Articles affixed to cardboard, cards, paper, wood or similar common material shall be dutiable together with the weight of such holders. 5. When a single package contains imported articles dutiable according to different weights, or to weight and value, the common exterior receptacles shall be prorated and the different proportions thereof treated in accordance with the provisions of this Code as to the dutiability or non-dutiability of such packing.
EFFECTIVE DATE OF RATES OF IMPORT DUTY Imported articles shall be subject to the rate or rates of import duty existing at the time of entry, or withdrawal from warehouse, in the Philippines, for consumption.
CONTENTS OF COMMERCIAL INVOICE. 1. The place where, the date when, and the person by whom and the person to whom the articles sold or agreed to be sold, or if to be imported otherwise than in pursuance of a purchase, the place from which shipped, the date when the person to whom and the person by whom they are shipped; 2. The port of entry to which the articles are destined; 3. A detailed description of the articles according to the terms of the heading or subheadings, if specifically mentioned in this code, otherwise the description must be in sufficient detail to enable the articles to be identified both for tariff classification and statistical purposes, indicating their correct commodity description, in customary terms or commercial designation, including the grade or quality, numbers, marks University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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4. 5.
6.
7.
8. 9.
or symbols under which they are sold by the seller or manufacturer, together with the marks and number of the packages in which the articles are packed; The quantities in the weights and measures of the country or place form which the articles are shipped, and in the weights and measures used in this Code; The purchase price of each article in the currency of the purchase and in the unit of the quantity which the articles were bought and sold in the place of country of exportation, if the articles are shipped in pursuance of a purchase or an agreement to purchase; If the articles are shipped otherwise than in pursuance of the purchase or an agreement to purchase, the value of each article in the unit of quantity in which the articles are usually bought and sold, and in the currency in which the transactions are usually made, or, in the absence of such value, the price in such currency which the manufacturer, seller, shipper or owner would have received, or was willing to receive, for such articles if sold in the ordinary course of trade and the usual wholesale quantities in the country of exportation; The article here is simply imported for possible sale or distribution at a later date. There is no buyer yet when the article has entered the warehouse, or it will be delivered to the distributor. All charges upon the articles itemized by name and amount when known to the seller or shipper; or all charges by name (e.g., commission, insurance, freight, cases, containers, coverings and cost of packing) included in invoice prices when the amount for such charges are unknown to the seller or shipper; All discounts, rebates, drawbacks and bounties separately itemized allowed upon the exportation of the articles, all internal and excise taxes applicable to the home market; The current transaction value or price of which same, like or similar article is offered or for sale for exportation to the Philippines, on the date the invoice is prepared or the date of exportation
CERTIFICATION OF INVOICE Invoice required shall, at or before the shipment of the articles or as soon thereafter as conditions will permit, be produced for certification to the consular officer of the Philippines of the consular district in which the articles were manufactured or purchased, or from which they are shipped, as the case may be.
DECLARATION Every invoice prescribed above shall contain a declaration signed by the purchaser, manufacturer, seller, owner or agent setting forth that the invoice is in all respects correct and true and was made at the place whence the articles are exported to the Philippines; 1. that it contains, if the articles were obtained by purchase or an agreement to purchase, a true and full statement of the date when, the place where, the person from whom the same were purchased and the purchase price and unit of quantity thereof, and of all charges thereon; 2. that no discounts, bounties or drawbacks are contained in the invoice except such as have been allowed thereon; 3. when obtained in any other manner than by purchase or an agreement to purchase, the market value on wholesale price thereof at the time of exportation to the Philippines in the principal market of the country from which exported; 4. that such market value is the price in the unit of quantity at which the articles described in the invoice are freely offered for sale to all purchasers in said market for exportation to the Philippines, and that it is the price which the manufacturer, seller, owner or agent making the declaration would have received and was willing to receive for such articles when sold in the ordinary course of trade in the usual wholesale quantities, and that it included all charges thereon; 5. that the number, weight, measurement or quantity stated is correct, and that no invoice of the articles described different from the invoice so produced has been or will be furnished to anyone.
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Societas Spectra Legis Taxation Law 2 Compilation WHEN ARE YOU SUPPOSE TO FILE YOUR IMPORT ENTRY DECLARATION? Imported articles must be entered in the customhouse at the port of entry within thirty (30) days, which shall not be extendible from date of discharge of the last package from the vessel or aircraft either (a) by the importer, being holder of the bill of lading, (b) by a duly licensed customs broker acting under authority from a holder of the bill or (c) by a person duly empowered to act as agent or attorney-in-fact for each holder: Provided, That where the entry is filed by a party other than the importer, said importer shall himself be required to declare under oath and under the penalties of falsification or perjury that the declarations and statements contained in the entry are true and correct: Provided, further, That such statements under oath shall constitute prima facie evidence of knowledge and consent of the importer of violation against applicable provisions of this Code when the importation is found to be unlawful. (Section 1301) This means that if you fail to file an IED within 30 days, that would constitute implied abandonment. TN: While invoice shall accompany every importation over P500 in Export Value, Import Entry Declaration shall be required for every importation.
SPECIAL TYPES OF DUTIES 1. Dumping Duty – Special duties imposed by the Secretary of Trade and Industry, or the Secretary of Agriculture whenever the Secretary of Finance (hereinafter called the "Secretary") has reason to believe, that a specific kind or class of foreign article, is being imported into, or sold or is likely to be sold in the Philippines, at a price less than its fair value, the importation and sale of which might injure, or retard the establishment of, or is likely to injure, an industry producing like goods in the Philippines. In computing for the dumping duty, you will look at the difference between the price as they are sold here in the Philippines and the FMV of such article when sold in other countries. Purpose: to protect a particular local industry. 2. Countervailing Duty - Special duties imposed by the Secretary of Trade and Industry, or the Secretary of Agriculture, whether the article imported is agricultural or not upon prior investigation and report of the Tariff Commission to offset any bounty, subsidy or subvention upon articles of the same class manufactured at home or subsidies to foreign producers by their respective governments. The countervailing duty is equal to the bounty, subsidy or subvention. Purpose: to prevent injury to our local industry producing like goods in the Philippines. Who will impose: the Secretary of Trade and Industry, or the Secretary of Agriculture 3. Marking Duty – Special duty of five (5%) percent ad valorem imposed on articles not properly marked, collected by the Commissioner except when such article is exported or destroyed under customs supervision and prior to the final liquidation of the corresponding entry. It shall be marked in any official language of the Philippines and in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin of the article. The failure or refusal of the owner or importer to mark the articles as herein required within a period of thirty days after due notice shall constitute as an act of abandonment of said articles and their disposition shall be governed by the provisions of this Code relative to abandonment of imported articles. Purpose: prevent possible deception of the consumers. Rate: 5% percent ad valorem Who will impose: The Commissioner of Customs 4. Discriminatory Duty – Special duty, in an amount not exceeding 100% ad valorem, impose by the President of the Philippines against goods of a foreign country which discriminates against the Philippine commerce or against goods coming from the Philippines and shipped to such foreign country. If the foreign country persists in its discrimination, its products may be excluded from importation. Rate: not exceeding 100% ad valorem. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation OTHER CHARGES, FEES, OR DUES PAYABLE BY CERTAIN ENTITES IN RELATION TO THEIR DEALINGS WITH THE CUSTOMS 1. Harbor fees - the amount which the owner, agent, operator or master of a vessel has to pay for each entrance into or departure from a port of entry in the Philippines. 2. Wharfage fees - the amount assessed against the cargo of a vessel engaged in the foreign trade, based on the quantity, weight or measure received and/or discharged by such vessel. The owner, consignee, or agent of either, of the article is the person liable for such charge. 3. Berthing fees - the amount assessed against a vessel for mooring or berthing at a pier, wharf, bulkheadwharf, river or channel marginal wharf at any port in the Philippines; or for mooring or making fast to a vessel so berthed; or for berthing or mooring within any slip, channel, basin river or canal under the jurisdiction of any port of the Philippines. The owner, agent, operator or master of the vessel is liable for this charge. 4. Storage fees - the amount assessed on articles for storage in customs premises, cargo shed and warehouses of the government. The owner, consignee or agent of either, of the articles, is liable for this charge. 5. Arrastre charges - the amount which the owner, consignee, or agent of either, of article or baggage has to pay for the handling, receiving and custody of the imported or exported article or the baggage of the passengers. 6. Tonnage dues - the amount paid by the owner, agent, operator or master of a vessel engaged in foreign trade coming to the Philippines from a foreign port or going to a foreign port from the Philippines based on the net tonnage of the vessel or weight of the articles discharged or laden. 7. Anchorage fees – imposed on a vessel engaged in foreign trade which drops anchor in Philippine waters. 8. Usage fees – imposed on a vessel engaged in domestic trade which drops anchor in Philippine waters. 9. Lay-up fees – imposed for temporary layup of vessels engaged in domestic trade.
FLEXIBLE TARIFF Import duties which are modified by the President upon investigation of the Tariff Commission and recommendation of NEDA in the interest of national economy, general welfare and national security.
POWERS OF THE PRESIDENT UNDER 401(A) 1. Increase, reduce or remove existing protective rates of import duty (including any necessary change in classification). The existing rates may be increased or decreased to any level, in one or several stages but in no case shall the increased rate of import duty be higher than a maximum of one hundred (100) per cent ad valorem; To protect our economy. 2. Establish import quota or to ban imports of any commodity, as may be necessary; and 3. Impose an additional duty on all imports not exceeding ten (10%) per cent ad valorem whenever necessary. TN: For the 1st 2 powers, it will be effective 30 days after promulgation whereas the 3rd power will be effective at the discretion of the President.
IMPOSITION OF DUTIES PERSONS LIABLE 1. 2. 3. 4. 5.
Consignee - persons to whom the goods are consigned. Consignor – if the goods are consigned to order. Holder of a bill of lading - duly indorsed by the consignee. Underwriters of abandoned articles. Salvors of articles saved from a wreck at sea, along a coast or in any area of the Philippine
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Societas Spectra Legis Taxation Law 2 Compilation LIABILITY OF THE IMPORTER FOR THE DUTY The liability for duties, taxes, fees and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties, taxes, fees and other charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced while such articles are in custody or subject to the control of the government. It’s a lien which is imposable while the imported goods are in the Customs territory prior to its liquidation. So long as there is no tax paid, the lien will exist.
IMPORTATIONS BY THE GOVERNMENT All importations by the Government for its own use or that of its subordinate branches or instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government, shall be subject to the duties, taxes, fees and other charges provided for in this code, except those provided for in Section One Hundred and Five of this Code. TO BE CLARIFIED: However, upon the certification of the Head of the Department or the Political Subdivision concerned, with the approval of the Auditor General, that the imported article is actually being used by the Government or any of its political subdivision concerned, the amount of duties or taxes paid can be refunded to the political subdivision who paid it.
DECLARATION Must be made within thirty (30) days. Otherwise, it will be considered an implied abandonment.
IMPORT ENTRIES TWO FORMS OF ENTRIES 1. Formal entry 2. Informal entry – articles of a commercial nature intended for sale, barter or hire, the dutiable value of which is Two thousand pesos (P2,000.00) or less, land personal and household effects or articles, not in commercial quantity, imported in passenger's baggage, mail or otherwise, for personal use, shall be cleared on an informal entry whenever duty, tax or other charges are collectible.
BY WHOM TO BE SIGNED The declaration shall be signed by the importer, consignee or holder of the bill, by or for whom the entry is effected, if such person is an individual, or in case of a corporation, firm or association, by its manager, or by a licensed customs broker duly authorized to act for either of them.
EXAMINATION, APPRAISAL AND CLASSIFICATION There will be an appraiser who will ascertain, estimate and determine the value or price of the articles as required by law. Appraisers shall describe all articles on the face of the entry in tariff and such terms as will enable the Collector to pass upon the appraisal and classification of the same, which appraisal and classification shall be subject to his approval or modification, and shall note thereon the measurements and quantities, and any disagreement with the declaration. The appraisal will be based on the declaration made. From such declaration, the appraiser will make his own appraisal and he could copy everything stated in the declaration. However, if he does not agree with the declaration, he may make a disagreement noted on the declaration made.
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Societas Spectra Legis Taxation Law 2 Compilation READJUSTMENT OF APPRAISAL, CLASSIFICATION OR RETURN Such appraisal, classification or return as finally passed upon and approved or modified by the Collector shall not be altered or modified in any manner, except: 1. Within one year after payment of the duties, upon statement of error in conformity with section seventeen hundred and seven hereof, approved by the Collector. 2. Within fifteen days after such payment, upon request for reappraisal and/or reclassification addressed to the Commissioner by the Collector, if the appraisal and/or classification is deemed to be low. 3. Upon request for reappraisal and/or reclassification, in the form of a timely protest addressed to the Collector by the interested party if the latter should be dissatisfied with the appraisal or return.
LIQUIDATION LIQUIDATION – process where the government is making an assessment of import duties. Every import entry declaration, after it had been affirmed by the collector of customs, will be subject to liquidation by the COC. In the process of liquidation, the collector will determine how much is the taxes to be paid. Thereafter, payment will be made. This will terminate the importation where the permit to withdraw will be received. It can either be: 1. Tentative Liquidation – require some future action. How long shall future action be made? Within 6 months from the time the tentative liquidation was made. This can be question within 3 years from finality of the liquidation. 2. Final Liquidation – may be question within the period of 3 years from the date of payment. Exception: a. Fraud – 10 years from the discovery thereof b. Protest or compliance audit – this will suspend the running of the prescriptive period of 3 years.
REMEDIES OF THE GOVERNMENT 1. Extra-judicial a. Tax lien It will simply hold the release of the goods from the customs territory until taxes are paid. If after a considerable period of time, there is still no payment of taxes, then the government may proceed to seizure of the goods in which case, notice of seizure may be given to the taxpayer and thereafter, it may be sold in a public auction. Government’s lien attaches the moment the importation begins. Exception: those importations exempt of import taxes b. Seizure and Forfeiture Proceeding Who can conduct seizure and forfeiture: (See sec. 2203) officials of the bureau, including collectors, assistant collectors, port patrol officers and guards and all other officials connected with the bureau of customs; any person especially authorized in writing by the commissioner, you can enforce seizure and even arrest.
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Societas Spectra Legis Taxation Law 2 Compilation Where can seizure power be exercise: For ALL importations, only within the customs territory, including vessels and aircrafts. Exception: goods which did not lawfully pass through customs territory, in which case it can seize the goods even beyond the customs territory. Is Warrant needed: GR: it can exercise the power to enter any enclosure at any time without any search warrant Exception: dwelling house – warrant is necessary. 2. Judicial (remedies of the government will be further discussed later) (CHEVRON CASE, Q&A with Nathan. 38mins to 40.35mins) Import entry declaration vs. Import Entry Revenue declaration – requirement of the BIR Under Chevron case, it was held as the true import entry declaration; it includes the VAT, etc.
REMEDIES OF THE TAXPAYER A. REFUND (Atty. A just mentioned the Sections and then went directly to Protest) Grounds for refund: (Sec. 1702 to Sec. 1705, Sec. 1707) SECTION 1702. Abatement or Refund of Duty on Missing Package. — When any package or packages appearing on the manifest or bill of lading are missing, an abatement or refund of the duty thereon and shall be made if it is certified, under penalties of falsification or perjury, by the importer or consignee, and upon production of proof satisfactory to the Collector that the package or packages in question have not been imported in to the Philippines contrary to law. SECTION 1703. Abatement or Refund for Deficiency in Contents of Packages. — If, upon opening any package, a deficiency or absence of any article or of part of the contents thereof as called for by the invoice shall be found to exist, such deficiency shall be certified, under penalties of falsification or perjury, to the Collector by the examiner and appraiser; and upon the production of proof satisfactory to the Collector showing that the shortage occurred before the arrival of the article in the Philippines, the proper rebatement or refund of the duty shall be made. SECTION 1704. Abatement or Refund of Duties on Articles Lost or Destroyed After Arrival. — A Collector may abate or refund the amount of duties accruing or paid, and may likewise make a corresponding allowance on the irrevocable domestic letter of credit, bank guarantee, or the entry bond or other document, upon satisfactory proof of injury, destruction, or loss by theft, fire or other causes of any article as follows: a. While within the limits of any port of entry prior to unlading under customs supervisions; b. While remaining in customs custody after unlading; c. While in transit under irrevocable domestic letter of credit, bank guarantee or bond with formal entry in accordance with section one thousand three hundred two from the port of entry to any port in the Philippines; d. While released under irrevocable domestic letter of credit, bank guarantee or bond for export except in case of loss by theft. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation SECTION 1705. Abatement of Duty on Dead or Injured Animals. — Where it is certified, under penalties of falsification or perjury, and upon production of proof satisfactory to the Collector that an animal which is the subject of importation dies or suffers injury before arrival, or while in customs custody, the duty shall be correspondingly abated by him, provide the carcass of any dead animal remaining on board or in customs custody be removed in the manner required by the Collector and at the expense of the importer. SECTION 1707. Correction of Errors. — Refund of Excess Payments. — Manifest clerical errors made in an invoice or entry, errors in return of weight, measure and gauge, when duly certified to, under penalties of falsification or perjury, by the surveyor or examining official (when there are such officials at the port), and errors in the distribution of charges on invoices not involving any question of law and certified to, under penalties of falsification or perjury, by the examining official, may be corrected in the computation of duties, if such errors be discovered before the payments of duties, or if discovered within one year after the final liquidation, upon written request and notice of error from the importer, or upon statement of error certified by the Collector. For the purpose of correcting errors specified in the next preceding paragraph the Collector is authorized to reliquidate entries and collect additional charges, or to make refunds on statement of errors within the statutory time limit. SECTION 1708. Claim for Refund of Duties and Taxes and Mode of Payment. — All claims for refund of duties shall be made in writing and forwarded to the Collector to whom such duties are paid, who upon receipt of such claim, shall verify the same by the records of his Office, and if found to be correct and in accordance with law, shall certify the same to the Commissioner with his recommendation together with all necessary papers and documents. Upon receipt by the Commissioner of such certified claim he shall cause the same to be paid if found correct. If as a result of the refund of customs duties there would necessarily result a corresponding refund of internal revenue taxes on the same importation, the Collector shall likewise certify the same to the Commissioner who shall cause the said taxes to be paid, refunded, or tax credited in favor of the importer, with advice to the Commissioner of Internal Revenue. Sec. 1708 – requires that there should be a claim for refund in writing to the collector of customs. Grounds for refund: (sec. 1701 – 1705 & 1707) a. Sec 1708 – manifest clerical error if discovered before payment, or, if discovered after payment within 3 years after final liquidation. b. Sec. 1701 – abatement for damage c. Sec. 1702 – missing package d. Sec. 1703 – whenever there is shortage e. Sec. 1704 – articles lost or destroyed for reason of theft, fire or other causes, provided that such loss or injury was incurred while the article are within the limits of any port o entry prior to unloading under customs supervision, or while remaining under customs custody after unloading, and while in transit under bond from the port of entry to ay port of the Philippines, and while released under bond (____? ) f. When it is satisfactorily shown that an animal dies or suffers injury before arrival or even after arrival if still within the customs custody. - The grounds for refund are also the grounds for abatement. ABATEMENT (under TCC) – refers to the reduction or non-imposition of import duties; no tax was imposed. ABATEMENT (under NIRC) – just foregoing with the collection of taxes; the tax was imposed, it’s just that the liability was not pursued by the government. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation B. PROTEST SECTION 2308. Protest and Payment Upon Protest in Civil Matters. — When a ruling or decision of the Collector is made whereby liability for duties, taxes, fees or other charges are determined, except the fixing of fines in seizure cases, the partly adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due the government is made, or within fifteen (15) days thereafter, a written protest setting forth his objection to the ruling or decision in question, together with the reasons therefore. No protest shall be considered unless payment of the amount due after final liquidation has first been made and the corresponding docket fee, as provided for in Section 3301. SECTION 2309. Protest Exclusive Remedy in Protestable Case. — In all cases subject to protest, the interested party who desires to have the action of the Collector reviewed, shall make a protest, otherwise, the action of the Collector shall be final and conclusive against him, except as to matters collectible for manifest error in the manner prescribed in section one thousand seven hundred and seven hereof. SECTION 2310. Form and Scope of Protest. — Every protest shall be filed in accordance with the prescribed rules and regulations promulgated under this section and shall point out the particular decision or ruling, of the Collector to which exception is taken or objection made, and shall indicate with reasonable precision the particular ground or grounds upon which the protesting party bases his claim for relief. The scope of a protest shall be limited to the subject matter of a single adjustment or other independent transaction, but any number of issue may be raised in a protest with reference to the particular item or items constituting the subject matter of the protest. SECTION 2311. Samples to be Furnished by Protesting Parties. — If the nature of the articles permit, importers filing protests involving questions of fact must, upon demand, supply the Collector with samples of the articles which are the subject matter of the protest. Such samples shall be verified by the customs official who made the classification against which the protest are filed. SECTION 2312. Decision or Action of Collector in Protest and Seizure Cases. — When a protest in proper form is presented in a case where protest is required, the Collector shall issue an order for hearing within fifteen (15) days from receipt of the protest and hear the matter thus presented. Upon the termination of the hearing, the Collector shall render a decision within thirty (30) days, and if the protest is sustained, in whole or in part, he shall make the appropriate order, the entry reliquidated necessary. In seizure cases, the Collector, after a hearing shall in writing make a declaration of forfeiture or fix the amount of the fine or take such other action as may be proper. STEPS: 1) So first, the Collector of customs determines the duties, taxes, fees and other charges that may be imposed on the taxpayer. Next, there would be payment for which there could be a final determination. 2) The taxpayer may protest, in writing, the said determination with the Collector of Customs: o at the time of payment; or o within 15 days thereafter 3) In TCC, there is a requirement of payment under protest. Atty A: So by now, you will already know that there are 2 instances under Philippine Taxation where there could be payment under protest: 1. Tariff and Customs Code --- Section 2308 University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Real Property Tax --- when you are questioning the excessiveness or reasonableness of the amount assessed by the local treasurer.
4) The collector will schedule a hearing 15 days from the receipt of the protest and will render a decision within 30 days after such hearing. 5) If there is denial of the protest from the Collector, meaning the decision is adverse to the person protesting, the form of denial must be in writing declaring a forfeiture or fixing the amount of the fine or take other action as may be proper like filing a case. SECTION 2313. Review by Commissioner. — The person aggrieved by the decision or action of the Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen (15) days after notification in writing by the Collector of his action or decision, file a written notice to the Collector with a copy furnished to the Commissioner of his intention to appeal the action or decision of the Collector to the Commissioner. Thereupon the Collector shall forthwith transmit all the records of the proceedings to the Commissioner, who shall approve, modify or reverse the action or decision of the Collector and take such steps and make such orders as may be necessary to give effect to his decision: Provided, That when an appeal is filed beyond the period herein prescribed, the same shall be deemed dismissed. If in any seizure proceedings, the Collector renders a decision adverse to the Government, such decision shall be automatically reviewed by the Commissioner and the records of the case elevated within five (5) days from the promulgation of the decision of the Collector. The Commissioner shall render a decision of the automatic appeal within thirty (30) days from receipt of the records of the case. If the Collector's decision is reversed by the Commissioner, the decision of the Commissioner shall be final and executory. However, if the Collector's decision is affirmed, or if within thirty (30) days from receipt of the records of the case by the Commissioner no decision is rendered or the decision involves imported articles whose published value is Five million pesos (P5,000,000) or more, such decision shall be deemed automatically appealed to the Secretary of Finance and the records of the proceedings shall be elevated within five (5) days from the promulgation of the decision of the Commissioner or of the Collector under appeal, as the case may be: Provided, further, That if the decision of the Commissioner or of the Collector under appeal, as the case may be, is affirmed by the Secretary of Finance, or if within thirty (30) days from receipt of the records of the proceedings by the Secretary of Finance, no decision is rendered, the decision of the Secretary of Finance, or of the Commissioner, or of the Collector under appeal, as the case may be, shall become final and executory. In any seizure proceeding, the release of imported articles shall not be allowed unless and until a decision of the Collector has been confirmed in writing by the Commissioner of Customs (as amended by R.A. 7651, June 04, 1993). SECTION 2314. Notice of Decision of Commissioner. — Notice of the decision of the Commissioner shall be given to the party by whom the case was brought before him for review, and in seizure cases such notice shall be effected by personal service if practicable. 6) After denial, the taxpayer may file a notice/notification with the Collector of Customs stating his intention to appeal to the Commissioner such denial 7) Upon receipt of the Collector of such notice, the Collector shall transfer the records to the Commissioner. - The period of appeal to the Commissioner of the Bureau of Customs should be within 15 days reckoned from the date of the notification 8) If there is still a denial from the Commissioner, you file an appeal to the Court of Tax Appeals (in division) within 30 days from the receipt of the decision of the Commissioner. 9) If still there is denial, you go to the CTA En Banc within 15 days. 10) If still the CTA will render an adverse decision against the taxpayer, you file with the Supreme Court within 15 days. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation Atty. A: So we just completed the process if everything is denied from the Collector up to the CTA. (referring to steps 1 to 10) SECTION 2315. Supervisory Authority of Commissioner and Secretary of Finance in Certain Cases. — If any case involving the assessment of duties, the Collector renders a decision adverse to the Government, such decision shall be automatically elevated to, and reviewed by, the Commissioner; and if the Collector's decision would be affirmed by the Commissioner, such decision shall be automatically elevated to, and be finally reviewed by, the Secretary of Finance: Provided, however, That if within thirty (30) days from receipt of the record of the case by the Commissioner or by the Secretary of Finance, as the case may be, no decision is rendered by either of them, the decision under review shall be final and executory: Provided, further, That any party aggrieved by either the decision of the Commission or of the Secretary of Finance may appeal to the Court of Tax Appeals within thirty (30) days from receipt of a copy of such decision. For this purpose, Republic Act numbered eleven hundred and twenty-five is hereby amended accordingly (Amended by Section 7, paragraph a (4) of Republic Act No. 9282, (New Court of Tax Appeals Law, March 30, 2004). Except as provided in the preceding paragraph, the supervisory authority of the Secretary of Finance over the Bureau of Customs shall not extend to the administrative review of the ruling or decision of the Commissioner in matters appealed to the Court of Tax Appeals.
What if the Collector of Customs favors the taxpayer? - If the Collector makes a decision adverse to the Government, meaning it favors the taxpayer, it will be automatically reviewed by the Commissioner of Customs and such records must be elevated to the latter within 5 days from the date the decision of the Collector was made. - Within 30 days from receipt of records, the Commissioner shall render a decision. - If there’s no decision made by the Commissioner within 30 days from the receipt of the records, the decision shall becomes final and executory (Sec. 2315). Meaning, the decision is favorable to the taxpayer. - If there is an affirmation of the decision of the Collector of Customs by the Commissioner, there would be an automatic review by the Secretary of Finance within 30 days from receipt of the records - If there is no decision from the SOF within 30 days, the decision is deemed final and executory. Meaning, the decision is an affirmation of the Collector’s decision.
What if in the automatic review of the Commissioner of Customs, there is a reverse decision made by the Commissioner? (collector’s decision was reversed) - The taxpayer will appeal to the CTA. - If CTA denies the appeal, you go to the SC.
Let’s go back, what if there was affirmation by the Commissioner of the Collector’s decision, which was adverse to the government? And the SOF reverses the decision of the Commissioner? Meaning, the decision now is adverse to the TP. - The TP will go to the CTA - If CTA denies the appeal, you go to the SC. TAKE NOTE: From the Secretary of Finance, you go ALWAYS to the CTA in division. If it’s adverse to the TP, you go to CTA. Difference between protest and refund: o In the filing of the protest, there is a period---30 days.
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Under refund cases, there is no statutory limitation provided that it is on the ground of manifest clerical error.
EL GRECO vs COC DOCTRINE: o If the COC does not render a decision within 30 days or if renders a decision adverse to the government there is an automatic appeal to the Secretary of Finance. REMEDIES OF TAXPAYER: 1. Refund 2. Protest 3. Abandonment
C. ABANDONMENT Two Types of abandonment: 1. Express a. When there is a letter or any memorandum given to the collector stating the abandonment of the articles. b. The effect of abandonment is that all custom duties are discharged. c. BUT DOES NOT discharge criminal liability because the liability attaches to the person not the goods. But this applies only when what is involved are prohibited goods or smuggled goods. 2. Implied a. Instances of Implied Abandonment: i. When the owner, importer, consignee or interested party after due notice, fails to file an entry within thirty (30) days, which shall not be extendible, from the date of discharge of the last package from the vessel or aircraft, or ii. having filed such entry, fails to claim his importation within fifteen (15) days which shall not likewise be extendible, from the date of posting of the notice to claim such importation posted in the corridors of the office of the bureau of customs per district. iii. Failure to mark the articles within 30 days from notice CHEVRON CASE DOCTRINE: Relevant FACTS: - there was a filing of an import entry declaration (IED). From the lapse of 30 days from the discharge of the last cargo. They filed this Import Entry Revenue Declaration (IEIRD) to avail of the tax reduction. The COC deemed this as abandonment. That is why it refused to release the goods. But what happened is that chevron was able to get the release of the products. COC seeing this as anomaly tried to get the goods with the proper assessment and the fines. Chevron fought of with COC. The SC then discussed the ff: ENTRY: - What is an Entry: term "entry" in customs law has a triple meaning. It means o (1) the documents filed at the customs house; o (2) the submission and acceptance of the documents and o (3) the procedure of passing goods through the customs house.
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The court then interpreted what is considered as entry interpreted which was filed in the customs house: o The IED serves as basis for the payment of advance duties on importations whereas the IEIRD evidences the final payment of duties and taxes. o Clearly, the operative act that constitutes "entry" of the imported articles at the port of entry is the filing and acceptance of the "specified entry form" together with the other documents required by law and regulations. o There is no dispute that the "specified entry form" refers to the IEIRD.
IMPLIED ABANDONMENT: o Both must be filed not only the IED but also the IEIRD which is considered as entry for purposes of tariff and customs. - So failure to file the IEIRD within the proper period the properties are impliedly abandoned. - As a consequence, the government now owns the goods. - Chevron was asked to reimburse the government for the sold products, which were considered already properties of the government.
NOTICE WAS NOT NECESSARY UNDER THE CIRCUMSTANCES OF THIS CASE o Normally as a general rule, there is a need of notice as to arrival of the goods o BUT here because of the usual dealings of chevron with the bureau of customs, the SC took judicial notice of its knowledge of its procedure. o Therefore it cannot claim that it was not duly notified for after all it knew when the vessel arrived.
REMEDIES OF THE GOVERNMENT 1. EXTRAJUDICIAL 2. JUDICIAL 3. COMPROMISE
COMPROMISE Who can compromise: SECTION 2316. Authority of Commissioner to Make Compromise. — Subject to the approval of the Secretary of Finance, the Commissioner of Customs may compromise any case arising under this Code or other laws or part of laws enforced by the Bureau of Customs involving the imposition of fines, surcharges and forfeitures unless otherwise specified by law What can be compromised: Only the the imposition of fines, surcharges and forfeitures unless otherwise specified by law Requires approval from the Secretary of Finance Compromise of NIRC vs TCC: Approval: o NIRC National Evaluation Board o TCC Secretary of Finance Subject: o NIRC on the tax itself University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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TCC Only the the imposition of fines, surcharges and forfeitures
VALER vs OFFICE OF OMBUDSMAN: Issue: is it necessary that the commissioner approve or its approval be secured on compromise of fines and penalties on cases pending before the court? Under the TCC, SECTION 2401. Supervision and Control Over Criminal and Civil Proceedings. — Civil and criminal actions and proceedings instituted in behalf of the government under the authority of this Code or other law enforced by the Bureau shall be brought in the name of the government of the Philippines and shall be conducted by customs officers but no civil or criminal action for the recovery of duties or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner (as amended by R.A. 9135, April 27, 2001). In this case, the customs officers tried to secure the compromise, which they were able to do so. But what they were not able to secure was approval from the commissioner of customs. So this was questioned. Officer’s contention, that under 2401 they are allowed to manage the case it is only the filing, which requires approval. SC said that: yes TCC you can manage the case after it has been filed. But take note, when it comes to compromise. Sec. 2316 of the TCC is governing. And when it says of compromise it ALWAYS NEEDS THE APPROVAL OF the COC. The SC reasoned that if we do not follow this, it would be absurd that when a COC compromises it needs approval from SOF while when an officer compromise no approval is required. When compromise is NOT allowed: 1. When the case has already become final and executory at the point of the collector, commissioner or SOF or CTA or SC 2. When the goods has already been awarded to the highest bidder in sale of public auction conducted by the BOC.
SETTLEMENT IN SEIZURE/FORFEITURE CASES: Can you offer settlement with the BOC on seizure/forfeiture cases? YES SECTION 2307. Settlement of Case by Payment of Fine or Redemption of Forfeited Property: Subject to approval of the Commissioner, the district collector may, while the case is still pending, except when there is fraud, accept the settlement of any seizure case provided that the owner, importer, exporter, or consignee or his agent shall: o Seizure offer to pay to the collector a fine imposed by him upon the property, or o Forfeiture offer to pay for the domestic market value of the seized article. The Commissioner may accept the settlement of any seizure case on appeal in the same manner. HEIcDT AMOUNT: Upon payment of the fine as determined by the district collector which shall be in amount not less than twenty percentum (20%) nor more than eighty percentum (80%) of the landed cost of the seized imported article or the F.O.B. value of the seized article for export, or payment of the domestic market value, EFFECT: the property shall be forthwith released and all liabilities which may or might attach to the property by virtue of the offence which was the occasion of the seizure and all liability which might have been incurred under any cash deposit or bond given by the owner or agent in respect to such property shall thereupon be deemed to be discharged. NOT ALLOWED: University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation 1. There is fraud 2. Settlement of any seizure case by payment of the fine or redemption of forfeited property shall not be allowed in any case where the importation is absolutely prohibited or 3. where the release of the property would be contrary to law (qualified prohibited) SEIZURE/FORFEITURE CASES: Proof required in seizure & forfeiture Substantial Evidence Instances when forfeiture may be had: 1. PROPERTIES NOT PROPERLY DECLARED in a travellers baggage a. Whenever any dutiable article is found in the baggage of any person arriving in the Philippines which is not included in the baggage declaration, b. such article shall be seized c. the person in whose baggage it is found may obtain release of such article by: i. not imported contrary to any law ii. upon payment of treble and appraised value of such article plus all duties, taxes and other charges due iii. failure to mention or declare such dutiable article was without fraud. 2. PROVIDED under 2530 (usually discussed): a. GR: Any vehicle, vessel or aircraft, including cargo, which shall be: i. used unlawfully in the importation or exportation of articles or ii. in conveying and/or transporting contraband or smuggled articles in commercial quantities into or from any Philippine port or place iii. That the vessel, or aircraft or any other craft is not used as duly authorized common carrier and as such a carrier it is not chartered or leased. Therefore it cannot be forfeited if it is a common carrier. EXCEPTION: BOC can seize this goods, it must establish that even if you are common carrier you are chartered or leased by way of DEMISE or BAREBOAT OR Common carrier, which has knowledge or participation in the unlawful exportation. PRIMA FACIE KNOWLEDGE OF UNLAWFUL IMPORTATION: o o
Even if you have no knowledge or participation in such unlawful exportation, there is a presumption of knowledge if: SECTION 2531. Properties Not Subject to Forfeiture in the Absence of Prima Facie Evidence. — The forfeiture of the vehicle, vessel, or aircraft shall not be effected if it is established that the owner thereof or his agent in charge of the means of conveyance used as aforesaid has no knowledge of or participation in the unlawful act: Provided, however, That a prima faciepresumption shall exist against the vessel, vehicle or aircraft under any of the following circumstances: 1) If the conveyance has been used for smuggling at least twice before; Take note that it is at least twice before, therefore th moment you are apprehended it is your third commission of such act 2) If the owner is not in the business for which the conveyance is generally used; and
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Societas Spectra Legis Taxation Law 2 Compilation 3) If the owner is not financially in a position to own such conveyance. A VESSEL OR AIRCRAFT MAYBE FORFEITED OR SEIZED EVEN IF NOT ACTUAL VESSEL USED FOR IMPORTATION OR EXPORTATION: o o
o
it can be seized when it was used to FACILITATE the importation IN A CASE, there was a plane, which merely carried the lights necessary for the landing of the plane, which carried the unlawful imported goods. Here the plane was forfeited because it facilitated the importation. Therefore even if not USED as the carrier but FACILITATED the unlawful importation or exportation it may still be seized.
IT IS NOT NECESSARY THAT THE AIRCRAFT CAME FROM A FOREIGN COUNTRY AS LONG AS IT IS CARRYING UNLAWFUL or PROHIBITED GOODS or engage in unlawful importation or exportation.
WHEN CAN FORFEITURE BE ESTABLISHED: o
the forfeiture shall be effected only when and while: 1) the article is in the custody or within the jurisdiction of the customs authorities or in the hands or subject to the control of the importer, exporter, original owner, consignee, agent of other person effecting the importation, entry or 2) exportation in question, or in the hands or subject to the control of some persons who shall receive, conceal, buy, sell or transport the same or aid in any such acts, with knowledge that the article was imported, or was the subject of an attempt at importation or exportation, contrary to law.
WHO HAS JURISDICTION OVER FORFEITURE & SEIZURE PROCEEDINGS: o Collector of Customs TRIAL COURT HAS NOT JURISDICTION OVER SEIZURE or FORFEITURE PROCEDURE: o No. o JAO vs CA DOCTRINE: o There is no question that Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. o The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus. o THE REASON FOR THIS IS: The rule that Regional Trial Courts have no review powers over such proceedings is anchored upon the policy of placing no unnecessary hindrance on the government's drive, not only to prevent smuggling and other frauds upon Customs, but more importantly, to render effective and efficient the collection of import and export duties due the State, which enables the government to carry out the functions it has been instituted to perform. o
As a GR: No case can be filed in the trial court for seeking recovery of good seized or forfeited even a case for replevin.
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o
EXCEPTION: TENORIO VS CA DOCTRINE: the trial court may take cognizance when the articles seized was on the BASIS of a SEARCH WARRANT issued by a TRIAL COURT. However, the exclusive original jurisdiction of the Collector on the said goods pertains only to the goods seized pursuant to the authority under the Tariff and Customs Code. Goods seized on the basis of a search warrant issued by the court are in custodia legis, subject to the control and disposition of the court that issued the search warrant. A judge who has taken cognizance over seizure and forfeiture proceedings on dutiable articles who may be found guilty of grave misconduct will merit dismissal form service. Therefore a judge must not be dumb to take cognizance of seizure and forfeiture cases.
NOTIC OF SEIZURE/FORFEITURE: o This is required. o How given: o Known written notice should be given to the owner or his agent with the opportunity to be heard in reference to such delinquency. o Unknown posted for 15 days in the public corridor of the customs house. REMEDY FOR SEIZURE/FORFEITURE: o
The same as procedure in Protest Cases.
REFUND CASES PRESCRIPTIVE PERIOD: o No prescriptive period for filing a judicial claim for refund or tax credit. o Upon filing a written claim there is also no period for the collector to answer such claim. And mere failure to file a respond will not warrant filling a case in the courts. o NESTLE CASE vs CA DOCTRINE: o Caution of the use of this case. This case is unique in itself. SC was very generous in this case maybe because it involved milk. The court ruled in favor of Nestle. Because regardless of the doctrine of imprescriptible of action, the court by reason of solutio indebti ruled in favor of nestle. o The court here in a way cautioned the collector of customs and remind them that it is not upon them whether to wait for a long time to decide a refund case because it is still responsibility of the government to pay to the taxpayer what is due to them in the same way as they are so aggressive in collecting taxes. o OPINION BY THE BOOK OF REKALDE states that the solutio indebiti argument should be raised only in non protest able cases meaning you do not question an assessment of the government like when custom duties are passed to taxpayer from exempt taxpayers like PEZA. o BUT we should stick to Nestle case. EFFECT OF LOSS ARTICLES DURING THE PENDENCY OF THE CASE: o RP vs UMINEX DOCTRINE: o Here the SC, the loss of such good makes the commissioner of customs liable. CA held that the BOC Commissioner was liable for the value of the subject shipment as the same was lost while in its custody. o Here in this case BOC argued that there is still a need for appropriation before there can be payment of the loss goods. The SC answered this by saying that it warrants the exclusion of their state immunity because of their gross negligence in the safe keeping of the said articles. o The action was changed from a specific performance into a monetary judgment, which affirmed, by the SC. University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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AGFA vs CTA CASE: o The payment shall be taken from the sale or sales of the goods or properties which were seized or forfeited by the Bureau of Customs in other cases.
PRINCILPLES OF RULES OF CRIMINAL PROCEDURE WITH REGARD TO SMUGGLING: o Payment of the tax due after the apprehension is NOT a valid defense o it is not necessary to present the seized goods to prove the corpus delicti of the crime o it is enough that a single witness uncorroborated testimony if it is credible is suffice to convict a smuggler. ASAALI vs COC DOCTRINE: o An exemption to the hot pursuit case. o The 5 sailing vessels were seized or intercepted while on the high seas heading towards tawi2x. o All are of Philippine registry owned and manned by citizens of Sulu which did not have permit to import goods. o Questioned the jurisdiction because the vessel were at the high seas. o TCC: The SC here used the DOCTRINE OF PRE-EMPTION; being that the vessels were of Philippine registry they believed that the vessels were heading to the PHILIPPINES. This further supported by the fact that they were from borneo and when intercepted was heading to tawi2x. so there was really intention to got to the Philippines and unload it there. o It has been established that the five vessels came from Sandakan, British North Borneo, a foreign port, and when intercepted, all of them were heading towards Tawi- tawi, a domestic port within the Sulu sea. o Laden with foreign manufactured cigarettes, they did not possess the import license required by the Republic Act No. 426, nor did they carry a permit from the Commissioner of Customs to engage in importation into any port in the Sulu sea. o Their course announced loudly their intention not merely to skirt along the territorial boundary of the Philippines but to come within our limits and land somewhere in Tawi-tawi towards which their prows were pointed. o As a matter of fact, they were about to cross our aquatic boundary but for the intervention of a customs patrol which, from all appearances, was more than eager to accomplish its mission." o Thus: "To entertain even for a moment the thought that these vessels were probably not bound for a Philippine port would be too much a concession even for a simpleton or a perennial optimist. It is quite irrational for Filipino sailors manning five Philippines vessels to sneak out of the Philippines and go to British North Borneo, and come a long way back laden with highly taxable goods only to turn about upon reaching the brink of our territorial waters and head for another foreign port." o
CRIMINAL LAW: o It is unquestioned that all vessels seized are of Philippine registry. o The Revised Penal Code leaves no doubt as to its applicability and enforceability not only within the Philippines, its interior waters and maritime zone, but also outside of its jurisdiction against those committing offense while on a Philippine ship o The principle of law that sustains the validity of such a provision equally supplies a firm foundation for the seizure of the five sailing vessels found thereafter to have violated the applicable provisions of the Revised Administrative Code. -end-
University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
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Societas Spectra Legis Taxation Law 2 Compilation
SOCIETAS SPECTRA LEGIS AND FRIENDS
University of San Carlos – School of Law and Governance | Based on the outlined discussion of BA
Page 197
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