Tax Administration and Procedure in National Taxation

TAX ADMINISTRATION AND PROCEDURE IN NATIONAL TAXATION A. FUNCTION AND AGENCIES OF TAXATION 1. Levy * the legislative act which determines that a atx of a certain amount or of a c ertain percentage shall be imposed. * there cannot be an imposition of a tax without the amount or rate being fixed by law. 2. Assessment * The official action of an officer authorized by law in ascertaining the amount of tax due under the law. * It necessarily involves: a) computation; b) giving of notice; and c) making demand 3. Collection * The getting by the proper governmental agencies of the taxes imposed; * Payment of tax by the taxpayer or the voluntary compliance by him with his tax obligations. TAX TAX ADMI ADMINI NIST STRA RATI TION ON --> --> the the mann manner er and and proc proced edur ure e of asse assess ssin ing g and and coll collec ec ting or enforcing tax liabilities. 2 functions: 1. assessment; 2. collection. ADMINISTRATIVE AGENCIES AND THE COURTS: 1. Bure Bureau au of Inte Intern rnal al Reve Revenu nue e (BIR (BIR) ) --> --> char charge ged d with with the the prim primar ary y func functi tio o n of administration of the National Internal Revenue laws and regulations. 2. Bure Bureau au of Cust Custom oms s --> --> char charge ged d with with the the admi admini nist stra rati tion on of the the tari tariff ff and customs laws and regulations. NB: BIR and BoC are under the Dept. of Finance 3. Cour Court t of Tax Tax Appe Appeal als s --> --> excl exclus usiv ive e appe appell llat ate e juri jurisd sdic icti tion on to revi review ew on appeal decisions of the CIR and the Commissioner of Customs, and has jurisdic tion over disputed assessments of tax 4. Ordi Ordina nary ry Cour Courts ts --> --> RTC/ RTC/MT MTC; C; juri jurisd sdic icti tion on over over civi civil l and and crim crimin inal al ca ses for the collection of int4ernal revenue taxes and customs duties in cases wh ich are not within the appellate jurisdiction of the CTA. --> jurisdiction over non-disputed assessm ents and over cases involving local taxes an special laws not administered by th e BIR and Customs. 5.

Supreme Court

-->

the court of last resort

POWERS AND DUTIES, IN GENERAL, OF THE BIR PRINCIPAL FUNCTIONS: (a) Assess and collect all national internal revenue taxes, fees and charges; (b) Enforce all forfeitures, penalties and fines connected therewith; (c) Execute judgments in all cases decided in its favor by the CTA and ordinary

courts; (d) Give effect to and administer the supervisory and police power conferred to it by law; (e) Recommend to the Secretary of Finance all needful rules and regulations for the effective enforcement of the provisions of the NIRC. OTHER FUNCTIONS: (a) Accounting for all revenues collected; (b) Exercising all legal requirements that are appropriate; (c) Preventing and prosecuting tax evasions and other illegal economic activitie s; (d) Exercising supervision and control over its constituent units; and (e) Performing such other functions as may be provided by law. B. ASSESSMENT OF TAXES Internal revenue taxes may be classified into two: 1. those which do not require assessment to establish tax liability * self-assessing taxes * GR: GR: Inte Intern rnal al reve revenu nue e taxe taxes s are are self self-as -asse sess ssin ing g * Why? Why? They do not not need need a letter of demand demand or or assessmen assessment t notice. notice. The taxpaye taxpayer r h imself computes his tax liability!!! * Pay-As-You-File System --> applies to individual & corporate income taxes --> since the rates or amounts of tax are fixed by law the role of the tax offic ial is purely to determine the accuracy of the taxpayer's assessment of his tax liability. 2. those which require assessment to establish tax liability instances: a. when the taxable period fixed by law within which to pay a tax of a taxpayer is terminated as when the taxpayer intends to leave the Philippines or hides or conceals his property; b. in case of deficiency taxes for failure to file a return or filing a false or fraudulent return. AUTHORITY OF COMMISSIONER TO TERMINATE TAX PERIOD: GROUNDS: * when it shall come to the knowledge of the Commissioner of Inernal Revenue tha t a taxpayer: 1) is retiring from the business subject to tax; 2) is intending to: a. leave the Philippines; b. remove his properties therefrom; c. hide or conceal his property. 3) is performing any act tending to: a. obstruct the proceeding for collecting the tax for the past or current quarte r or year; or b. render the same totally or partly ineffective, unless such proceeding is begu n immediately. NB: the above-mentioned grounds are also grounds for constructive distraint of p

ersonal property. AUTHORITY TO ASSESS VESTED IN COMMISSIONER * GR: The authority to make assessments of internal revenue is vested by law i n the CIR. * EXCE EXCEPT PTIO ION: N: The The auth author orit ity y may may be del delega egate ted d to sub subor ordi dina nate te off offic icer ers s like like the the Chief of the Income Tax Division * LIMIT LIMITATI ATION: ON: The Commis Commissio sioner ner cannot cannot delegat delegate e the the power power to make make a final final asses asses sment to his subordinate as he himself is the one entrusted by law to make final assessments. * Presumption of correctness and made in good faith --> the burden of proof to show that the assessment is illegal or improper is wi th the taxpayer PROCEDURE OF ASSESSMENT * PROTESTING OF ASSESSMENTS: 1. When the CIR or his duly authorized representative finds that proper taxes sh ould be assessed, he shall first notify the taxpayer of his findings; 2. If the taxpayer fails to respond, the CIR shall issue an assessment based on his findings; 3. Such assessment may be protested administratively --> File a request for reconsideration or reinvestigation within 30 days from re ceipt of assessment --> Within 60 days from filing of the protest, all relevant supporting documents shall become final --> If denied in whole or in part, or is not acted upon within 180 days from sub mission of documents * Taxpayer may APPEAL to the CTA within 30 days from receipt of said decision; O R * From the lapse of the 180 days period, otherwise, the decision shall become fi nal, executory and demandable. * DEFICIENCY --> the amount by which the tax imposed (amount payable) by the l aw exceeds the amount shown as the tax (amount paid) by the taxpayer upon his re turn. * DEFICIENCY ASSESSMENTS --> those made after an examination or inspection of the taxpayer's return or re4cords or after an independent investigation in which a deficiency is found. * DELINQUENCY --> the failure of the taxpayer to pay due on the date fixed by law or indicated in the assessment notice or letter of demand. * An assessment that has not been received by the person liable for the payment of the tax, cannot become final and executory (Republic vs. dele Rama, 178 SCRA 861). C.

COLLECTION OF TAXES

REMEDIES --> taxes are the lifeblood of the government and their prompt and ce rtain availability is an imperious need. Hence, it is imperatively necessary tha

t taxes be paid or collected promptly, delay cannot be tolerated. The legislativ e may adopt any reasonable method for the effective enforcement of the collectio n of taxes. REMEDIES AVAILABLE TO THE GOVERNMENT: 1. DISTRAINT OF PERSONAL PROPERTY * The seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes, to be followed by its public sale, if the taxes a re not voluntarily paid. * Kinds of distraint: a. actual distraint --> the taking possession of the personal property out of th e taxpayer into that of the government. --> in case of intangible property, the taxpayer is also divested of the power of control over his property. b. Constructive distraint his personal property.

--> the owner is merely prohibited from disposing of

* The remedies of distraint and levy cannot be availed of where the amount of ta x involved does not exceed P100.00. * Requisites for exercise of remedy of distraint (& levy): 1. Delinquent payment of tax by the taxpayer (not essential in constructive dist raint); 2. There must be a subsequent demand for its payment; 3. The taxpayer failed to pay the delinquent tax at the time required; 4. The period within which to assess or collect the tax has not yet prescribed. * The distraint of personal property shall be made by: (a) CIR or his duly authorized representative, if the amount is in excess of P1, 000,000.00. (b) Revenue District Officer, if it is P1million or less. * PROCEDURE FOR ACTUAL DISTRAINT OF PERSONAL PROPERTY: 1. Service of warrant of distraint upon the taxpayer or upon the person in posse ssion of the taxpayer's personal property; 2. Posting of notice in not less than 2 public places in the municipality or cit y and notice to the taxpayer specifying the time and place of sale and the artic les distrained; 3. Sale at public auction to the highest bidder; and 4. Disposition of the proceeds of sale. * Any residue over and above what is required to pay the entire claim including expenses, shall be returned to the owner of the property sold. Embraces only the ACTUAL EXPENSES of seizure and preservation of the property pe nding the sale * release of distrained property prior to sale --> all proper charges are paid to the officer conducting the sale at anytime pr ior to the consummation of the sale --> NB: taxpayer is not given the right to redeem after the sale of personal pro perty at public auction!!! * Purchase by Government of property distrained

--> When the amount of the bid of the peroperty under distrained is: * Not equal to the amount of tax; or * Very much less than the actual market value of the articles offered for sale --> The amount of taxes, penalties and costs due thereon shall be the purchase p rice to be paid by the government; --> The taxpayer is not liable for any deficiency! CONSTRUCTIVE DISTRAINT: * Purpose: to prevent the taxpayer from disposing of his property pending final determination of his tax liability. Hence, it can be imposed even if the taxpaye r is not delinquent. * Procedure for Constructive Distraint: Effected by requiring the taxpayer or any person having possessi on or control of such property to: 1. Sign a receipt covering the property distrained; and 2. Obligate himself to preserve the same intact & unaltered and not to dispose o f the same in any manner whatsoever without the express authority of the CIT. If there is refusal: 1. The officer shall proceed to prepare a list of such properties; 2. In the presence of 2 witnesses, leave a copy thereof in the premises where th e property distrained is located. Said property shall be deemed to have been placed under constructive distrain t. 2. LEVY OF REAL PROPERTY * The act of seizure of REAL PROPERTY in order to enforce the payment of taxes. The property may be sold at public sale, if after seizure, the taxes are not vol untarily paid. It may be repeated if necessary until the full amount including a ll expenses, is collected. * Procedure for levy of real estate: 1. Preparation of a duly authenticated certificate showing the name of the taxpa yer and the amounts of the tax and the penalty due from him; 2. Writing upon said certificate a description of the property upon which levy i s made; 3. Service of written notice to the delinquent of the property; * The proper Register of Deeds of the province or city where the property is locat ed shall also be notified of the levy 4. advertisement of the time and place of sale of the taxpayer's property; 5. sale at public auction to the highest bidder; and 6. disposition of proceeds of sale * the excess of the proceeds shall be turned over to the owner of the property NB: NB: real real prop proper erty ty plac placed ed unde under r lev levy y may may be sold sold at publ public ic auct auctio ion n fo fo r less than its market value since the taxpayer is given the RIGHT TO REDEEM. * Forfeiture by Government of property levied upon

In case: (a) There is no bidder for real property exposed for sale; or (b) If the highest bid is for an amount insufficient to pay the taxes, penalties and costs. ? The duty of the Reg. Of Deeds will be to transfer the title to the property fo rfeited to the government without the necessity of a court order. ? The forfeiture does not operate as a total discharge of the claim; ? If the market value of the property is more than the amount claimed, the taxpa yer is not entitled to the excess --> Right of Redemption * Redemption of Property Sold or Forfeited ? The delinquent taxpayer or anyone for him shall have the right to redeem the p roperty sold or forfeited; ? If the redemption is made by one who is not the owner of the property, the own er may recover the property from him; ? The time to redeem may be exercised within a NON-EXTENDIBLE PERIOD OF 1 YEAR f rom the date of sale or forfeiture. 1-year period begins from the registration of the deed of sale or declaration of forfeiture. 3. ENFORCEMENT OF FORFEITURE * Implies a divesture of property without compensation, in consequence of a defa ult or offense. The property is transferred to another (government) without the consent of the owner and wrongdoer. * EFFECT: Forfeiture is directed against the Res, the property itself, and its e ffect is to transfer the title to the specific thing from the owner to the gover nment to restrain the commission of an offense and to aid in its prevention. * Forfeiture of personal property is enforced by SEIZURE AND SALE or DESTRUCTION of the specific forfeited property. * Forfeiture of REAL PROPERTY is enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require. * Forfeited property shall not be destroyed until at least 20 days after seizure . * In case of sale of forfeited goods all the proceeds of the sale go to the gove rnment * In case of sale of chattel/real property, the excess after payment of taxes, p enalties, costs, go to the taxpayer. 4. ENFORCEMENT OF TAX LIEN * A legal claim or charge on property, either real o personal, established by la w as a security in default of the payment of taxes. * NB:

There is no tax lien when there is no obligation to pay a tax.

* GR: the lien attaches to the property irrespective of ownership or transfer t hereof. * EXCEPTION: Not valid against any mortgagee, purchaser or judgment creditor unt il NOTICE of such lien is filed by the CIR in the Office of the Register of Deed