Professor: Justice Japar B. Dimaampao
Transcribers:
Marc Roby de Chavez (MARX) Mon Cristhoper Pasia (MON) Jean Marionne Bermudez (JAM) Aileen Grace Pizaña (AILEEN) Socrates Benjie Marbil (SOC)
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; (k) Taxes on premiums paid by way of reinsurance or retrocession; (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles; (m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein; (n) (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively; and (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (i)
TAX2 (1)
ESTATE TAX What is meant by estate tax? Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. What are the characteristics of estate tax? • Excise tax – it is imposed upon the privilege to transfer a property mortis causa • Ad Valorem Tax – its tax based is on the fair market value of the property at the time of the decedent’s death Direct tax – • National Tax - it is included in Sec. 133 of the LGC. One of the common limitations of the taxing power of the LGU. It is found in NIRC • General/Revenue – it is for the purpose of raising revenue Progressive – It is progressive because as the tax based increases the tax rate increases
Article X, section 5 of the 1987 Constitution Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
Does progressive tax have constitutional basis of? Yes, Article VI, Section 28, par 1, sentence 2 “The Congress shall evolve a progressive system of taxation.”
Does the local government units have the power to impose estate tax or donations mortis causa? No, because section of the Local Government Code so provides
Section 28. 1. 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. 3. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. 4. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, 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; (b) Documentary stamp tax; (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein; (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; (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; (f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; 1
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC How did the Supreme Court construe this Constitutional provision? What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.’ Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Suppose Congress restores inheritance tax, is that a valid law? Yes, because……….. Why is it an estate tax is not a property tax? Isn’t the fact that Section 84 of the NIRC, it takes in consideration the value of the property? Because its imposition does not rest upon general ownership although the amount of the tax is measured by the value of the property What is the materiality of such valuation of property? The purpose was to mitigate the resulting hardship in the case of the subsequent decline in the value of estates and thus prevent the danger of their complete confiscation due to the necessity of paying the tax on the basis of the value of the estate at the time of the decedent’s death
What do we mean by the word “evolve”? “direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized”, what do we mean by that? Section 84 of the NIRC are progressive rates, suppose the Congress change that, from progressive rates to regressive rates, is that law constitutional? Constitutional
An estate tax is an excise tax because it is a tax imposed on the privilege of transmitting property upon the death of the owner.
Why?
Donation Mortis Causa is the one which is subject to estate tax. What is the determinative test of donation mortis causa? Effective from the moment of the death of the decedent.
What are transfer equivalent to testamentary disposition? Section 85 of the NIRC Donation mortis causa is the one subject to estate tax, the right or privilege to transmit properties at death may be subject to estate tax. But what about the right or privilege to receive properties from the decedent, is that taxable? Is that subject to inheritance tax? No, because inheritance tax is already abolished by PD 69
What are the characteristic of donation mortis causa? • Effective upon death • Revocable Is acceptance required in donation mortis causa? No Is the delivery of the property required? No
Why does PD 69 abolished inheritance tax? Because the imposition of inheritance tax is incapable of proper and effective enforcement (administrative feasibility)
Is there a particular form prescribed under the Civil Code for it to be considered as a valid donation? If it is by testamentary succession, there is a prescribe particular form, but if it is by intestate succession, there is none
What are the fundamental principles of s sound tax system? • Fiscal Adequacy – revenue raised must be sufficient to meet government expenditures • Administrative feasibility – tax laws must be clear and concise; capable of proper and effective enforcement and not burdensome • Theoretical Justice – tax imposed must be based on the tax payer’s ability to pay
Suppose such donation mortis causa is invalid, there is no donation mortis causa to speak of, can that be a subject of estate tax? Is it still taxable? Yes What kind of tax? Is that subject of income tax? Income – a flow of wealth other a mere return of capital
Which of the 3 fundamental principles may be used as a basis for the abolition of inheritance tax? Administrative feasibility
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Suppose it is a valid form of donation mortis causa, can that be a subject of income tax? No, exclusion from the gross income; Gifts, bequest and devises
What is the basis of estate tax rate under section 84 of the NIRC? Net estate Suppose Congress change from net estate to gross estate, is there a violation of theoretical justice? …………………….. How do we know if the tax is just, reasonable, fair, unconscionable or equitable? What is the determinative test? ……………………
Under section 32B of the NIRC, item 3 thereof, suppose a law is passed deleting such provisions, is that a valid law? It appears that there can be 2 taxes that can be imposed, estate tax and income tax on gifts, bequest and devises. (inherent and constitutional limitations; double taxation) does it infringe any constitutional limitation? What kind of double situation? Indirect tax
4 theories advance in justification of the imposition of estate tax, what are those 4? • Benefits-received theory – based on the power of the State to demand and receive taxes on the reciprocal duties to support and protection • State-partnership Theory- the State as a passive and silent partner in the privilege of accumulating property, has the right to collect the share which is properly due it • Ability to pay- the receipt of inheritance is in the nature of unearned wealth which creates the ability to pay the tax • Redistribution of wealth- receipt of inheritance contributes to the widening inequalities in wealth. By imposing estate tax, the value received by the successor is thereby reduced and brings said value into the coffers of the government.
TAX2 (2) Define Estate Tax Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. How do we distinguish estate tax from inheritance tax? An estate tax is levied upon the privilege of transferring the net estate of a decedent to his heirs while an inheritance tax is a tax on the privilege to receive property from a deceased person. (2009 Golden Notes)
In effect that the purpose of the imposition of estate tax, which of the 4 theories is a non-revenue raising purpose?
What is the rationale behind the abolition of inheritance tax? It was abolished because due to administrative difficulty to its collection.
Under section 84, there are 4 words “levied, assessed, collected and payment.” Aspect of taxation • Levy • Assessment and Collection • Payment
Relate the 3 principles of a sound tax system to estate tax • Fiscal Adequacy • Administrative Feasibility • Theoretical Justice
What is the meaning of Levy? Enactment of a tax law which is a legislative act
Do u think that the proceeds from the imposition of estate tax will meet the government expenditures?
What is the meaning of Assessment? A notice to the effect that the amount therein stated is due as a tax and/or demand for payment thereof
Base on Section 84 and 85, do u think it is enough or adequate? Do u think that the imposition of 20% tax rate is enough to cover the governmental expenditures?
What is the difference between Assessment and Collection? What is the basic distinction between the 2? Both differs in the process. 5-year period of prescription for assessment of deficiency tax, 5-year period per collection of the same Collection may be effected within 5 years after assessment or within the period of collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such 5-year period
Does the principle of theoretical justice has been observed or complied with? Yes
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC provide tax situs to particular object/subject of taxation and in line with the ruling of the SC, we have section 104. So even if the owner is a nonresident, we can still impose donor’s or estate tax on properties mentioned in Sec. 104
What is the meaning of payment? What is the technical term for levy or imposition? Impact of taxation What is the technical term for payment? Incidence of taxation?
What is the purpose of that latin maxim? To prevent injustice, for convenience and it must be to the actual tax situs ___ of those properties
Section 84 classified decedent into 2, these are? 2 kinds of estate tax payer? • Resident decedent • Non-resident decedent
How do we know whether an alien is a resident of nonresident at the time of his death?
These properties will be taxed because they acquire actual situs, what are these intangible personal properties which are in effect exception to the latin maxim? • Franchise which must be exercised in the Philippines • Shares of stocks, obligations or bonds issued by any corporation or sociedad anomina organized or constituted in the Philippines in accordance with its laws • Shares of stocks, obligations or bonds by any foreign corporation 85% of its business is located in the Philippines • Shares of stocks, obligations or bonds issued by any foreign corporation if such shares, bonds or obligations have acquired business situs in the Philippines • Shares or rights in any partnership, business or industry established in the Philippines
What is the purpose of distinguishing the residency and nonresidency of a decedent? Because not all properties of non-resident decedent are taxed unlike with resident decedent
These intangible personal properties are in effect exceptions to the latin maxim of Mobilia Sequuntur Personam, what is the exception to the exception? Rule of reciprocity
What is the rule that applies to resident under section 85? The properties subject to estate tax are the properties of such decedent wherever situated
TAX2 (3)
At the time of the decedent’s death, he was not residing in the Philippines, he died in the US, how do we classify that decedent? Resident decedent, because resident decedent includes: • Resident Citizen • Non-resident Citizen • Resident Alien What is the basis why Non-resident Citizen is included?
Included in the Gross Estate • Decedent’s Interest • Transfer in Contemplation of death • Revocable transfer • Property Passing under the General power of appointment • Proceeds of life insurance • Prior interest • Transfer for insufficient Consideration
What about non-resident? Only those properties situated in the Philippines are subject to estate tax Do we adhere to Mobilia Sequuntur Personam? Section 104 of the NIRC No. What is this maxim says? Movable follows the owner. If the decedent is not a resident, we cannot impose tax on such property
DECEDENT’S INTEREST Any interest having value or capable of being valued, transferred by the decedent at his death
Why is it that we do not adhere to this maxim? Well fargo vs Collector- the latin maxim is a mere fiction of law that may be designed to prevent injustice and for convenience. We are not bound by this latin maxim because a particular country can 4
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What may be considered decedent’s interest in a parcel of land other than title?
At the time of the decedent’s death, the decedent has receivables and collectibles, shall we include that in the gross estate?
When a decedent dies, what is included in the gross estate is the fair market value of that parcel of land but also fruits (harvest/natural fruits if it is a farm land)
The decedent was an employee of a particular corporation. At the time of his death, he had not collected his compensation income from his employer, should we include that? Yes
How about a building? what is included in the gross estate is the fair market value of that parcel of land but also civil fruits (rents)
He died before the decedent could receive his Christmas Bonus, should that be included? No
What about investment in a corporation? Investment is part of the gross estate as well as dividends
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He failed to receive his 13 month pay when he died, should that be included in the gross estate? Yes
Suppose dividends were declared after his death, will that form part of the gross estate? Yes
What is the basis why Christmas bonus is not included in the th gross estate and 13 month pay is included in the gross estate? Because there is a law mandating employers to grant th 13 month pay unlike Christmas bonus, there is no law requiring it
Suppose dividends were declared before his death, will that form part of the gross estate? Yes What is that factor that determines whether these dividends should be included in the gross estate or excluded? Declaration of such dividends
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Is there a law mandating employers to grant 13 month pay? Section 32B 7 item e The decedent met an accident, he died. As a result of the event, he had an insurance claim. Should that be included in the gross estate? Rules in Life insurance proceeds and premiums
Corporation Code, when does a stockholder acquire the right over such dividend? When the dividends are declared In relation to income tax, when are dividends taxable? When the dividends are declared
An action was filed by the heirs of the decedent against the person responsible accident, eventually a decision was rendered in favor of the heirs of the decease, is the award granted by the court should be included in the gross estate of the deceased? No, because the award granted by the court should not be included in the gross estate because the decedent has no control over the disposition of such property
Applying the principle of constructive receipt of income? When it is constructively realized, it is not the actual receipt. Corporation law, it is really the accrual of the same, the date when he acquired vested right over the same. What about partner’s interest in the partnership? What will constitute partnership interest in a partnership? Art. 1512 of the NCC
The decedent is the naked owner of the property because the enjoyment of such property is given to another (usufructuary), should that be included in the gross estate? Yes
So if the decedent is a partner, what constitute his gross estate? is it only his contribution? Sec. 24 of the NIRC
TRANSFERS IN CONTEMPLATION OF DEATH Cash in banks, should that be included? Yes, including the interest accrued at the time of his death
A transfer motivated by the thought of impending death although death may not be imminent: 1. When the decedent has, at any time, made a transfer in contemplation of or intended
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC
2.
to take effect in possession or enjoyment at or after death or When decedent has, at any time, made a transfer under which he has retained for his life or for a period not ascertainable without reference to his death or any period which does not in fact end before his death: • Possession, enjoyment or right to income from the property or • The right alone or in conjunction with any other person to designate the person who will possess or enjoy the property or income there from
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The interval between the transfer and the decedent’s death The relationship of the donee or donees to decedent
What happened on April 9, 1928? A deed of gift covering 22 tracts of land was executed by Felix Dison in favor of his son Luis Dison What happened on April 20, 1928? Such deed was notarized What happened on April 21, 1928? Felix Dison died How many days? 1 day from the date of notary
What is the other description for transfer in contemplation of death? • Transfer equivalent to testamentary disposition or • Inter vivos in form Mortis causa in substance
Was there an acceptance? Yes, 1 day before the death
What is the reason why Section 85 is included in the gross estate? Those transfers are intended to evade the payment of estate tax
Was the transfer made inter vivos? The transfer is an inter vivos but for purposes of tax it is a transfer in contemplation of death
What are the factors to determine whether such transfer is a transfer in contemplation of death? • Age of the decedent at the time the transfer were made • Decedent’s heath, as he knew it at or before the time of the transfers • The interval between the transfer and the decedent’s death • The amount of property transferred in proportion to the amount of property retained • The nature and disposition of the decedent • The existence of a general testamentary scheme of which the transfers were a part • The relationship of the donee or donees to decedent • The existence of a desire on the part of the decedent to escape the burden of managing the property by transferring the property to others • The existence of a long established gift-making policy on the part of the decedent • The existence of a desire on the part of the decedent to vicariously enjoy the enjoyment of the donees for the property transferred • The existence of the desire by the decedent of avoiding estate taxes by means of making inter vivos transfer of property
How many days do the donation was made in relation to the death? 12 days Let’s say the death occurs 30 days after, will the ruling of the court be the same? (Hypothetical question)
Suppose the done not relative but a friend, will the ruling be the same? (hypothetical question)
DISON VS POSADAS What was the factor considered by the court? 6
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Age is another factor, suppose the decedent in this case was 90 years of age, he made a donation denominated as “inter vivos” in favor of his children, can we consider that as transfer in contemplation of death? (hypothetical question)
donations were made mortis causa, hence, the properties donated shall be included as part of the decedent’s gross estate Motives which may preclude/negate such transfer as one made in contemplation of death • To relieved the donor from the burden of management • To save income or property taxes • To settle family litigated and unlitigated disputes • To provide independent income for dependents • To see the children enjoy the property while the donor is alive • To protect family from hazards of business operations • To reward services rendered
Assuming that the decedent was 30 years of age at the time he made the donation inter vivos, can we consider that as transfer in contemplation of death (hypothetical question)
The 3 year presumption rule in PD 1705 is no longer applicable In case of a bona fide sale for an adequate and full consideration in money or money’s worth Sec 85 B, “by trust or otherwise”, what may be covered by that? It covers donation inter vivos in form but mortis causa in substance.
Assuming that the decedent was 30 years of age at the time he made the donation inter vivos, can we consider that as transfer in contemplation of death EVEN IF HE WAS SUFFERING FROM A DREADED DISEASE? (Hypothetical question)
What is the reason why trust is covered? Because in trust there is no transfer of ownership Is it possible that the transfer is denominated as “sale” yet it is considered as transfer in contemplation of death?
DE ROCES VS POSADAS What happened in March 1925? Esperanza Tuazon donated certain parcels of land Suppose there is no consideration given, it was a fictitious sale, will that result to a transfer in contemplation of death? Is that covered by the phrase “or otherwise”
Held: When the donor makes his will within a short time of simultaneously with, the making of gifts, the gifts are considered as having been made in contemplation of death. Obviously, the intention of the donor in the making the inter-vivos is to avoid the imposition of the estate tax and since the donees are likewise forced heirs who are called upon to inherit, it will create a presumption juris tantum that said
…………………. Because there is no contract of sale to speak of
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What if the price or consideration in a contract of sale is grossly in adequate considering Art. 1470 of the NCC, will it be included in the gross estate?
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Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.
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transferred property and if the power adds nothing to the rights the parties possess under local law When the decedent has completely divested of the power at the time of his death Where the exercise of the power by the decedent was subject to a contingency beyond the decedent’s control which did not occur before his death The mere right to name trustees. Neither the grantor’s limited power to appoint himself as trustee under conditions which did not exist at his death
Remember: General Rule: • Donation Mortis Causa is Revocable • Donation Intere Vivos is Irrevocable
What are those other 2 transfers covered by Sec. 85 B? • Transfer which he had retained for his life o the possession, enjoyment or right to income from the property or o the right alone or in conjunction with any other person to designate the person who will possess or enjoy the property or income there from • Transfer for any period which does not in fact end before his death o the possession, enjoyment or right to income from the property or o the right alone or in conjunction with any other person to designate the person who will possess or enjoy the property or income there from
Is there such a thing as irrevocable trust? Yes, Sec. 60-66 NIRC Is irrevocable trust included in the gross estate? No, it is excluded PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT Any property passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; Except in case of a bona fide sale for an adequate and full consideration in money or money's worth.
REVOCABLE TRANSFERS Revocable transfers covers transfers by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), t o alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of the decedent's death. Why is it that revocable transfer forms part of the gross estate of the decedent? Because the transferor can amend, alter, revoke or terminate the transfer anytime as if none was actually made, he has control over the right to possess, enjoy, income or fruits.
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. It may either be: • General – when it gives to the donee the power to appoint any person as 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.
Is a notice of alteration, amendment, revocation or termination required? What are examples of IRREVOCABLE transfers that is not subject to estate tax? • If the decedent’s power could only be exercised with the consent of all parties having an interest in the 8
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC •
Sec. 11 Insurance Code - The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy.
Special – when the donee can appoint only among a restricted or designated class of persons other than himself
What are the requisites under sec. 85 D? • There is such a general power of appointment • It is based on ……
The designation of beneficiary is revocable
What is the reason for the inclusion in the gross estate? The property passing under a general power of appointment comes from the donor and the done (decedent). The power to dispose of property at death by the exercise of a power of appointment is he equivalent of ownership. It is a potential source of wealth to the appointee and the disposition of wealth effected by its exercise or relinquishment at death is one form of the enjoyment of wealth
What is covered by Sec 85 G? Transfer for insufficient consideration. Only the excess of the fair market value of the property at the time of the decedent’s death over the consideration received shall be included in the gross estate.
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TAX2 (4)
Why is it considered includible in the gross estate of the decent? Those transfers are intended to evade the payment of estate tax
LIFE INSURANCE PROCEEDS Included in the gross estate and therefore subject to estate tax: o If the beneficiary designated in the life insurance policy is the heirs, executor or administrator of the estate, regardless is the designation is irrevocable or revocable. o If a third person is REVOCABLY designated as beneficiary Excluded in the gross estate: rd o If a 3 person is IRREVOCABLY designated as beneficiary o If it partakes of a nature of Group Insurance policy
Is there such similar rule when it comes to donation intervivos? Yes. Sec 100. What is the difference between transfers for insufficient consideration for estate tax law and insufficient consideration in donor’s tax? Sec. 85 donation mortis causa Sec. 100 covered by donation intervivos The excess of the FMV, at the time of death, of the property otherwise to be included on account of such transactions, over the value of the consideration received therefore by the decedent
Tax implication on Life Insurance Premiums • TAXABLE if the designated beneficiary is the heirs, estate, executor or administrator of the estate. o Under Sec 32 A, taxable as compensation income if the employee is a rank and file employee o Under Sec 32 B taxable as Fringe Benefit is the employee is a managerial or supervisory employee o It is a DEDUCTIBLE EXPENSE by the employer because it may fall under Sec. 32 A [1, a (1)] as “other forms of compensation for personal services rendered •
Sec 85 made reference to the preceding items. What are these items? Sec 85 B. Transfers in Contemplation of Death C. Revocable Transfer D. Property Passing Under General Power of Appointment Such items are included in the gross estate because such transfers are intended to evade the payment of estate tax How much should be included in the gross estate? Only the excess of the fair market value of the property at the time of the decedent’s death over the consideration received shall be included in the gross estate.
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NOT TAXABLE if the designated beneficiary is a 3 person (that includes the employer) because it is just a mere return of capital o NOT DEDUCTIBLE EXPENSE by the employer if the designated beneficiary is the employer concerned.
What are the transfers covered therein?
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC (2) That which each acquires during the marriage by gratuitous title; (3) That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the spouses; and (4) That which is purchased with exclusive money of the wife or of the husband.
How do you know whether the consideration is inadequate? For as long as the the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift for the purpose of the tax What is the guiding criteria? ………………………….
Can you apply Sec 85 H this in separation of property? No, if the property regime is separation of property, there will be no division
What is the last item under Sec 85? Sec 85 H. Capital of the Surviving spouse. It speaks of exclusion not inclusion.
½ share of the surviving spouse.
What should be included? When you speak of “exclusive property,” is this that of the surviving spouse or that of the decedent? Exclusive property of the decedent
Gross estate. All properties may be divided by 2. Will this be included in the Gross estate? Is this taxable? • Add all the properties, Conjugal, Absolute as the case may be. • Deduct all the allowable deductions. • Divide that into 2. Because ½ of the net estate represents the share of the surviving spouse.
Why do you have to exclude the exclusive property of the surviving spouse from the gross estate? Because he or she is the sole owner of such properties, it is not part of the conjugal partnership or community property
What do you do with the ½ share of the surviving spouse? Deduct it from the net estate to arrive at the taxable estate. When the law was drafted official regime was conjugal partnership of gains. This is why capital or paraphernal is found therein .
Is it important to know the property relations governing the properties of the husband and the wife – conjugal, separate of property, absolute community property? Yes, in order what should be excluded or included in the gross estate
Now the official regime is absolute community Art 75. This is why there should be an amendment here. This is why such item is not accurate.
Is Sec 85 H applicable to all the property regimes?
What is the difference between transfer for insufficient consideration in estate tax and transfer for insufficient consideration in donor’s tax? It is subject to donor’s tax if there is no reference to revocable transfer, contemplation of death or general power of appointment. It is subject to estate if the 3 instances mentioned are present
Are the exclusive properties under the system of absolute community? There are 3 under Art 92 FC. This is why the “absolute” is not correct. It should be “relative” absolute community. Art. 92. The following shall be excluded from the community property: (1) Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as the income thereof, if any, 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. However, jewelry 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.
Sec 86 deals with allowable deductions. What have you observed regarding Sec 86? Sec 86 consider the kind of estate tax payer In income tax we have adopted gross income taxation under exceptional cases. Who are those taxpayers who cannot make a deduction? Taxpayers earning compensation income arising from personal services rendered under an employeremployee relationship
What about conjugal partnership of gains? Art. 109. The following shall be the exclusive property of each spouse: (1) That which is brought to the marriage as his or her own; 10
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC In estate tax, are there exceptional cases wherein estate taxpayers are not allowed to claim nay deductions? None, both resident decedent and non-resident decedent may claim deduction allowed for them under the law
What is vanishing deduction? It is the deduction allowed from the gross estate of citizens, resident aliens and non-resident estates for properties which were previously subject to donors or estate taxes
Are foreigners entitled to deductions? Yes, but only those allowed by law What is the basis for this allowable deduction? What is its purpose? Minimize or mitigate the harshness of double taxation
The same as that of citizens of the Philippines? No “Non-resident aliens are not allowed to claim any deductions.” Is this a valid law? No, it is not violative of equal protection of laws?
Is it in this a case of direct or indirect double taxation? Indirect double taxation
Is the rule on reciprocity recognized under Sec 86 in regards to non-resident aliens? Yes, in Section 104 par. 1
What are the common allowable deductions? A. Expenses, losses, indebtedness, and taxes B. Property previously taxed (vanishing deduction) C. Transfers for public use D. Net share of the surviving spouse from the net share in the conjugal or community property
No tax shall be collected under this Title in respect of intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. (sec.104)
Is the enumeration of the allowable deductions exclusive? Sec 86 is construed strictly ______ following the rule of strictissimi juris. Deductions partake the nature of exemptions. Those not mentioned therein cannot be claimed as deductions. Deductions which have not been mentioned under Sec 86 Hypothetical Question: What do you propose as additional allowable deduction from the gross estate?
What are those deductions which can be availed of by citizens of the Philippines and resident alien decedents? A. Expenses, losses, indebtedness, and taxes B. Property previously taxed (vanishing deduction) C. Transfers for public use D. The family home E. Standard deduction F. Medical expenses G. Amount received by heirs under Republic Act No. 4917 H. Net share of the surviving spouse from the net share in the conjugal or community property
When a person dies are these the only deductions possible? Why is it that non-resident decedent is not entitled to the allowable deduction of family home. Because aliens are not allowed to own real estate properties Expenses, losses, indebtedness, and taxes • Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000. • Judicial expenses of the testamentary or intestate proceedings. • Claims against the estate. • Claims of the deceased against insolvent persons where the value of the decedent’s interest therein is included in the value of the gross estate; • Unpaid mortgages, taxes and casualty losses
Which deductions cannot be availed of the non-resident alien decedents? A. Expenses, losses, indebtedness, and taxes B. Property previously taxed (vanishing deduction) C. Transfers for public use D. Net share of the surviving spouse from the net share in the conjugal or community property
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 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 and provided, further, that the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
ACTUAL FUNERAL EXPENSES - actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred. What are the expenses considered as funeral expenses under RR 2-2003? (a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial; (b) Expenses for the deceased’s wake, including food and drinks; (c) Publication charges for death notices; (d) Telecommunication expenses incurred in informing relatives of the deceased; (e) 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; (f) Interment and/or cremation fees and charges; and (g) All other expenses incurred for the performance of the rites and ceremonies incident to interment.
Suppose the actual is 1M, can you not consider this a part of the funeral expenses? In case of funeral expense what is the limitation? Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000. Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been paid or still payable, shall not be allowed as a deduction under this Subsection. Neither shall the unpaid portion of the funeral expenses incurred which is in excess of the P200,000 threshold be allowed to be claimed as a deduction under “claims against the estate” provided under Subsection (C) hereof. As distinguished from judicial expenses, there is a limitation here. Why did the law did not prescribe a limitation in judicial expenses? Because such situation implies that there be more funeral expenses than judicial expenses
The enumeration is not exclusive. These are the usual/normal expenses. Example: Crying ladies
Is 200K are reasonable limitation? …………………………….
What is the determinative test? How do you know that it is a funeral expense or not? Expenses incurred for the performance of the rites and ceremonies incident to interment
If the gross estate is 5M, is 5% (250 k). The actual funeral expenses 300 K, how much is the allowable funeral expenses? Only Php 200,000.00
Will this cover hospitalization expenses? No
Gross estate is 3M, is 5% (150K). Actual funeral expenses 180 K. How much is the allowable funeral expenses? The lower one, Php 150k
Is this not covered by a separate item? It is a separate item, Medical expenses as of the last illness will not form part of funeral expenses but should be claimed under subsection (F) of this section (medical expenses).
Must that be actually paid? Are those only actually paid allowable deduction? The Law used the terms paid or incurred Is a non-resident decedent entitled to funeral expenses? Is the rule the same? Where lies the difference? In non resident decedent, that proportion of the total expenses, losses, indebtedness, and taxes which the value of such part bears to the value of his entire gross estate wherever situated.
Is there are limitation in hospitalization? Yes, All medical expenses (cost of medicines, hospital bills, doctors’ fees, etc.) incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly substantiated with 12
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Can you apply the limitation 5% or 200 K as the case may to non-resident decedents?
What about Extra-judicial expenses, are these deductible from the gross estate of the decedent? Yes, but it is limited to such administration expenses actually and necessarily incurred inventory-taking of assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs.
What are those funeral expenses that may be claimed by nonresident decedent (non-resident alien at the time of his death)? Only those expenses incurred in the Philippines because the composition of the properties of a nonresident decedent subject to estate tax are those properties situated in the Philippines
But if you read sec 86 it says judicial expenses, applying the principle of stricitissimi juris you should strictly construe such provision. Since the law did not mention about shall we exclude this? We should not construe it literally
JUDICIAL EXPENSES OF THE TESTAMENTARY OR INTESTATE PROCEEDINGS - those incurred in the inventory-taking of assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return.
What are these judicial expenses in particular? • Collation of the property • Inventory of the properties • Preservation of the properties • Settlement of the estate • Distribution of the properties
JUDICIAL EXPENSES (a) Fees of executor or administrator; (b) Attorney’s fees; (c) Court fees; (d) Accountant’s fees; (e) Appraiser’s fees; (f) Clerk hire; (g) Costs of preserving and distributing the estate; (h) Costs of storing or maintaining property of the estate; and (i) Brokerage fees for selling property of the estate.
The rule of the executor or administrator comes into play. Executor/administrator collates all these properties. In the collation of these properties, or in determining the properties includible in the gross estate, what do you think are the expenses that may be incurred by the estate? Where does appraisal fee belong? In determining the value of the property applying Sec 88. What particular category is covered by that? Administration of the property. That presupposes that inventory has been made. All those properties which are included in the gross estate have been determined by the executor or administrator as the case may be.
Any unpaid amount for the aforementioned cost and expenses claimed under “Judicial Expenses” should be supported by a sworn statement of account issued and signed by the creditor.
What are the other expenses that may be incurred during such administration or preservation of such properties?
Are non-resident alien decedent entitled to judicial expenses? Yes, but only those expenses incurred in the settlement of the estate in the Philippines
What are the expenses incurred in extrajudicial settlement of estate?
What may comprise judicial expenses? • those incurred in the inventory-taking of assets comprising the gross estate, their administration, • the payment of debts of the estate, • as well as the distribution of the estate among the heirs.
What is that document that may be drafted that relates to extrajudicial settlement of estate? • Affidavit of self-adjudication • Legal forms • These need not be prepared by the lawyer.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC TAX2 (5)
What is the tax implication as far as income tax is concerned? It is excluded in the gross income of the recipient of such benefit
What are the common requirements for deductibility for claims against the estate? • They were contracted in good faith and for an adequate and full consideration in money or money’s worth • They must be existing against the estate • They must be enforced by the claimants • They must be reasonably certain in amount • At the time the indebtedness was incurred, the debt instrument was duly notarized and, if the loan was contracted within 3 years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan
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If the loan is found to be merely an accommodation loan where the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate If there is a legal impediment to recognize the same as receivable of the estate, said unpaid obligation/mortgage payable SHALL NOT BE ALLOWED AS A DEDUCTION from the gross estate. In all instances, the mortgaged property, TO THE EXTENT OF THE DECEDENT’S INTEREST THEREIN, should always form part of the gross taxable estate.
What are the possible sources of the claims? • Contract • Torts • By operation of law
What is the purpose of that certification that may be issued regarding claims against the estate? To establish the unpaid balance of the debt and including the interest as of the time of debt
Explain torts as a possible source of claims Explain by operation of law as a possible source of claims In case of a solidary obligation or in assignment or in negotiorum gestio
What is the 3 year period? If the loan was contracted within the period of 3 years prior to the death of the decedent, a statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan
These allowable deductions require that such amount or value must first be included in the gross estate before it can be claim as deductions, what are these? • Claims against insolvent persons • Unpaid mortgages
What are the requisites for LOSSES? • Incurred during the settlement of the estate • Arise from shipwreck, fire, storm or other fortuitous event or robber, theft or embezzlement • Are not compensated by insurance • Are not claimed as deduction for income tax purposes in the income tax return at the time of the filing of the return • Occur not later the last day for payment of estate tax. (last day to pay: 6 months after the decedent’s death)
What should be included or declared in the gross estate? The fair market value of the property mortgaged •
Family Home How much must be included in the gross estate? Allowable deduction must be in the amount equivalent to: The current fair market value of the family home as declared or included in the gross estate OR To the extent of the decedent’s interest, whichever is lower, but not exceeding Php 1,000,000
•
Accommodation loan
Losses are allowable deductions in the gross income BASIC RULE IN DEDUCTIONS: Deductions can only be claimed once What are these deductible taxes? Taxes which have accrued as of the death of the decedent which were unpaid as of the time of death
Amounts received by heirs under RA 4917
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC •
Are the taxes limited only to income and property taxes? No, the law does not make any specification (transcriber’s answer)
What is a property tax? Tax imposed on real properties
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What are the non-deductible taxes? • 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
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Property Previously Tax (Vanishing/diminishing deduction) • What is the nature of Vanishing deduction? Exclusive deduction
Identity of the property – the property with respect to which deduction is sought can be identified as the one received from prior decedent or from the donor, or as the property acquired in exchange for the original property so received Inclusion of the property - the property must have formed part of the gross estate situated in the Philippines of the prior decedent, or have been included in the total amount of the gifts of the donor within 5 years prior to the present decedent’s death 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 No previous vanishing deduction on the property
Can this be claimed by a nonresident decedent alien? Yes, but only with respect to the properties located in the Philippines
Why exclusive deduction? Because it is a deduction from the exclusive properties of the decedent that was acquired during the marriage by lucrative title (thru succession or donation).
TAX2 (6) Transfer for public use
What are the 2 situations that may give rise to vanishing deduction? • The property was acquired by the present decedent from the previous decedent thru succession • The property was acquired by the present decedent from the previous decedent thru donation inter vivos
What is the rule regarding the deductibility of transfer for public use? The law allows the deduction from the gross estate the amount of all bequests, legacies, or transfers, to or for the use of the government of the Philippines or any political subdivisions thereof for exclusively public purpose
What is the purpose of allowing this vanishing deduction? To minimize the harsh effects of indirect double taxation
Requisites • The disposition is in a last will and testament • To take effect after death • In favor of the government of the Philippines or any political subdivision thereof • For exclusive public purposes • The value of the property given is included in the gross estate
Why indirect double taxation? Because the subject of taxation. The property previously tax will be tax again What is this 5 year period? Within 1 year or less More than 1 year but less than 2 years More than 2 years but less than 3 years More than 3 year but less than 4 years More than 4 year but less than 5 years
Who may be the transferee? Government of the Philippines or any political subdivision thereof
– 100% – 80% – 60% – 40% – 20%
Is this an exclusive deduction, conjugal or absolute community? Exclusive. It must be a deduction from the exclusive property
Requisites • Death – the present decedent died within 5 years from date of death of the prior decedent or date of gift 15
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What does “government of the Philippines” as defined by the Revised Administrative Code 1987? Is this the same as “national government”? No Government of the Republic of the Philippines defines as the “corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made affective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government.” These “autonomous regions, provincial, city, municipal or barangay subdivisions” are the political subdivisions.
What should be credited against the Philippine estate tax? the amounts of any estate tax imposed by the authority of a foreign country If a Filipino citizen has properties in the US and in the Philippines, applying the rules wherever situated, is he liable to pay estate tax on the properties he left in the US? Yes If the estate will pay estate tax to US is that not the one creditable against the Philippines estate tax? the amounts of any estate tax imposed by U.S. but there is a limitation What are the limitations? (a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated within such country taxable under this Title bears to his entire net estate; and (b) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire net estate.
“National Government” refers “to the entire machinery of the central government, as distinguished from the different forms of local governments.” The National Government then is composed of the three great departments: the executive, the legislative and the judicial. What is the tax treatment on the “share of the surviving spouse”? It is deductible
Is that that always the amount allowable as tax credit? No. There is a limitation. It is not always the actual foreign estate tax paid to the foreign government. If there are 2 countries you have to apply the limitation.
How do you determine the share of the surviving spouse? By dividing the net estate into 2 Deducted from what? Net estate of the decedent
Why is it that non-resident decedent is not allowed to claim tax credit? Remember the rule on the taxability of estate of non-resident. Can we tax the property situated outside? No, therefore he is not liable to pay estate tax. There being no foreign estate tax paid, there is nothing to credit against the Philippine estate tax.
Gross estate less allowable deduction, what is the result? Net Estate What are examples of miscellaneous deductions (other than those provided)? Implies that the preceding enumeration is not exclusive
Sec 87 enumerates the exempt transmissions, what are these? (A) The merger of usufruct in the owner of the naked title; (B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary; (C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures to the benefit of
What the tax credit in estate tax? The tax imposed in the Philippines shall be credited with the amounts of any estate tax imposed by the authority of a foreign country. Who can claim the same? Resident decedent Are non-resident decedent entitled to tax credit? No
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes.
What are the exempt transfers of properties under Special laws (meaning other than the tax code)? • Benefits received by members from the GSIS by reason of death • Benefits received by members from the SSS by reason of death • Amounts received from the Philippines and United States Government for damages suffered during the last was • Benefits received by beneficiaries residing in the Philippines under laws administered by the U.S. veterans Administration • Grants and donations to the Intramuros Administration
What are the grounds that may give rise to such merger? Death of the usufructuary What are the grounds for extinguishment of usufruct under the Civil Code Art 603? Art. 603. Usufruct is extinguished: (1) By the death of the usufructuary, unless a contrary intention clearly appears; (2) By the expiration of the period for which it was constituted, or by the fulfillment of any resolutory condition provided in the title creating the usufruct; (3) By merger of the usufruct and ownership in the same person; (4) By renunciation of the usufructuary; (5) By the total loss of the thing in usufruct; (6) By the termination of the right of the person constituting the usufruct; (7) By prescription.
TAX2 (7) What are the rules regarding valuation of property for the purpose of estate tax? Real Property If the property is a real property, the fair market value shall be: • the fair market value as determined by the Commissioner or • the fair market value as shown in the schedule of values fixed by the provincial and city assessors, whichever is higher.
Who the parties in a contract of usufruct? Usufructuary and the naked owner Why does the tax code grants exemption to transfer by the heir, legatee or devisee according the Instrumentalities of the national government, will this form part of the government of the Philippines or the national government?
For purposes of prescribing real property values, the Commissioner 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.
Government owned and controlled corporations, do they form part of the national government or government of the Philippines? National Government If a transfer is made in the form of a devise or legacy in favor a GOCC is that deductible under Sec 86 A 3? No, the law says government of the Philippines not National government
Personal Property • Tangible o In the case of shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges. Unlisted Shares • Unlisted common shares are valued based on their book value • unlisted preferred shares are valued at par value.
Under Sec 87 D what is exempt? • social welfare institutions • cultural institutions • charitable institutions How many institutions are covered? 4 What about educational institutions? It is not subject to estate tax provided that such bequest is to be used actually, directly and exclusively for educational purposes
In determining the book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any.
Basis? Art. XIV Sec. 4 par.4 17
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC
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When is estate tax return required? • Transfers subject to tax • Where gross value of the estate exceeds php 200,000.00 • Where estate consists of registered or registrable property, regardless of the amount
For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself.
in addition to Estate Tax return, what is to be filed by the executor or administrator? If the gross value of the estate exceeds Php 2,000,000.00. The ETR is supported with a Certification by a CPA containing: • 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 • Itemized deductions from gross estate allowed in Sec. 86 • The amount of Tax due whether paid or still due and outstanding
Intangible: o To determine the value of the right to 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.
What is the importance of these rules in valuation of property? Are the rules in valuation of property the same with donor’s tax? Yes
What about the amount of Php 200,000.00, what is the materiality of such amount? Those estates which has a gross value of NOT exceeding Php 200,000.00 is exempt
When is Notice of Death required? • In all cases of transfers subject to tax • If the gross value of he estate exceeds Php 20,000.00
When should estate tax return be filed? Within 6 months after the death of the decedent Who has the legal obligation to file the same? Executor, Administrator or any legal heirs
Why is notice of death required? To inform the Commissioner that the estate of the decedent is subject to tax
Can that be extended? Is a request for extension allowed? Yes, in meritorious cases, a reasonable extension not exceeding 30 days
Who has the obligation to file the Notice of death? Executor, Administrator or any legal heirs
Example of meritorious case? Claims against the estate pending appeal
When are the heirs oblige to give notice of death? • When there is no appointed executor or administrator or • when the executor or administrator refuses to file
In the case of donor’s tax, is there an extension? None, a donor’s tax return is filed within 30 days. No extension allowed
When to file notice of death? within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator
Payment of Tax Pay as you file Is payment of tax subject to extension? Yes. In case the estate is settled through court (judicial) Not to exceed 5 years In case the estate is settled extrajudicially Not to exceed 2 years
to whom must notice of death be filed? Commissioner of Internal Revenue
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Why is it that in judicial settlement is longer than extrajudicial settlement? Judicial settlement is longer to be resolve that extrajudicial settlement
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What are the requirements of extension in payment of estate tax? • It must not be by reason of negligence, intentional disregard of rules and regulations or fraud on the part of the taxpayer • If such extension is granted, the executor, administrator or the heirs may be required to furnish a bond conditioned upon the payment of the said tax in accordance with the terms of extension
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Payment of the estate tax by installment In case the available cash of the estate is not sufficient to pay its total estate tax liability and a clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid
the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa, legacy or inheritance a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor before a transfer to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account
What is the purpose of such certification of payment of tax? To ensure that the estate tax liability has been paid. It is considered as condition sine qua non for the following cases above
DONOR’S TAX What is the meaning of deficiency? Deficiency arises when tax paid is less than the amount due
What is Donor’s tax? An excise tax imposed on the privilege transfer of property by way of a gift intervivos based on pure act of liberality without any or less than adequate consideration and without any legal compulsion to give
Deficiency vs deliquency Deficiency arises when tax paid is less than the amount due while delinquency arises when there is either failure to pay amount due or refusal to pay the tax due.
What are the characteristics of donor’s tax? • Excise tax – it is imposed upon the privilege to transfer a property gratuitously intervivos based on pure act of liberality without any or less than adequate consideration • Ad Valorem Tax – its tax based is on the fair market value of the property at the time the donation was made • Direct tax – it is imposed upon the donor and the donor cannot shift the burden to another • National Tax - it is included in Sec. 133 of the LGC. One of the common limitations of the taxing power of the LGU. It is found in NIRC • General/Revenue – it is for the purpose of raising revenue • Progressive – as the tax base increases, tax rate increases
When does deficiency arise? • A return was filed but paid less than the amount tax due • A return was filed but did not pay any tax • No return was filed, therefore, no tax was paid When there is fraud employed, will that result to deficiency or delinquency? Delinquency Common requirement for certification that estate tax has been paid, what are the instances? • Before a judge could authorize the executor or administrator to deliver a distributive share to any party interested in the estate • Before the registry of deeds register in the registry of property any document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance. • Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in
When the donee or beneficiary is stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts. Why is it when it comes to strangers, the tax rate is 30%? The increased rate to 30% in effect discourages donations to stranger conversely the tax code 19
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC encourages donations to family members or relatives
The withholding agents are: • Candidates; • Political parties; and • Individuals or juridical persons who give political contributions to candidates and political parties.
Who is a stranger? For the purpose of this tax, a "stranger", is a person who is not a: (1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral line within the fourth degree of relationship. (3) Donation made between business organizations and (4) those made between an individual and a business organization
Commentaries The new tax law is anti-democratic and violates the people's right to free expression. [Financially] Supporting candidates, this is not just part of the electoral process, it's part of the right of free expression. Increasing the burden on our citizens, which makes it difficult for them to participate in the electoral process, is antidemocratic
A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger.
Senator Pia S. Cayetano today called on the Bureau of Internal Revenue (BIR) to defer its order to impose a five percent tax on political campaign contributions, a move which she branded as "unconstitutional" and an "unjust exaction on the legitimate exercise of democracy."
How about an uncle/aunt? Donation made in favor of a relative not a stranger because they are relatives by consanguinity in the collateral line within the fourth degree of relationship Why are political contributions not subject to donor’s tax? Because, if we maintain the rule that donations given to political party, coalition or candidates to be subject to donor’s tax, based on moral grounds that such tax discriminates against "struggling candidates and political parties."
"The Constitution (Sec.24, Art. VI) mandates that all tax measures shall originate exclusively from the House of Representatives, to which the Senate can concur or propose amendments. Without a clear-cut law approved by Congress, where did the BIR base its new poll tax?" asked Cayetano, Chairperson of the Senate Committee on Social Justice. Moreover, she noted that under RA 7166 (An Act providing for synchronized national and local elections and for electoral reforms), electoral contributions are not subject to the payment of any gift tax.
Current Events 5% tax on political campaign distribution Based on the recently issued revenue regulation by the BIR, candidates, political parties and contributors are required to withhold a 5% withholding tax on their campaign expenses and contributions.
Is the right or privilege to receive donation subject to tax? Only the right or privilege to transfer donation is subject to DONOR’S TAX. The right or privilege to receive donation subject to tax is NOT also subject to income tax because it is one of the exclusions in the gross income.
Payment of proper taxes by candidates during election campaign is viewed as a civic duty. RR 8-09 declares that the candidates have the civic duty of assisting in nation building which can be attained with them being involved in complying with their tax obligations.
Perfection of donation inter vivos The contract of donation inter vivos is perfected upon knowledge of the donor of the acceptance of the donee. Such contract is consensual in nature.
RR 8-09 imposes a 5% withholding tax on election campaign-related goods and services including advertisements. Briefly, in a withholding tax system, taxes are collected by the BIR through a withholding agent. A portion of the amount paid to the seller of goods or services is withheld by the designated withholding agent. The amount withheld is later turned-over by the withholding agent to the BIR.
Formalities of donation • Personal property o Either by oral or in writing 20
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC transfer of any right or interest in property, but less than title
If the value of the personal property exceeds Php 5000.00, the donation and acceptance must be in writing Real Property o Must be in a Public Instrument o
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Where property, other than a real property that has been subjected to the final capital gains tax, what is this real properties? Those properties considered as capital assets. Capital assets are those not included in ordinary assets such ash Stock in trade or inventoriable properties, properties in the ordinary course of business, properties used in business and real property used in trade or business. For purposes of our topic in donor’s tax, it must be real property
When does donation inter vivos subject to donor’s tax? Upon perfection or upon delivery of the subject of donation? Upon delivery What are the requisites for a gift to be taxable? • Capacity of donor to donate • Donative intent • Acceptance by the donee • Actual or constructive delivery of the gift
What are examples of real property Capital assets? Sale of a building or parcel of land by a real estate dealer
Donative intent is a requisite, what is the exception? If the donation is indirect
Is an invalid donation intervivos subject to donor’s tax? No, there is nothing to tax because there is no donation to speak of
Is there a concept of presumed donation under the civil code? None
Can that be subject to other forms of tax? Yes, income tax. It may be a form of an income. Basis: Gross income means all income derived from whatever source
What are the transfers subject to donor’s tax? • The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. • Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor’s tax • General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. • Where property, other than a real property that has been subjected to the final capital gains tax, 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 at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. • Transfer subject to donor’s tax include not only transfer of ownership in the fullest sense but also
What is an example of invalid donation? No acceptance by the donee The transfer is in trust or otherwise, what does it mean? Such trust amounting to donation Sabi ni Allen: if the trustor gives certain control over the property held in trust in favor of the trustee What is an example of indirect donation? Condonation of a debt Renunciation of inheritance MAY or MAY NOT subject to donor’s tax • It is NOT subject to donor’s tax if it is a general renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent • It is subject to Donor’s tax if it is specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate Exempt donations: (1) Contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes 21
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC (2) Gifts made by resident (1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first Ten thousand pesos (P10,000): (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and (3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation (3) Gifts made by non-residents (1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government. (2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. (4) Exemptions under special law (1) Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines
(2) (3) (4) (5) (6) (7) (8) (9)
Development Academy of the Philippines Integrated Bar of the Philippines International Rice Research Institute National Social Action Council Ramon Magsaysay Foundation Philippine Inventor’s Commission Philippine American Cultural Foundation Task Force on Human Settlement on the donation of equipment, materials and services 5 reasons why there is a need to know whether the donor is a resident and nonresident? (1) Gifts made by resident includes properties wherever situated (within and outside the Philippines). As to non resident only those situated in the Philippines (2) There are only 2 properties that are exempted in favor of a non-resident donor. 3 properties for resident donor o Exempt donations made by resident Dowries or gifts made on account of marriage Gifts made to or for the use of the National Government or any entity created by any of its agencies Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization o Exempt donations made by non-resident Gifts made to or for the use of the National Government or any entity created by any of its agencies Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization (3) As to claim for donor’s tax credit: only resident donors may claim for donor’s tax credit. A donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country. (4) Where to file such tax return o Resident: Revenue District Office Accredited Agent Bank Collection Officer 22
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC duly authorized Treasurer of the city or municipality where the decedent was domiciled o Non resident: Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or Office of the Commissioner. (5) Application of reciprocity clause. Requisites: o The foreign country of which the donor is a citizen and resident at the time of the gift Did not impose a donor’s tax Allowed a similar exemption from donor’s tax with respect to intangible personal property owned by Filipino citizens not residing in that foreign country o The property is an intangible o The donor is a non-resident
o
o o
any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government Not necessarily for public use
What are the entities or agencies not conducted for profit that forms part of the national government? • charitable institution, • accredited nongovernment organization, • Religious Institutions • trust foundations • Educational institutions • research institution or organization • cultural foundations • philanthropic organization • social welfare corporations What are the requisites for the exemption of gifts made to the entities or agencies not conducted for profit that forms part of the national government? • Donee is incorporated as a non-stock, non-profit entity • Governed by trustees • Trustees receive no compensation • Donee devotes all its income for the accomplishment of furtherance and promotion of the purposes or end enumerated in the AOI • Not more than 30% of the donation is used for administrative purposes
Exempt donations made by resident: Dowries or gifts made on account of marriage. Requisites: • gifts made on account of marriage • gifts is given before its celebration or within one year thereafter • donor is the parents or both parents • donee is the legitimate, recognized natural, or adopted children • amount of gift should not exceed php 10,000.00 does it matter whether the gift comes from exclusive property of the spouses, conjugal partnership or absolute community? • If the gift was from exclusive property both spouses as individual can claim exemption Php10,000.00 each • If the gift was from conjugal partnership or absolute community both spouses can claim exemption of Php10,000.00 or Php 5000 each
A gift that is incomplete because of reserved powers, becomes complete when either: (1) the donor renounces the power; or (2) his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition, other than because of the donor’s death
Distinction between transfer for public use under section 86 and donation intervivos under section 101 A item 2? • section 86 o The amount of all the bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or o any political subdivision thereof o entity created by any of its agencies which is not conducted for profit IS NOT INCLUDED o exclusively public purposes • section 101 A item 2 o Gifts made to or for the use of the National Government or
Deductions from donor’s tax • encumbrance on the property donated, if assumed by the donee • amount specifically provided by the donor as a diminution of the property donated filing of tax return? Within thirty days (30) after the date the gift (donation) is made Who is oblige to file tax return? Any person making a donation Amount exempt? Php100,000.00 23
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Does that mean that the obligation to pay tax can be transferred to another? Is that not violative of the rule that the obligation to pay tax is personal in character and therefore it cannot be delegated or transferred? In the case of Maceda v. Macaraig wherein the Court said, it is transferred or shifted not as a tax but as part of the purchase price. That is why there is no violation of the rule. That is the trouble with Section 105, it did not expound on that. You have to return to jurisprudence. The burden is transferred not as a tax but as part of the purchase price
FINALS VALUE-ADDED TAX Under the NIRC as amended, there are 11 provisions governing this law on VAT from Section 105-115. What do you mean by VAT? -VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, exchange or lease of goods or properties and rendition of services in the course of trade or business, or the importation of goods. It is an indirect tax which may be shifted to the buyer,transferee, or lessee of the goods, properties, or services but the party directly liable for the payment of the tax is the seller.
If the transferee is tax-exempt, can he invoke such an exemption, such that the tax should not be transferred to him? Can one who is exempt from taxation prevent or avoid the transfer of such burden, invoking one’s exemption privilege?
What are the characteristics of VAT? • Indirect tax • Excise tax • Percentage tax • Ad valorem tax • National • Revenue or for general purposes • Regressive
Is VAT imposed on the buyer/transferee? One cannot invoke one’s exemption privilege to avoid the passing on or shifting of VAT by the manufacture of the goods he purchased. What does that mean? 1. Meralco v Vera 67 s 351 2. Commissioner v PLDT 478 s 61 3. Acetylene Corporation 20 s 1056 4. BIR Ruling 91-151
It is not a property tax, it is not a capitation tax, it’s an excise tax.
The reason for this according to the cases decided by the SC, is that once the tax is shifted to the buyer as an addition to the cost of goods sold, it is no longer a tax, but an additional cost which the purchaser must pay in order to obtain the goods. Technically there is no such transfer of tax, because as an addition to the cost of goods sold, it ceases to be a tax, but an additional cost.
Why? How do you define an excise tax? It is one that is imposed on the exercise of a right or privilege Apply that to VAT. VAT is an excise tax because it is a tax on the privilege of a person to sell, barter, exchange, lease goods or properties, render service in the course of trade or business, and import goods.
If the seller is tax-exempt, will such an exemption be invoked by the buyer? No, because such an exemption is personal to the seller
The most important characteristic is that it is an indirect tax, not a direct tax. What is the legal basis? Section 105, second paragraph “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. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA No. 7716.”
landmark cases on VAT 1. Tolentino v Sec of Finance 2. Abakada Guro v Ermita What is that constitutional provision which has been the basis for such decision of the court in the case of Tolentino et al v Sec of Finance? Article VI, Section 24: “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 24
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Representatives, but the Senate may propose or concur with amendments.”
Can you apply the principle of qualified agency in political law? No. In making his recommendation to the President, the Secretary of Finance is not acting as an alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect.
There are 3 cases on VAT: 1. Kapatiran vs Tan 2. Tolentino et al vs Sec of Finance 3. Abakada Guro vs. Ermita RA 7716: Expanded Value Added Tax Law was challenged on the ground that it is violative of Article VI Section 24. The court ruled that it is not violative of Article VI, Section 24.
In the case of Kapatiran vs. Tan, the petitioner questioned the validity of the first VAT Law (EO 273) on the ground that it is violative of due process clause and equal protection clause of the Constitution. How did the Court pass upon such issues?
The majority view advanced 2 reasons: 1. Under the Constitution, the Senate has the power not only to concur amendments but to propose amendments. It can make its own version. 2. Co-equality of legislative powers
What were the bases for such assertion or claim that EO 273 imposes arbitrary tax. The petitioner relied on what? The petitioner relied on newspaper opinions, newspaper clippings and reviews
Is there a violation of that? That the House version must be substantially the same as the tax statute. So will there be a violation of co-equality of legislative powers?
Do these proofs have evidentiary value? No. They are actually hearsay and have no evidentiary value. They are highly speculative.
In Abakada Guro vs Ermita, what is the main issue raised in the consolidated petitions? Whether or not the increase of VAT rate from 10% to 12% effective January 1, 2005 constitutes undue delegation of legislative power
What is the requisite proof of arbitrariness? How do you prove that such particular tax is indeed arbitrary, excessive and confiscatory and therefore violate the due process clause under the Constitution? “To justify a nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication.”
Based on RA 9337, who has the power to increase such VAT rate? The President
It is settled in this case that VAT is not an arbitrary, confiscatory and excessive tax, therefore there is no violation of due process.
According to the petitioners, there is a violation of undue delegation of legislative power to the President. SC ruled that there is no such violation because: 1. The two tests of permissible delegation are complied with: a. Completeness Test b. Sufficient Standards Test 2. No discretion would be exercised by the President. The use of the word “shall” connotes a mandatory order. Thus it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by the Congress
Do you know of a case wherein the SC declared a tax as arbitrary, confiscatory, excessive and unjust? Reyes vs Almanzor --The Court declared tax assessment as unjust, oppressive, arbitrary and confiscatory. SC held that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to confiscation of property. The appraisal and assessment of real property for taxation purposes is that the property must be “appraised at its current and fair market value”.
Who will make such recommendation? The Secretary of Finance
25
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being course of trade or business.
TAX2 (9) Art VI Section 28, paragraph 1, second sentence: The Congress shall evolve a progressive system of taxation. How did the Court construe such constitutional provision in the case of Tolentino et al vs Secretary of Finance? The mandate of Congress in not to prescribe, but to evolve a progressive system of taxation.
Are all sales of goods or properties, subject to VAT? No, only those made in the course of trade or business. What are the prerequisites to be “in the course of trade or business”? • Economic activity o Except: Gross receipts not exceeding P100,000 • Regularity o Except: Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business
“Evolve” means that it is a mere directive to Congress. It is not mandatory. Since it is a mere directive, it does not involve or entail justiciable right or a legally enforceable one. In other words, we cannot minimize the imposition of regressive tax. “The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxation’. The constitutional provision has been interpreted to mean simply that ‘direct taxes are to be preferred and as much as possible, indirect taxes should be minimized.’ Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers’ ability to pay.”
SEC. 4.105-3. Meaning of “In the Course of Trade or Business”. – The term “in the course of trade or business” means the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit 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. Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business, even if the performance of services is not regular. (rev reg 16-2005)
A is engaged in the business of buy and sell of real estate. Within a period of 2 months, he made only one transaction. Does that comply with the requisite of regularity? Yes
We cannot avoid the imposition of VAT. If we do not impose VAT, what would be the effect of the same? The government will not have enough revenues since VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange or lease of goods or properties and rendition of services in the course of trade or business, or the importation of goods.
What is the determinative test of regularity? What does “economic activity” imply? It implies that it is conducted for profit Are all sales of services subject to VAT? No, because services must be made in the course of trade or business
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) imposed in Sections 106 to 108 of this Code.
What about lease of property? It must also be made in the course of trade or 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. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.
Barter or exchange? It must also be in the course of trade or business
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.
Contract of Sale Contract whereby one party obligates himself to transfer ownership or to deliver a determinate thing and the other to pay therefore a price certain in money or its equivalent 26
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What are the distinctions between tax-exempt transactions and zero-rated transactions?
Are sales subject to VAT limited only to sales as defined under the Civil Code? The meaning of sale has been extended to include the “deemed sale” transactions
EXEMPT ZERO-RATED Nature of transaction Not taxable; removes Transaction is taxable for VAT at the exempt stage VAT purposes although the tax levied is 0% By whom made Need not be VAT- Made by a VATregistered person registered person Tax credit/ Refund Cannot avail of tax credit Can claim or enjoy tax or refund. Thus, may credit/refund result in increased prices
Barter or Exchange contract by which one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing. Contract of Lease contract by which one of the parties agrees to give to the other for a fixed time and price, the use or profit of a thing, or of his service. Are all importations of goods subject to VAT? Yes
May a non VAT-registered person avail of this creditable input tax? No, he must be a VAT-registered person
What is meant by importation? When does it begin and when does it end? It is defined under Tariff and Customs Code
One of the salient features of VAT system is the tax credit method. It is exemplified in Section 110. Explain the tax credit method.
What is the difference between importation and exportation? What is the importance in determining whether it is an imported article/good or an exported article/good for purposes of VAT? As to tax treatment, where lies the difference? Export sales are not subject to VAT
Before, the method we adopted is Cost deduction method. That was before 1988, before the effectivity of EO 273. Now, we changed to Tax credit method.
How does this law on VAT treat such export sale? It depends. It may be tax-exempt or it may be zeropercent.
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
TAX2 (10)
(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. (1) 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.
When is it tax-exempt? When is it zero-percent? In the case of importation of goods, does it matter whether it is for business or for personal use? No What about export sale? 1. Export sale is tax-exempt when the seller is non VAT-registered person (Section 109) 2. Export sale is subject to zero-percent tax if the seller is VAT-registered person
The term "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 27
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price.
(2) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and subsequently returned or for which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given. (3) Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall, by rules and regulations prescribed by the Secretary of Finance, determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under Subsection (B) hereof, or where the gross selling price is unreasonably lower than the actual market value.
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. - The term "export sales" means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (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); (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws.
Section 106, as amended by RA 9337: Sales of goods or properties subject to VAT. What will be the subject of that sale subject to value added tax? All sales of goods or properties. Goods or properties are defined therein. What is the definition? All tangible and intangible objects which are capable of pecuniary estimation and shall include: a.
(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
b.
(c) 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.
c.
(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; (2) Distribution or transfer to: (a) Shareholders or investors as share in the profits of the VAT-registered persons; or (b) Creditors in payment of debt; (3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and (4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
d. e.
Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; 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; The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment; The right or the privilege to use motion picture films, films, tapes and discs; and Radio, television, satellite transmission and cable television time.
Letter A refers to tangible, immovable properties. B, C, D, E are intangible personal properties. In real property primarily held for sale to customers in the ordinary course of trade or business, recall your knowledge of tax1. In so far as income tax is concerned, what is the tax treatment of this? This is mentioned in Section 31. Is that an ordinary asset or a capital asset? Ordinary asset.
(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection (A) of this Section 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 VATregistered person changes or is terminated.
It’s one of the 4 exclusive kinds of ordinary assets. So what is the tax implication under the law on income? Is the gain or income derived from such real properties subject to income tax? Yes.
(D) Determination of the Tax. (1) The tax shall be computed by multiplying the total amount indicated in the invoice by one-eleventh (1/11). 28
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC take place when VAT-registered person withdraws goods from his business for his personal use;
Here it is subject to VAT. Does that amount to double taxation? Yes. It is indirect double taxation in the sense that the same property is taxed twice for a different purpose. Moreover, the nature of the tax is also different.
(2) Distribution or transfer to: i. Shareholders or investors share in the profits of VAT-registered person; Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of retained earnings on or after January 1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or fair market value at the time of distribution, whichever is applicable.
If one of the requisites of direct taxation is absent, that may constitute indirect double taxation. The enumeration is not exclusive. B, C, D, and E are intangible assets. It does not mention any tangible personal property. What may be an example of sale of tangible personal property subject to VAT? sale of motor vehicles, furniture and fixtures,
ii. Creditors in payment of debt or obligation. (3) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. Consigned goods returned by the consignee within the 60-day period are not deemed sold;
(Re: Grocery items. Not all grocery items are subject to VAT. They may belong to those exempt.)
(4) Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor. The following circumstances shall, among others, give rise to transactions “deemed sale” for purposes of this Section; i. Change of ownership of the business. There is a change in the ownership of the business when a single proprietorship incorporates; or the proprietor of a single proprietorship sells his entire business.
What may be a specific example of real property? Land. What is the condition? The sale of land or real property must be made in the usual course of trade or business. Other than land, what else? Buildings. What about machinery? It depends. Art. 415 of the Civil Code provides that the following are immovable property: xxx (5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; xxx
ii. Dissolution of a partnership and creation of a new partnership which takes over the business. (rev reg 16-2005)
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; Can you give an example? (Ex. of person reciting: Manufacturer of sugar who held 5 sacks of sugar in his residence intended for his personal use.)
Should the machinery be permanently attached to the ground? There is no such word as “permanent”.
Is there really an actual sale? No. Since the manufacturer is the owner of the sugar.
Deemed sale transactions. Here, there is no actual sale involved. So by fiction of law, there is a sale. What are these?
Is that not arbitrary? There is no actual sale but he is subject to value added tax? No.
SEC. 4.106-7. Transactions Deemed Sale. – (a) The following transactions shall be “deemed sale” pursuant to Sec. 106 (B) of the Tax Code: (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. Transfer of goods or properties not in the course of business can 29
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Apply what you learned in tax1. When congress passed a law imposing tax on a particular subject, ________ question the wisdom, motive behind the same. What is that?
Pays or is obligated to pay. There must be a difference between that, where lies the difference? “pay in installment”
2. The distribution or transfer to: a. Shareholders or investors as share in the profits of the VAT-registered persons;
Does that mean that conditional sale is subject to value added tax? Payment in installment, is that not the situation? Sale of real estate the price of which is payable in installment. Yes.
Under Revenue Regulation 16-2005, that may amount to what? When goods are transferred or distributed to investors by the transferor-corporation, it partakes of the nature of a property dividend. There is no actual sale. When the investor made that investment, he is after such dividend or profits made in cash or in kind. In lieu of cash, he is given goods or property.
When will that occur? Imported articles are subject to excise tax.
b. Creditors in payment of debt.
Excise tax is mentioned in Section 129. Read Section 129.
Under the Civil Code, that may amount to what? Article 1245: Dacion en pago (Dation in payment) In lieu of cash, goods are transferred to the creditors in payment of debt.
(The following are subject to excise tax under Sec. 129)
What are those taxes which may form part of the gross selling price based on the definition? Excise taxes. The property which the seller will sell has already been subjected to excise tax so you include that in the gross selling price.
1. Goods manufactured or produced in the Philippines for domestic sale or consumption; 2. Things imported.
Deemed sale transactions: What is the tax base for the 12% VAT? Depends, Market value of the goods or acquisition cost
3. Consignment of goods if actual sale is no made within 60 days following the date such goods were consigned. IF after the 60 day period, no actual sale took place. is that subject to VAT? Yes. Because the transaction is already deemed sale.
Sec. 4 106-7 (rev reg 2005) For transactions deemed sale, the output tax shall be based on the market value of the goods deemed sold as of the time of the occurrence of the transactions enumerated in Sec. 4.106-7(a)(1),(2), and (3) of these Regulations.
What are you supposed to do to avoid payment of the VAT? Withdraw the goods from the consignment. 4. Retirement from or cessation of business with respect to inventories of taxable goods existing as of such retirement or cessation.
However, in the case of retirement or cessation of business, the tax base shall be the acquisition cost or the current market price of the goods or properties, whichever is lower.
Revenue Regulation 16-2005 prescribes the tax base. We have a problem about actual sale. It’s the gross selling price. What is meant by gross selling price? Gross selling price – 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.
In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual market value shall be the tax base. When the seller transfers his goods in the ordinary course of trade or business, goods for sale to his residence for his personal consumption, what is the basis of the 12%? There is no actual sale so the basis is not the Gross selling price but is the Market value of the goods.
Total amount of money or its equivalent, what does that mean? Must that always be in cash? No. It may also be in kind or property. That’s why we have this exchange or barter. 30
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC rating, such as local sales of goods and properties to persons or entities covered under pars. (a) no. (3) - (sale to export-oriented enterprises), (a) no. (6) - (sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations), (b) (Foreign Currency Denominated Sale) and (c) (Sales to Tax-Exempt Persons or Entities) of the preceding section.
Re: Retirement from or cessation of business with respect to inventories of taxable goods existing as of such retirement or cessation. Revenue Regulation 16-2005 gave two examples of this, what are these examples? 1. Dissolution of partnership and formation of new partnership; 2. Change of ownership
Except for Export Sale under Sec. 4.106-5(a) and Foreign Currency Denominated Sale under Sec. 4.106-5(b), other cases of zero-rated sales shall require prior application with the appropriate BIR office for effective zerorating. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to effectively implement the processing of applications for effective zerorating.
These goods forming part of the inventory, what is the tax base? Acquisition cost. Compare that with the current market price. Which ever is higher or lower? Whichever is lower.
Zero-rated sales, what are these? 1. Export sales 2. Foreign currency denominated sales 3. Effectively zero-rated sales
SEC. 106 A(2) NIRC (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. - The term "export sales" means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (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); (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. (b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (c) 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.
Under Export sales, that may cover what? What is the meaning of export sales? It is not confined to the ordinary meaning of export sales or the shipment of goods from the Philippines to the other country. 1. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the Bangko Sentral ng Pilipinas; 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); 3. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; Where do you apply the 70%? On the total annual production. 4. 5.
SEC. 4.106-6. Meaning of the Term “Effectively Zero-rated Sale of Goods and Properties”. – The term “effectively zero-rated sale of goods and properties” shall refer to the local sale of goods and properties by a VATregistered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. Under these Regulations, transactions which, although not involving actual export, are considered as “constructive export” shall be entitled to the benefit of zero-
6.
31
Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations.
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC if it is made by a non-vat registered person, applying section 109.
What is this concept of this Foreign Currency Denominated Sale? This is also known as internal export. Where the sale to a non-resident of goods, except those mentioned in Sections 149 – 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
What is advantage in terms of tax benefit of this zero-rated transaction over than exempt export sale? For transactions imposed with 0%, the taxpayer may be granted refund or tax credit such input tax from the output tax, while in transactions which are taxexempt, there is no input tax which may be credited from the output tax.
The goods are brought back. Can you explain that? Who may be the seller, who may be the buyer? What are the goods that may be covered by this? Seller is a resident. Buyer is a non-resident. Such goods to be sold are manufactured or assembled in the Philippines to be sold to a non-resident, who will deliver the goods to a resident, which is why it is an internal export. The goods are exported back to the Philippines.
Because it is clear here that only the vat registered persons may claim the so-called creditable input taxes. Section 107 speaks of importation. What is importation? Where can you find the meaning of importation? When does it begin, when does it end? Section 1202, Tariff and Customs Code: 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.
See section 149 and 150. What are those effectively zero-rated sales of goods under special law or international agreement? Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA) under special laws, and Asian Development Bank (ADB), and International Rice Research Institute (IRRI) under international agreements. RA 273, RA 7616, RA 8241, RA 9337
It is clear under section 107 that imported articles are subject to customs duties. Again, the concept of indirect double taxation comes into play.
What is the reason behind the imposition of 0% VAT? To encourage export activities or sales increase in revenue and if there will be more export sales, the government will receive consequential benefit, which is the increase of our dollar reserve which we need to pay off foreign dates.
What may be the tax base? It depends on whether it is based on volume or quantity or not. If it is not based on volume or quantity, it is based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise tax, if any, and other charges such as postage, commission, and similar charges, prior to the release of the goods from customs custody.
What is the advantage of the imposition of 0% over transactions which are tax-exempt? For transactions imposed with 0%, the taxpayer may be granted refund or tax credit such input tax from the output tax, while in transactions which are taxexempt, there is no input tax which may be credited from the output tax.
In case the valuation used by the Bureau of Customs is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. If the goods imported are subject to excise tax, the excise tax shall form part of the tax base.
What is that export sale that is exempt? Export sales by a non-vat registered person (section 109)
What is the total value used by the Bureau of Customs (Bar question 2008)? Before it is based on Home (?) Consumption Value. It has been changed to Transaction Value.
When is export sale zero-rated, when is it tax-exempt? It is zero-rated if the transaction is made by a vatregistered person, applying Section 106. It is exempt 32
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Are excise taxes included? Yes.
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;
What are these articles that are subject to excise tax? The importation of the same may also be subject to VAT? Sections 133 – 155 of the NIRC. Section 107, item B, what is this situation contemplated therein? Transfer of goods by tax exempt persons. – In case of tax-free importation of goods into the Philippines by persons , entities, agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered importers thereof, who shall be liable for any internal revenue tax on such importation. There lies the importance of knowing those importations which are exempt under section 109. Applying that rule, the importers of these goods are exempt but once these goods are subsequently sold or transferred, the purchasers, transferees or recipients shall be the one to pay the tax on these goods. Tax dues, what may comprise this? Customs duties, other charges, Does that include value added tax? What are the exempt importations? 1. importation of agricultural and marine food products in their original state, livestock and poultry of or king generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor; 2.
3.
4.
5.
Importation by agricultural cooperatives authorized by the Cooperative Development Authority 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;
6.
Importation 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;
7.
Importation of passenger or cargo vessels and aircraft, including engine, equipment and spare arts thereof for domestic or international transport operations; and
8.
Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations.
What about importation of copra? Yes, importation is exempt under Section 109(a) second paragraph. Is that an agricultural food product? No.
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;
It seems that it is misplaced provision. If you read the first paragraph of the first exemption, it covers agricultural food product.
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;
TAX2 (11) SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
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
The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; 33
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC lessors or distributors of cinematographic films; persons engaged in milling processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire another domestic common carriers by land, air and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include: (1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret formula or process, goodwill, trademark, trade brand or other like property or right; (2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment; (3) The supply of scientific, technical, industrial or commercial knowledge or information; (4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3); (5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person. (6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; (7) The lease of motion picture films, films, tapes and discs; and (8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
5. 6. 7.
8.
9. 10. 11.
12.
13. 14.
15.
16.
lessors or distributors of cinematographic films; persons engaged in millings, processing, manufacturing, or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes, and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common cariers by land relative to their transport of cargoes; common carriers by air and sea relative to their support of passengers, goods, or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by generation companies; services of franchise grantees of electric utilities, telephone, telegraph, radio and television and all other franchise except under SEC 119 of NIRC.; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless whether or not performance thereof calls for the exercise or use of physical or mental faculties.
Let’s focus regarding transportation of goods and cargoes. When is it subject to 12% VAT and when is it 0%? Bear in mind that such transportation by land, sea and air---consider that. There are two factors you have to consider 1.) whether it is of passengers or cargoes and 2.) whether by land, sea or air of transportation. • If it involves domestic transport of passengers by land that is subject to percentage tax and thus if it is subject to percentage tax it is exempted from VAT. • If it involve transport of passengers or cargoes by sea or water or air is subject to VAT • If it involves international transport of passengers and/or cargoes by air or by sea, it is subject to 0% (international transport not domestic)
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines. 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 value-added tax.
What are those transactions involving sales of services subject to 12% VAT? “Performance of all kinds of services in the Phil for others for a fee, remuneration or consideration” This emphasizes the Tax Situs of VAT which includes the following: 1. Construction and service contractors 2. Stock, Real Estate, Commercial, customs and immigration brokers; 3. lessors of property, whether personal or real; 4. warehousing services;
Franchise holders, when is it subject to 12% or when is it tax exempt because it is subject to percentage tax?---consider the gross receipt, the 10M threshold amount. Sec.109 • Services of franchise grantees of telephone and telegraph, radio and/or television broadcasting, toll road operations and all other franchise grantees, except gas and water utilities, shall be subject to VAT 34
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC
•
in lieu of franchise tax, pursuant to Sec. 20 of RA No.7716, as amended. Gross Receipts is above P10,000,000.00 Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00) shall not be subject to VAT,
Radio, television, satellite transmission and cable television time.
What about insurance companies? Non-life insurance companies including surety, fidelity, indemnity and bonding companies are subject to VAT. They are not liable to the payment of the premium tax under Sec. 123 of the Tax Code.
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Insurance on human lives, health, accident and insurance appertaining thereto or connected therewith which shall be subject to the percentage tax under Sec. 123 of the Tax Code. Hence VAT exempt Similar services regardless whether or not performance thereof calls for the exercise or use of physical or mental faculties, ---meaning the enumeration is not exclusive. What are some examples? Barbershop, car services, beauty parlor, salon
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Comparison between sec 106 and 108 106 Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; 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;
The lease or the use of, or the right to use, radio, television, satellite transmission and cable television time. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof; The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person;
108
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The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
Tax Base is Gross Selling Price
Tax Base is Gross Receipts
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The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
The right or the privilege to use any industrial commercial or scientific equipment;
The lease or the use of, or the right to use any industrial, commercial or scientific equipment;
The right or the privilege to use motion picture films, films, tapes and discs;
The lease of motion picture films, films, tapes, and discs;
“Gross receipts” refers to 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 applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding VAT. Gross receipt does not only constitute actual receipt but also constructively receipt. 35
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Example of constructively receipt? “Constructive receipt” occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts: (1) deposit in banks which are made available to the seller of services without restrictions; (2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and (3) transfer of the amounts retained by the payor to the account of the contractor.
6.) transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; 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. TAX2 (12) Sec 109---Exempt Transaction This is categorized into four I. Sales of Goods and Properties:
Services performed or to be performed, what does it imply? • “services performed” may refer to that amount actually received; • “services to be performed” may account for advance deposit
a.
sales of agricultural product 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 material therefor and copra.
You should exclude VAT in Gross receipts 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 freezing, drying, salting, broiling, roasting, smoking, or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original state.
Under sec 106, there are 8 transactions which are subject to zero rated sales of properties. How about zero rated sales of services there are 7, what are these? 1.) processing, manufacturing, or repacking 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 BSP; 2.) services other than those mentioned in the preceeding paragraph rendered to a person engaged in the business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in accordance with the rules and regulations of the BSP; 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 rate; 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 70% of total annual production; 36
b.
sale of fertilizer; 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.
c.
transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. except those under PD No 529
d.
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.
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC e.
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 15,000 pesos and regardless of the aggregate capital and net surplus ratably distributed among the members.
f.
export sale by persons who are not vat-registered.
g.
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 law cost and socialized housing as defined by RA 7279, otherwisw known as Urban Development Housing Act of 1992 and other related laws, residential lot valued at 1.5M and below, house and lot and other residential dwellings valued at 2.5M and below” provided, that not later than Jan 31, 2009 and every 3 years thereafter, the amounts herein stated shall be adjusted to their present value using the Consumer Price Index, as published by NSO
h.
d.
e.
sale of books and any news paper, magazine, review or bulletin which appears at regular intervals with fix prices for subscription and sale and which is not devoted principally to the publication of paid advertisements.
i.
sale of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations.
j.
sale of goods or properties other than the transaction mentioned in the preceding paragraphs, the gross annual sale and/or receipts do not exceed the amount of 1.5M: provided, that not later than Jan 31, 2009 and every 3 years thereafter, the amount herein stated shall be adjusted to its present value using Consumer Price Index, as published by NSO.
educational services rendered by private educational institutions, duly accredited by the DEPED, CHED, TESDA and those rendered by government educational institutions. services rendered by individuals pursuant to an employer-employee relationship
f.
services rendered by regional or area headquarters established in the Philippines by multi-national 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.
g.
transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. except those under PD No 529
h.
gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority.
i.
services of banks, non-bank financial intermediaries performing quasi- banking functions, and other nonbank financial intermediaries
j.
performance of services other than the transaction mentioned in the preceding paragraphs, the gross annual sale and/or receipts do not exceed the amount of 1.5M: provided, that not later than Jan 31, 2009 and every 3 years thereafter, the amount herein stated shall be adjusted to its present value using Consumer Price Index, as published by NSO.
III. Importation: a.
sales of agricultural product 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 material therefore and copra.
II. Sale of services a.
services subject to percentage tax under title V ( par. E) * correlate this with secs 116-127
b.
Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar. ( par. F)
c.
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 freezing, drying, salting, broiling, roasting, smoking, or stripping. polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original state.
medical, dental, hospital and veterinaty services except those rendered by professionals ( par. G)
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC b.
sale of fertilizer; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds.
Distinguish VAT exempt importation from zero rated importation? • Zero Rated - Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; • Exempt - importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations.
except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered. c.
importation of personal and household effects belonging to the residents of the Philippines returning from abroad and non-resident 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.
IV. Lease a.
Lease of residential unit with a monthly rental not exceeding 10k: provided, that not later than Jan 31,2009 and every 3 years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by NSO
b.
lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof for domestic or international transport operations.
c.
lease of goods or properties other than the transaction mentioned in the preceding paragraphs, the gross annual sale and/or receipts do not exceed the amount of 1.5M: provided, that not later than Jan 31, 2009 and every 3 years thereafter, the amount herein stated shall be adjusted to its present value using Consumer Price Index, as published by NSO.
read sec 105 of the custom and tariff code d.
Importation of professional instrument 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 not for sale, barter or exchange, accompanying such persons, or arriving within 90 days before or after their arrival, upon the production of evidence satisfactory to commissioner, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide. read the Tariff and Custom Code you will see the difference.
e.
f.
g.
Item which may cover two exempt transactions involving sale of goods and sale of services? Part K of sec 109
importation, printing or publication of books and any news paper, magazine, review or bulletin which appears at regular intervals with fix prices for subscription and sale and which is not devoted principally to the publication of paid advertisements.
Item which covers sale and importation which are exempt? Percentage Tax Transaction subject to percentage tax, what is the first exempt transaction there?
importation of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof for domestic or international transport operations.
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.
importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations.
what is the last one which is exempted from percentage tax? 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) 38
Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the Local Stock Exchange. - There shall be
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 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. (B)
(C)
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%
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. 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)
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.
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.
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.
in sale of share of stocks which one is considered income tax or percentage tax? it depends whether the share of stocks is listed or not listed in the Security and Stock Exchange. If listed is subject to percentage tax; if not income tax.
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. (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
What are the transactions exempted from percentage tax? there are 12. sec 116-127 General Rule: if the transaction is subject to percentage tax it is exempted from income tax. what is the difference between VAT and percentage tax? both are considered excise tax. The transactions covered by sec 109 (v) and who is not vat-registered is subject to percentage tax what is the transaction subject to percentage tax? any person whose sales or receipt are exempt under section 109 (v) of this code from payment of VAT and who is not a VAT-registered person---sec 116
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What is that transaction involving sale of services specifically transport of passenger of sec. 108? Transportation by land
When does Input tax arise? When does output tax arise? • input tax arises from the purchase of services or goods. • output tax arises from sale of goods or properties or lease of properties
What about insurance company in relation to sec 108? May be life or non-life.
Base on 110 (a), what are the creditable taxes which may be transferred to seller of services, goods and lessor of property? • purchase of goods or lease; • materials used in the course of business; • those allowed by the laws
Which one is covered by VAT which is not because Covered by percentage tax? Services rendered by non-life is VAT exempt because it is subject to Percentage Tax What about franchise holders under sec 119 in relation to 108 when it is subject to percentage tax because it is VAT exempt? Apply the 10M threshold amount. It is subject to Percentage tax when the gross receipt of the franchise holders does not exceed 10M.
What about on the seller of services subject to VAT? Supplies Give example. Electricity
Winnings may be subject to income tax and Percentage Tax? This is subject to indirect double income taxation because it is subject to income and percentages taxes.
What are those machineries and equipment? In spa---- foot massager What about lessor of property? Is he entitled to Creditable input tax? He can claim, only to those necessary expense.
Recall the rule of imposition of income tax on tax winnings, what are those exempt tax winnings because covered of special laws? sec 24 and 30
TAX2 (13) SEC. 111. Transitional/Presumptive Input Tax Credits. -
if winnings are exempt from income tax, does it follow that they are also exempt from PT? No, the rule is that exemption is strictly construed against the taxpayer and in favor of the government.
(A) Transitional Input Tax Credits. - A person who becomes liable to valueadded tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent for eight percent (8%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.
Tax credit method what is meant by input tax? “Input tax” means the VAT due on or paid by a VATregistered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax determined in accordance with Sec. 111 of the Tax Code.
(B) Presumptive Input Tax Credits. Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to one and one-half percent (1 1/2%) 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.
what is output tax? "output tax" means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of this Code.
Public works contractors shall be allowed a presumptive input tax equivalent to one and one-half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input taxes therefrom.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC •
REV-REG 16-2005 SEC. 4.111-1. Transitional/Presumptive Input Tax Credits.-(a) Transitional Input Tax Credits on Beginning Inventories Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of P1,500,000.00 in any 12-month period, or who voluntarily register even if their turnover does not exceed P1,500,000.00 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000.00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration, on the following: (1) goods purchased for resale in their present condition; (2) materials purchased for further processing, but which have not yet undergone processing; (3) goods which have been manufactured by the taxpayer; (4) goods in process for sale; or (5) goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person.
•
Whichever is higher When he becomes liable of the VAT, there is that existing inventory of goods, materials and supplies. There were actual input taxes of these. What is the basis of that 2%? Two percent (2%) of the value of the beginning inventory on hand
The transitional input tax shall be two percent (2%) of the value of the beginning inventory on hand or actual VAT paid on such, goods, materials and supplies, whichever is higher, which amount shall be creditable against the output tax of VAT-registered person. The value allowed for income tax purposes on inventories shall be the basis for the computation of the 2% transitional input tax, excluding goods that are exempt from VAT under Sec. 109 of the Tax Code.
The Two percent (2%) of the value of the beginning inventory on hand is compared to the actual input taxes imposed on these. Is it the higher amount or the lower amount? Higher amount
The threshold amount of P1,500,000.00 shall be adjusted, not later than January 31, 2009 and every three years thereafter, to its present value using the Consumer Price Index as published by the NSO.
What is the purpose of transitional input tax? • To recover from the losses he incurred from the time he is not liable to VAT. • To offset losses he incurred from expenses which were subject to VAT • Designed to alleviate the impact of AVT on the taxpayer
(b) Presumptive Input Tax Credits 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 paragraph, 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. (rev reg 16-2005)
What about presumptive income tax? 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.
What is Transitional Input Tax? Who may be entitled to this Transitional Input Tax? • Persons who become liable to VAT as his gross sales or receipts exceeds Php 1.5M during that particular taxable year or • who voluntarily register even if their turnover does not exceed P1,500,000.00 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000.00) How do we explain the word “transitional”? what is situation contemplated therein? The person “becomes liable” because at beginning of the taxable year, the person is exempt because his gross sales or receipts do exceed Php 1.5M.
two percent (2%) of the value of the beginning inventory on hand or actual VAT paid on such, goods, materials and supplies,
Manufacturers of what? • sardines, • mackerel, • milk • refined sugar, • cooking oil and • packed noodle-based instant meals
the the tax not
How do we explain the word “presumptive”? Are there actual input taxes transferred? None, presumptive because it is by legal fiction. There is no actual input tax
How do we determine based on that provision of law, the transitional input tax? How do we apply this 2%? The transitional input tax shall be: 41
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What is the source of that? Primary agricultural products
Suppose the input tax is more than the output tax? If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax, the input tax inclusive of input tax carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output tax; Provided, That, the excess input tax shall be carried over to the succeeding quarter or quarters; Provided, however, that any input tax attributable to zero-rated sales by a VAT registered person may at his option be refunded or applied for a tax credit certificate which may be used in the payment of internal revenue taxes, subject to the limitations as may be provided for by law, as well as, other implementing rules. (rev-reg 16-2005, Sec. 4.110.7)
How much is the creditable? 4% of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production Sale of agricultural products, is that subject to VAT? No, that is tax exempt That’s why the law says “it is presumed” because it is exempt What is the difference between presumptive input tax and transitional input tax? In transitional Input tax, there is an actual VAT that is paid while in presumptive input tax, there is no actual VAT paid because it is exempt
What about the input tax on capital goods? Under the old provision, that would still be carried over, but such provision has been deleted
What is the rationale of Presumptive Input tax? if the seller will sell this products, he could not claim his input tax for these purchase of agricultural products because the seller has nothing to transfer because he is tax exempt
SEC. 4.110-3. Claim for Input Tax on Depreciable Goods. -- Where a VAT registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds One Million pesos (P1,000,000.00), regardless of the acquisition cost of each capital good, shall be claimed as credit against output tax in the following manner:
Suppose that transitional and presumptive input tax is withdrawn by congress is that withdrawal violative of due process? No, because it is not a vested right but a mere privilege such that the Congress can withdraw anytime
(a)
TAX2 (14) (b)
Section 112 deals with what? What are the rules laid down therein? Tax refund or tax credit When will tax refund arise?
If the estimated useful life of a capital good is five (5) years or more – The input tax shall be spread evenly over a period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the capital good is acquired. The total input taxes on purchases or importations of this type of capital goods shall be divided by 60 and the quotient will be the amount to be claimed monthly. If the estimated useful life of a capital good is less than five (5) years – The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of the capital good. The claim for input tax credit shall commence in the calendar month that the capital goods were acquired.
Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed One million pesos (P 1,000,000.00), the total input taxes will be allowable as credit against output tax in the month of acquisition; Provided, however, that the total amount of input taxes (input tax on depreciable capital goods plus other allowable input taxes) allowed to be claimed against the output tax in the quarterly VAT Returns shall be subject to the limitation prescribed under Sec. 4.110-7 of these Regulations.
What registered person is entitled to tax refund or tax credit certificate under the following cases? A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate/refund of input tax attributable to such sales. Remember that the effect of the imposition of zero percent is that there is really no VAT due.
The aggregate acquisition cost of a depreciable asset in any calendar month refers to the total price agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. Thus, an asset acquired in installment for an acquisition cost of more than P 1,000,000.00 will be subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed P 1,000,000.00.
First let’s recall again the basic formula. To arrive at VAT due or payable, output tax less input tax. SO there will be VAT due or payable if the output tax is more than the input tax. 42
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 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 of 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.
If the depreciable capital good is sold/transferred within a period of five (5) years or prior to the exhaustion of the amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred can be claimed as input tax credit during the month/quarter when the sale or transfer was made but subject to the limitation prescribed under Sec. 4.110-7 of these Regulations.
What about this zero-rated transaction? SEC. 4.112-1. Claims for Refund/Tax Credit Certificate of Input Tax. -(a) Zero-rated and Effectively Zero-rated Sales of Goods, Properties or Services A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate/refund of input tax attributable to such sales. The input tax that may be subject of the claim shall exclude the portion of input tax that has been applied against the output tax. The application should be filed within two (2) years after the close of the taxable quarter when such sales were made.
That should be filed before whom? the Commissioner of Internal Revenue Is there a period prescribed for the BIR Commissioner to render decision thereon? What are those other periods mentioned therein? There are two possible situations that may arise wherein such tax refund filed before BIR Commissioner according to Section 112(c) is given 120 days from the date of submission of complete documents filed thereon
In case of zero-rated sales under Secs. 106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)(b) and Sec. 108(B)(1) and (2) of the Tax Code, the payments for the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations.
Suppose no decision is rendered within that period or suppose no decision has been rendered, what is the remedy? In case of full or partial denial of the claim for tax credit certificate/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of said denial, otherwise the decision shall become final. However, if no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal Revenue after the one hundred twenty (120) day period from the date of submission of the application with complete documents, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120-day period.
Where the taxpayer is engaged in both zero-rated or effectively zero-rated sales and in taxable (including sales subject to final withholding VAT) or exempt sales of goods, 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, only the proportionate share of input taxes allocated to zero-rated or effectively zero-rated sales can be claimed for refund or issuance of a tax credit certificate. In the case of a person engaged in the transport of passenger and cargo by air or sea vessels from the Philippines to a foreign country, the input taxes shall be allocated ratably between his zero-rated sales and non-zero-rated sales
What may be the possible sources of this tax refund in case of zero-rated persons engaged in this zero-rated transactions? What’s the difference between tax refund and tax credit? -When a taxpayer seeks for tax refund, in effect he is asking for ___ so it entails that the taxpayer will get actual disbursement Whereas tax credit does not involve disbursement because as the word “credit” connotes, it is credited against, it is applied to other revenues.
If a decision has been rendered within that period, what is the remedy of the taxpayer assuming the decision is adverse? The taxpayer may appeal to the Court of Tax Appeals within 30 days from the receipt of the decision If no decision has been rendered within that period? (Inaction) The taxpayer may still appeal to the Court of Tax Appeals
When is there a prescriptive period? SEC. 112. Refunds or Tax Credits of Input Tax. -
What is the prescriptive period? within 30 days from the lapse of the 120 day period
(A) Zero-Rated or Effectively Zero-Rated Sales. - any VATregistered person, whose sales are zero-rated or effectively zerorated 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
*Inaction can be the subject of an appeal before the Court of Tax Appeals. This is clear under RA 9282 unlike before
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC •
Again, persons who engage in zero-rated transactions are entitled to tax refund or tax credit, as the case may be, under what situations? (Implementing Regulations 16-2005) A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate/refund of input tax attributable to such sales. The input tax that may be subject of the claim shall exclude the portion of input tax that has been applied against the output tax. The application should be filed within two (2) years after the close of the taxable quarter when such sales were made.
A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services
What are those information that must be stated therein? Section 113(B) 1. A statement that the seller is a VAT-registered person, followed by his TIN 2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided that: a. The amount of tax shall be shown as a separate item in the invoice or receipt b. If the sale is exempt from VAT, the term “VAT-exempt sale” shall be written or printed prominently on the invoice or receipt c. If the sale is subject to zero-percent (0%) VAT, the term “zero-rated sale” shall be written or printed prominently on the invoice or receipt d. If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of its sale price between its taxable, exempt and zero-rated components, and the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt and zerorated components of the sale 3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service 4. In the case of sales in the amount of P1,000 or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser, customer or client.
In case of zero-rated sales under Secs. 106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)(b) and Sec. 108(B)(1) and (2) of the Tax Code, the payments for the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations.
In this not possible that these persons engaged in zero-rated transactions will have imported goods? There is VAT on these imported goods since the tax applicable with zero percent, it is as if there is no output tax. That input tax on imported goods that is transferred to this person, can that be subject of a tax refund or tax credit as the case may be? Like output tax zero, input tax P10,000. In effect there is an excess of input tax to the output tax That can be subject of tax credit
The old rule was, the VAT is deemed included in the receipt or the price as the case may be. That is the tax-inclusive concept.
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. (B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance.
Now it is clear under Section 113 that VAT shall be indicated as a separate item so that simplifies the procedure because before, you have to multiply that by 1/11 to arrive at the VAT. This simplified the rule that can easily discern from the invoice or receipt which is now 12% What is the penalty if there is a violation of this provision under Sec 113 in that the VAT-registered person failed to indicate in the invoice or receipt those information mentioned therein? Issuance of a VAT Invoice or VAT Receipt by a non-VAT person. – If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word “VAT”, the erroneous issuance shall result to the following: (1) The non-VAT person shall be liable to: i. the percentage taxes applicable to his transactions;
What is the difference between invoice and receipt? When is it issued? A VAT registered person shall issue: • A VAT invoice for every sale, barter or exchange of goods or properties 44
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC ii.
VAT due on the transactions under Sec. 106 or 108 of the Tax Code, without the benefit of any input tax credit; and iii. a 50% surcharge under Sec. 248 (B) of the Tax Code; (2) VAT shall be recognized as an input tax credit to the purchaser under Sec. 110 of the Tax Code, provided the requisite information required under Subsection 4.113 (B) of these Regulations is shown on the invoice or receipt.
Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to 12% withholding tax at the time of payment. This has been questioned in the case of ABAKADA GURO V ERMITA in the change of the system from creditable withholding tax to final withholding tax system. What is the ruling of the court? Is there a violation of the Constitution? No, because ……..
(B) Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by a VAT-registered Person – If a VAT-registered person issues a VAT invoice or VAT official receipt for a VATexempt transaction, but fails to display prominently on the invoice or receipt the words “VAT-exempt sale”, the transaction shall become taxable and the issuer shall be liable to pay VAT thereon. The purchaser shall be entitled to claim an input tax credit on his purchase.
What do you think is the advantage of final withholding tax system over the creditable withholding tax system? This is not discussed in the Abakada case. In Tax 1, you have come across “passive investment income”, they are those items of income subject to final tax so this must be governed by final withholding tax system.
criminal offense under Section 255 if there is evidence to the effect that such non-compliance is willful and deliberate
In the case of interest income from bank deposit, the bank is the withholding agent of the government so the tax is automatically withheld, deducted and thereafter the same is remitted to the BIR. So, it’s a sure revenue to the government. The government need not wait for the filing of income tax return by these taxpayers. Now you apply that to this. The government is the buyer or purchaser, the tax is automatically withheld, the government need not wait for the filing of VAT return which is
What would be the defense of the seller in case a charge is filed by the BIR for alleged violation of Section 113 regarding information contained in VAT invoice or official receipt? Can he raise the defense of good faith? You will note there, this withholding tax system. Before, what was adopted here was creditable withholding tax system, now it has been changed to final withholding tax system. Can you explain the rule regarding this final withholding tax system in VAT? Consider the buyer or purchaser. Consider the final tax rates, which may either be 5% or 10% As a general rule, withholding tax does not apply on transactions subject to value added tax. The exceptions to this rule are: • Gross payments by the government shall be subject to the 5% final withholding tax • Gross payments by resident VAT-taxpayers to non-resident foreign persons of rentals, royalties, reinsurance premiums and services done in the Philippines – 12%
The rule before was Pay as you file, is that the prevailing rule? Filing quarterly payment monthly SEC. 114. Return and Payment of Value-Added Tax. (A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis. Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.
When do you apply 5% final withholding tax, and when do you apply 10% final withholding tax? The Government or any of its political subdivisions, instrumentalities or agencies, including governmentowned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of 5% of the gross payment thereof:
What is the reason why such rule on payment has been changed from quarterly to monthly? Do you know of system of taxation or principle that may be cited or used as a basis for such change? lifeblood doctrine
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Do you system? • • •
recall these fundamental principles of sound tax Every person who becomes liable to be registered under paragraph (1) of this subsection shall register with the RDO which has jurisdiction over the head office or branch of that person, and shall pay the annual registration fee prescribed in subsection 9.236-1(a) hereof. If he fails to register, he shall be liable to pay the output tax under Secs. 106 and/or 108 of the Tax Code as if he were a VAT-registered person, but without the benefit of input tax credits for the period in which he was not properly registered. Moreover, franchise grantees of radio and television broadcasting, whose gross annual receipt for the preceding calendar year exceeded P10,000,000.00, shall register within thirty (30) days from the end of the calendar year.
Administrative Feasibility Fiscal Adequacy Theoretical justice or equality
Which one is applicable here or may be used as basis or justification? Section 115 has not been amended by RA 9337. This refers to sanctions that may be imposed upon VAT registered persons in case of non-compliance with certain provisions under the law on VAT. What are the situations covered therein? 1. Failure to issue receipts or invoices; 2. Failure to file a value-added tax return as required under Section 114; 3. Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts for the taxable quarter. 4. Failure to register under Section 236
(c) Optional VAT Registration. — (1) Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct establishment.
What rules required to register as VAT-registered persons? When is registration required? In general. — Any person who, in the course of trade or business, sells, barters, exchanges goods or properties, or engages in the sale of services subject to VAT imposed in Secs. 106 and 108 of the Tax Code shall register with the appropriate RDO using the appropriate BIR forms and pay an annual registration fee in the amount of Five Hundred Pesos (P500) using BIR Form No. 0605 for every separate or distinct establishment or place of business (save a warehouse without sale transactions) before the start of such business and every year thereafter on or before the 31st day of January.
(2) Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended. [Sec. 109(2)] (3) Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code)
(b) Mandatory: Any person who, in the course of trade or business, sells, barters or exchanges goods or properties or engages in the sale or exchange of services shall be liable to register if: i. His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code, have exceeded One million five hundred thousand pesos (P1,500,000.00); or ii. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code, will exceed One million five hundred thousand pesos (P1,500,000.00).
Any person who elects to register under this subsections (1) and (2) above shall not be allowed to cancel his registration for the next three (3) years. The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the registration fee prescribed under sub-paragraph (a) of this Section, unless they have already paid at the 46
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration.
What must be the reason behind the imposition of this 0% tax rate? to encourage export sales that will in effect bring about more dollars that will eventually increase our dollar reserve
What is the common characteristic of those transactions covered on sale of goods, sale of services?
Is there a fee imposed under this law for such registration? Yes.
In imposing this requisite, I refer to this indispensable requisite in the course of trade or business. What does it imply? It implies that isolated transactions are not covered. This is in effect just an equitable tax system. And increasing the threshold amount to 500 to 1.5 million, what does it indicate or imply? That it is consistent with the “ability to pay” principle
Is that not violative of due process? Tolentino et al v Secretary of Finance: there is no violation of due process because…….. Is that in a form of a tax, this administrative fee, registration fee? Administrative in nature Is that an exaction in the exercise of the power of taxation? No
In exempting 31 transactions from VAT, what must be the purpose of the law?
So what is the nature of registration fee? P1000 it is merely for administrative purposes, not an exaction in the form of a tax
In expanding the coverage, the expanded value added tax or reformed value added tax law, such that those previously exempt are now taxable. What do you think would be the purpose of the law in withdrawing some of those previously exempt transactions from the enumeration of those exempt transactions?
What is the penalty or sanction? Commissioner or his authorized representative may temporarily suspend or close the business in case there is a violation of the taxpayer
Why is there a need to change the old rule from deduction method to tax credit method?
What is the extent of such power? How long? the temporary closure should not be less than 5 days
BAR QUESTIONS: Newtex International (Phils), Inc, is an American firm duly authorized to engage in business in the Philippines as a branch office. In its activity of acting as a buying agent for foreign buyers of shirts and dresses abroad and performing liaison work between its home office and the Filipino garment manufacturers and exporters, Newtex does not generate income. To finance its office expenses here, its head office abroad regularly remits to it the needed amount. To oversee its operations and manage its office here, which had been in operation for 2 years, the head office assigned three foreign personnel. Is Newtex subject to VAT? Newtex is not subject to VAT. The VAT is imposed on sellers and not to buyers. The branch office did not derive any income or compensation so as to possibly permit the imposition of a value added tax on compensation for services rendered. In addition, since the transactions are direct export sales, the VAT does not apply. Ex port sales are among those that either zero-rated or exempt from value added tax (suggested answer)
Will that amount to a statutory offense in case of failure to register of a VAT person? -…….Read again Section 255 Based on what we discussed from Section 105 to Section 115, can you now tell us by way of recapitulation, these salient features of our present VAT system? Our law on VAT imposes this indirect VAT, a form of regressive tax What about tax rates? There are 2 tax rates imposed under VAT. a. 12% b. 0% Can you expound on 0% tax rate?
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC
An alien employee of the Asian Development Bank (ADB) who is retiring soon has offered to sell his car to you, which he imported tax-free for his personal use. The privilege of exemption from tax is granted to qualified personal use under the ADB Charter, which is recognized by the tax authorities. If you decide to purchase the car, is the sale subject to tax? Explain Yes, the sale is subject to tax. Section 107B of the tax code provides that “In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation.”
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Master Transcriber Marx
ADD US IN FACEBOOK or FRIENDSTER AS A SIGN OF GRATITUDE Marx de Chavez – Mon Pasia – Jen Reyes – Angela dela Cruz – April Gerero – Soc Marbil – Jam Bermudez – Aileen Pizania – Donna Masilungan – Theena Martinez – Me-an Ayos –
Your client, United Market Cooperative, is requesting the Commissioner of Internal Revenue to exempt it from the payment of VAT on its purchases of prince commodities from food suppliers/manufacturers on the ground that it is exempt from all taxes, including VAT, under RA 6938, the Cooperative Code of the Philippines. Do you think your client can obtain the necessary exemption from the BIR? If your answer is in the affirmative, explain the basis for the grant. If your answer is in the negative, state the basis for the rejection of the request. 1. An exemption is not necessary. The VAT is not imposed on the purchaser but on the seller, except in importation of goods 2. No, the exemption to which the taxpayers are entitled to refers to those that are levied on the exempt taxpayer or directly imposed on the exempted goods. The value added tax is imposed on the sellers on the sellers of goods and services, not on the purchasers.
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ANG HINDI MAG-ADD “MAG-INGAT SA PAGTAWID”
Royal Mining is a VAT-registered domestic mining entity. One of its products is silver being sold to the Bangko Sentral ng Pilipinas. It filed a claim with the BIR for tax refund on the ground that under Section 106 of the Tax Code, sales of precious metals to the Bangko Sentral are considered export sales subject to zero-rated VAT. Is Royal Mining’s claim meritorious? Explain. No, Royal Mining’s claim is not meritorious because it is the sale of gold (and not silver) to the BSP that is considered as export sale subject to zero-rated VAT.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC In the case of COMMISSIONER VS PINEDA, the SC explained the importance or advantage of one of the administrative remedies which is the enforcement of a tax lien. It is also in that case where the SC cited the lifeblood doctrine. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need
TAX REMEDIES Tax remedies may be categorized into: • Administrative remedies • Judicial remedies These apply to both government and taxpayer.
What is now the link between the lifeblood doctrine and this availment of administrative remedy of enforcement of a tax lien. But before we come to that, we ought to know the meaning of a tax lien? What is the authoritative definition of a tax lien? It is a legal claim or charge on property, personal or real, established by law as a sort of security for the payment of tax obligations
Let’s start with remedies that may be availed by the government. What do you think may be the importance of these tax remedies insofar as the government is concerned? 1. To ensure the regular collection of revenue necessary for the existence of the government 2. In the proper pursuit of judicial and extrajudicial remedies, to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interests 3. In the application of the Statute of Limitations 4. In the establishment of tax liens 5. In estimating the revenues that may be collected by the government in the coming year.
In the case of COMMISSIONER VS PINEDA, the BIR Collector opted to avail of this administrative remedy but there was nothing that could prevent BIR from resorting to judicial remedy by filing an action in court. So, what could have prompted the BIR to resort to this administrative remedy of enforcement of tax lien? The BIR has the discretion to avail itself of the most expeditious way of collecting payment of taxes
In collecting taxes, what are the guiding principles that must be observed by the government? That taxes must be collected in accordance with law
What is the implication of such pronouncement of the court that the BIR has the necessary discretion to avail itself of the most expeditious way of collecting taxes? Because of the lifeblood doctrine?
Do you know of specific principles that must be observed by the government in the assessment collection of taxes? • Assessments are prima facie presumed correct and made in good faith • Assessments should be made on actual facts • Assessment is discretionary on the part of the Commissioner • The authority vested in the Commissioner to assess taxes may be delegated • Assessments must be directed to the right party
So what is the distinction between administrative remedies and judicial remedies? Administrative remedies require no court’s intervention, while judicial remedies require the court’s intervention Will administrative remedies always result in the speedy collection of taxes? No
There should be no arbitrariness in the collection of taxes. What does that mean? It is mandated by due process. There must be notice and hearing
What are the factors that may be considered? When is it wise, proper or judicious to avail of the administrative remedies? Judicial remedies? Consider the amount, the taxpayer, the property, whether the taxpayer is residing in the Philippines or he is abroad. In case of administrative remedy, the case of CIR VS PINEDA is a classic situation wherein the SC extend the availment of administrative remedy
Is demand a condition sine qua non for the payment of internal revenue tax? Is a prior assessment required before these internal revenue taxes may be claimed? Taxes may be collected with or without prior assessment
What is the situation that may warrant such resort to judicial remedy, meaning, it is wise that the BIR to file an action in court in lieu of availment of administrative remedy.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.
TAX2 (15) What’s the difference between an assessment and collection? • Assessment – a written notice addressed to the taxpayer containing the computation of tax liabilities and demand for payment within a prescribed period. It signals the time when penalties and interests begin to accrue against the taxpayer. It must be duly sent to and received by the taxpayer. (CIR VS. PASCOR, 304 SCRA 402) •
So what is the importance of the assessment made based on section 222? The BIR will resort to administrative or judicial remedies Items c and d of section 222: if no prior assessment is made, can the government or the BIR resort to administrative and judicial remedies? No
Collection – the act of the government in accumulating the tax due from the taxpayers.
If no prior assessment was made, can the BIR avail of administrative remedies such as enforcement of tax lien, distraint of personal properties, and levy of real properties? No. Because under Section 219 and Section 207 (A), and Section 207 (B),
Which one is considered as an action or a proceeding? Collection. Is assessment required before collection? Section 203 in relation to Section 222: It is clear therein that collection of taxes may be made even without prior assessment.
Section 207(A): Distraint of Personal Property. – Upon the failure of the person owing any delinquent tax or delinquent revenue to pay the same at the time required, xxx
SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.
Section 207(B): Levy on Real Property. – After the expiration of the time required to pay the delinquent tax or delinquent revenue xxx Section 219: Nature and Extent of Tax Lien. – If any person, corporation, partnership, joint-account, association or insurance company liable to pay an internal revenue tax, neglects to pay the same after demand xxx
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. (c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. (d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. (e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to authorize the
It presupposes that PRE-ASSESSMENT NOTICE is required. These all involve seizure of properties, what does due process require? Due process requires that, before one’s properties may be seized by the government through distraint or levy as the case may be, there must be prior notice to the property owner. What are the requisites of a valid assessment? 1. The assessment must contain the tax due and penalties and interests thereon; 2. The assessment must contain a demand for payment addressed to the taxpayer; 3. The assessment must contain the law and the facts on which the assessment is based (Section 228); 4. The assessment must be duly sent to and received by the taxpayer. (CIR vs. Pascor) Consider Section 228. What does that section 228 require? The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise the assessment shall be void. 50
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: (a) 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 (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (c) 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 (d) When the excise tax due on exciseable articles has not been paid; or (e) 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.
Section 203: The period for assessment is within 3 years after the last day prescribed by law for the filing of the return or the date when the return was filed, whichever is later. Section 222: In case of a false or fraudulent return with intent to evade tax or of failure to return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission.
When is it considered filed on the deadline fixed by the tax code? Section 203: 1. In case the return is filed BEYOND the period prescribed by law, the 3-year period shall be counted from the day the return was FILED. 2. A return filed BEFORE the last day prescribed by law for the filing thereof shall be considered FILED on SUCH LAST DAY.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.
Suppose the return was filed, let us say it was an Income Tax Return, on February 23, 2009, how do you apply the 3-year prescriptive period under Section 203? The 3-year period shall commence to run from the last day prescribed by law because it shall be considered filed on such last day, meaning April 15, 2009. (April 15 is the deadline fixed for the filing of Income Tax Return under Section 51.)
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.
From the actual filing? No.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.
Suppose it was filed after April 15. Let us say it was filed on May 14, 2009. How do you apply the 3-year period? The 3-year period shall reckon from May 14, 2009 because it was filed beyond the period prescribed by law. Hence, the period shall be counted from the day the return was filed. (Actual filing)
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.
Is assessment prescriptible or imprescriptible? It is prescriptible based on Section 203 and Section 222 of the NIRC.
Is such a rule favorable to the government or to the taxpayer? It is favorable to the government because the government can collect the tax due with corresponding penalties if in case the return was filed beyond the period prescribed by law.
So there are two applicable prescriptive periods: 3 years, under Section 203, and 10 years, under section 222. How do you apply those? Section 203: 3 years – covers tax returns which are neither false nor fraudulent.
Will that encourage the filing of tax return before or on the last day fixed by the tax code? (Transcriber’s notes: Yes, because the taxpayer will incur penalties if he does not file the tax return on or before such last day.)
Section 222: 10 years – covers fraudulent returns, false returns and failure to file a return.
How do you apply that? 3 years from what date? 10 years from what date? Is it counted from the date of actual filing of the return? No. 51
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What about the 10-year period under section 222, how do you apply it? The 10-year period shall commence after the discovery of the falsity or fraud in the return or omission to file such return.
5.
6. 7.
Bar question: Distinction between false return and fraudulent return. AZNAR VS. COMMISSIONER, 58 SCRA 519 • False return – implies a deviation from truth or fact whether intentional or not. • Fraudulent return – intentional and deceitful with the aim of evading the correct tax due.
When the warrant of distraint any levy is duly served upon the taxpayer, his authorized representative or a member of his household with sufficient discretion and no property is located (NB: this one is proper only for suspension of the period to COLLECT) When the taxpayer is out of the Philippines. When there is an answer filed by the BIR to the petition for review in the CTA (Hermanos vs. CIR) where the court justified this by saying that in the answer filed by the BIR, it prayed for the collection of taxes. (See Dimaampao book)
SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; 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 Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or 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 when the taxpayer is out of the Philippines.
Suppose the return was amended, how do you apply the 3year period under Section 203? It depends on whether the amendment is substantial or not. If the amendment is not substantial, the period shall be reckoned from the day the original return was filed. If the return was amended substantially, the period starts from the filing of the amended return. (COMMISSIONER V. PHOENIX ASSURANCE CO., LTD. 14 SCRA 52) What is an example of substantial amendment? 1. under declaration (exceeding 30% of that declared) of taxable sales, receipts or income; 2. overstatement (exceeding 30%) of deductions or expenses. (Section 248, NIRC)
What does “xxx CIR is prohibited from making the assessment or beginning distraint xxx” mean? Is the BIR or the government prohibited from collecting such unpaid internal revenue taxes? Can we restrain the collection of internal revenue taxes? Yes.
What is an example of immaterial amendment?
When will that arise, that the BIR may be enjoined from collecting internal revenue taxes? When such collection or assessment shall jeopardize the interest of the government and/or the taxpayer. In such case, the CTA at any stage of the proceedings may suspend the collection of the tax and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.
Section 203, Section 222, which provide for prescriptive periods, these prescriptive periods are suspended those grounds stated under Section 223. You ought to know those grounds that may suspend the running of the prescriptive periods. What are these grounds? 1. Where the CIR and the taxpayer agreed in writing to assessment of tax after the time prescribed, the tax may be assessed within the period so agreed upon. (Sec. 222 b) 2. Where the CIR is prohibited from making the assessment or beginning distraint or levy or a proceeding in court for 60 days thereafter, such as where there is a pending petition for review in the CTA from the decision on the protested assessment. (Republic vs. Ker & Co. 25 SCRA 208) 3. When the taxpayer requests for reinvestigation which is granted by the Commissioner. (NB: A request for reconsideration does NOT suspend the running of the period.) (Section 223) 4. When the taxpayer cannot be located in the address given by him in the return, unless he informs the CIR of any change in his address.
Which court has the authority to restrain the collection of internal revenue taxes (to your charge?)? Court of Tax Appeals Applying Section 223, what would be the effect of that injunctive relief rendered by the CA? The prescriptive period under Sections 203 and 222 shall be deemed suspended.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC In the book, there is another instance cited. What is the ruling in the case of HERMANOS VS. CIR, 29 SCRA 552? Filing of answer to taxpayer’s petition for review to the Court of Tax Appeals.
Reinvestigation must be based on newly-discovered evidence. Reconsideration is a plea. You are asking the BIR to review its ruling process, findings based on what? reconsideration. Existing records or evidence.
The enumeration under 223 is not exclusive.
It’s proper to file or request for reconsideration or reinvestigation if there is such newly discovered evidence upon which they will be based otherwise just file a request for reconsideration, which is a plea for reevaluation of the finding of the BIR based on the existing record or evidence.
It presupposes that an appeal was made before the Court of Tax Appeals. The petition for review under the provision of law RA 9282 shall be filed before the CTA. So what is that action by the BIR that will suspend the running of the prescriptive period?
In one case the Supreme Court, in your book, explained the underlying reason why its request for reinvestigation that may suspend the running of the prescriptive period that’s the point for reconsideration. 506 SCRA 524. Global communications case. 473 SCRA 205 (Case title?) If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does not file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed.
Waiver of statute of limitations, this is allowed under Section 222. How is it effected? Section 222 (b): If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.
It must be valid based on decided case or cases, the requisite of the valid waiver of the statute of limitations are as follows. Can you enumerate those requisites?
What’s the connection (erroneous assessment) with the reconsideration or reinvestigation?
Can that be waived, this statute of limitations, outside the prescriptive period? Is there a basis? Or is it an indispensable requisite? No. The waiver must be executed within the 3-year prescriptive period under section 203, otherwise said waiver shall be ineffectual.
Tax Lien How is this administrative remedy - enforcement of tax lien perfected based on Section 219? Section 219: If any person, corporation, partnership, joint account, association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, that this lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located.
Otherwise there is nothing to suspend. It is very clear under section 223 that it is the request for reinvestigation that will suspend the running of the prescriptive period that is written in your book, the decided case of Global Communications. What do you think is the difference between request for reinvestigation, that’s the one that will suspend the running of the prescriptive period, and request for reconsideration that will not suspend the running of the prescriptive period? The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers – whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescriptive period for the collection of an assessed tax. (CIR VS. PHILIPPINE GLOBAL COMMUNICATION, INC. 506 SCRA 427)
In your book I cited the case of Maritime Shipping Lines. If you recall the ruling of the court, when that such tax lien attach to the property of the delinquent taxpayer? The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. (CIR VS. NLRC, 238 SCRA 42 – MARITIME COMPANY OF THE PHILIPPINES) So what does Section 219 provide? “when the assessment Commissioner until paid” 53
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC
Will that cover real property? What would be the legal effect of such tax lien? The property shall serve as security for the tax due.
Constructive
Redemption Suppose the property of the delinquent taxpayer has been mortgaged or transferred or has been the subject of trade of institution based on judgment rendered by a court. Sec. 219: “Provided, that this lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located.”
SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the national Government for the amount of taxes, penalties and costs due thereon. Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and accounted for as internal revenue. SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the Government without the necessity of an order from a competent court.
What are the distinctions between distraint of personal property and levy on real properties? There may be six distinctions. Can you point out significant distinctions? Is there such thing as constructive levy of real property?
Document issued by the BIR Notice of sale
If the bid is not equal to the tax
Posting in public places
Posting in 2 public places; Publication for 3 weeks BIR may forfeit the property. When there is no bidder or when the highest bid is insufficient to
2
BIR may purchase and may re-sell the same. Forfeiture is not available.
There is right of redemption (sec. 214)
What is the difference now between Section 212 and Section 215? (Section) 212 applies to distraint. (Section) 215 is entitled forfeiture. Does it apply to real property? Where lies the distinction. Here, under the restrictions of the government may what? In the case of Section 215, shall be forfeited, and 212 the government may purchase. Where lies the distinction there?
Distraint and Levy
Levy Real property
of
cover the tax due. No constructive levy
Madz Montesa: Because it is violative of the due process of law since what is involved is real property, wherein there must be actual delinquency on his part before his real property may be seized by the government.
Because that will bring about the speedy collection of taxes. His remedy, once he is made to pay the entire unpaid tax liability of the estate of his deceased father is what? To seek reimbursement from his co-heirs to the extent of their proportionate shares.
Distraint Personal Property Warrant of Distraint
is
Why is there no constructive levy of real property?
If you will recall, Commissioner vs. Pineda, the tax lien was enforced against only one of the heirs. Atty. Pineda questioned that. What is the ruling of the court? The government can require Pineda to pay the full amount of the taxes assessed. As an heir, he is individually answerable for the part of the tax proportionate to the share he received from the inheritance. His liability, however, cannot exceed the amount of his share. The reason is that the government has a lien on the P2,500 received by him from the estate as his share in the inheritance for unpaid taxes for which the estate is liable, pursuant to Sec. 219.
AS to: Subject matter
There constructive distraint No Right Redemption
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall become absolute.
Authenticated Certificate of Levy
If there is no bidder in that public or auction sale involving personal property, can the government purchase the same? Section 212: When the amount bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the National Government for the amount of taxes, penalties and cost due thereon. 54
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC What are the distinctions between constructive distraint and actual distraint?
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations prescribed the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and accounted for as internal revenue.
Nature Subject matter Availability
Under 212 there are two situations under which the government may purchase through BIR. What are these? When the amount bid is: 1. not equal to the amount of the tax; or 2. is very much less than the actual market value of the articles offered for sale.
To whom made
What about 215? What are the situations? 1. When there is no bidder; or 2. When the highest bid is insufficient to cover the tax due.
How effected
How made
Do you know the meaning of forfeiture? Why can we not use that in distraint of personal property?
Effect on collection
What is the provision under Section 214 regarding the right of redemption? Within one year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said purchase price at the rate of 15% per annum from the date of purchase to the date of redemption…
Actual Constructive Summary Remedy Personal property Can only be availed of if the tax is more than P100. Delinquent TP Any taxpayer (delinquent/not) Taking of Mere prohibition possession OR from disposing the transfer of property control Leaving a list of Requiring the TP to property sign a receipt OR distrained or leaving a list of such Service of property warrant Immediate step Merely a prevention of collection on the disposition on the property
Constructive distraint: It is a preliminary remedy in what sense? In a sense that there is no taking of the property. It is merely availed of to prevent the dissipation of the property. against whom? In the case of actual distraint, it may be effected against the delinquent taxpayer.
How do you describe that redemption? Is that a conventional redemption? It is the one that applies to pacto de retro sales. How do you describe this? This is not a conventional redemption? You must have come across preemption, right of preemption which applies to co-owners. This is an example of what? Legal redemption. Because it is the law that says that this property may be redeemed.
What about constructive distraint? Is delinquency required? No. If the taxpayer is not yet delinquent, how do you effect this constructive distraint? against whom? Against the taxpayer or person in possession of the property. What are other distinctions? This can be inferred from the provision, section 206. The property, as the word connotes, constructive, is deemed under distraint. How? There is really no actual distraint of property.
So the interest there is _____ imposed, in addition to the interest on the delinquent unpaid taxes? 15%
Section 206 2nd paragraph: 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. 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 55
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 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.
Huge amount of assessment, what does that mean? An assessment is huge if the amount thereof is equal to or bigger than the net worth or equity of the taxpayer.
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.
2.
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.
When a taxpayer who is under tax investigation has a record of leaving the Philippines at least twice a year unless such trips are justified and/or connected with his business, profession or employment;
3.
When a taxpayer, other than a banking institution, who is under tax investigation has a record of transferring his bank deposits and other valuable personal property/ies from the Philippines to any foreign country;
4.
When the taxpayer uses aliases in bank accounts, other than the name for which he is legally and/or popularly known;
5.
When the taxpayer keeps bank deposits and owns other property/ies under the name of other persons, whether or not related to him, and the same are not under any lawful fiduciary or trust capacity;
6.
When a taxpayer’s big amount of undeclared income is known to the public or to the BIR by credible means and there is a strong reason to believe that the taxpayer, in the natural course of events, will have a great tendency to hide or conceal his property/ies.
What is that document that must be signed by this person in possession of the property? He is bound by that that’s why he cannot dispose of the same without express authority from the BIR commissioner. That must be in the nature of what? Must that be reduced in writing? Yes. It is in the nature of an undertaking – undertaking to preserve the property intact, unaltered, and undertaking not to dispose of the same without the express authority from the BIR Commissioner. What are the grounds under which the constructive distraint may be resorted to? Under section 206, the Commissioner, to safeguard the interest of the government, may place under constructive distraint the property of a delinquent taxpayer or any taxpayer or any taxpayer who, in his opinion is: 1. retiring from any business subject to the tax; 2. intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property; 3. intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.
**For this purpose, the term “big amount of undeclared income” means an amount exceeding 30% of the gross sales, gross receipts or gross revenue declared per return; 7.
The grounds under section 206 have been expanded by Revenue Memorandum Circular no. 5-2001 to 7 grounds. Any act which will obstruct the collection proceedings that may be made by the BIR. This covers three cases. What are these fraudulent methods, schemes or devises? 1. When a taxpayer who applies for retirement from business has a huge amount of assessment pending with the BIR.
When the BIR receives information or complaint pertaining to undeclared income in an amount exceeding 30% of gross sales, gross receipts or gross revenue declared per return of a particular taxpayer and there is enough reason to believe that the said information is correct as when the complaint or information is supported by substantial and credible evidence.
(Revenue Memorandum Circular no. 5-2001)
56
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.
TAX2 (16) LECTURE We’re still on administrative remedies that may be availed of by the government. You have to memorize those cases under which the Commissioner of the BIR can resort to the so-called Constructive Distraint (Revenue Memorandum Circular 52001). Section 206 has been implemented Memorandum Circular 5-2001.
by
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are reasonably exercised and that the government is not unduly deprived of revenues.
Revenue
COMPROMISE
It’s very clear now that the BIR Commissioner has the authority to compromise tax liabilities. You will note that it covers not only civil liability but also criminal liability. You can easily recall the grounds: 1. doubtful validity; 2. financial incapacity.
Let’s focus on the provision on Compromise (Section 204; pages 166 – 174 of Dimaampao Book). SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may (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.
You have to know this because as amended, the compromise rate insofar as these grounds regarding financial incapacity is 10%, minimum compromise rate, 40% for doubtful validity cases.
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 • For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
How do you apply that? The word is minimum. It must not be lower than 10% or 40%. More than 10% is within the bounds of the law.
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 is not allowed is to lower that to 9, 8, 7%. So 12% is within the limitation. Three revenue regulations clarified this provision.
(B) Abate or Cancel a Tax Liability, when: (1) The tax or any portion thereof appears to be unjustly or excessively assessed; or (2) The administration and collection costs involved do not justify the collection of the amount due.
Regarding this doubtful validity cases, there are now 7 situations covered by the particular ground. Financial incapacity cases, there are 5. According to Revenue Regulations 7-2001 as amended by Revenue Regulations 302002. I want you to mark, master and memorize the meaning of Jeopardy assessment.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud. (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.
Sec. 3. Basis for acceptance of Compromise Settlement. – The Commissioner may compromise the payment of any internal revenue tax on the following grounds: (1) Doubtful validity of the assessment. – the offer to compromise a delinquent account of disputed assessment under these Regulations on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that:
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section
Jeopardy assessment – a tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will be
(a)
57
The delinquent account or disputed assessment is one resulting from a jeopardy assessment.
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC jeopardized by delay because of the taxpayer’s failure comply with the audit and investigation requirements present his books of accounts and/or pertinent records, to substantiate all or any of the deductions, exemptions, credits claimed in his return. (b)
other leviable/distrainable assets, other than his family home (e)
The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis
(c)
The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment or preliminary assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis
(d)
The taxpayer failed to file a request for reinvestigation/reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis
(e)
The taxpayer failed to elevate to the CTA an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis
(f)
The assessment were issued on or after January 1, 1998, where the demand notice allegedly failed to comply with the formalities prescribed under sec. 228 of the Tax code.
(g)
Assessment made based on the Best Evidence Obtainable Rule and there is reason to believe that the same can be disputed by sufficient and competent evidence
(h)
The Assessment was issued within the prescriptive period of assessment as extended by the taxpayer’s execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic
(i)
(2)
to to or or
The taxpayer has been granted by the Securities and Exchange Commission or by any competent tribunal a moratorium or suspension of payments to creditors, or otherwise declared bankrupt or insolvent
The Commissioner shall not consider any offer for compromise settlement by reason of financial incapacity unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act. No. 1405 or under other general or special laws, and such waiver shall constitute as the authority of the Commissioner to inquire into the bank deposits of the taxpayer. For purposes of these Regulations, the term “assessment” includes the preliminary assessment notice (PAN) issued as of June 30, 2001 by the appropriate “Review Office.” In fine, it does not include the post reporting notice issued by the head of the investigating unit.
Jeopardy assessment is an example of doubtful validity case. What must be the reason? Jeopardy Assessment vs Ordinary Assessment It is different from ordinary assessment. In ordinary assessment, there is that tax audit. Here (in jeopardy assessment), there is no audit to doubtful question. That makes it a doubtful assessment. If it is justified by demand that such delay in submitting this documents by the taxpayer will jeopardize the collection of such tax. You should know how that word jeopardize is being used in such definition. If it is that delay that may bring by such assessment. You should also underscore this item G, the application of the Best Evidence Obtainable Rule. You refer to section 6(B) of the Tax Code, there you will find this provision regarding Best Evidence Obtainable Rule.
The Assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the bureau, but for which the Supreme Court has not decided upon with finality
(g). Assessment made based on the Best Evidence Obtainable Rule and there is reason to believe that the same can be disputed by sufficient and competent evidence
Financial Incapacity – the offer to compromise based on financial incapacity may be accepted upon showing that:
SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. –
(a)
The corporation ceased operation or is already dissolved
xxxxxx
(b)
The taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%
(c)
The taxpayer is suffering from networth deficit computed by deducting total liabilities (net of deferred credits) from total assets (net of prepaid expenses, deferred charges, preoperating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial statements
(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.
(d)
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 information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.
The taxpayer is a compensation income earner with no other source of income and the family’s gross monthly compensation income does not exceed the levels of compensation income provided for under sec 4.1.1 of these regulations, and it appears that the taxpayers possesses no 58
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC (C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales and Receipts. - The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. 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.
taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose of the law is to enable the BIR to get at the taxpayer’s records in whatever form they may be kept. Such records include computer tapes of the said records prepared by the taxpayer in the course of business.68 In this era of developing informationstorage technology, there is no valid reason to immunize companies with computer-based, recordkeeping capabilities from BIR scrutiny. The standard is not the form of the record but where it might shed light on the accuracy of the taxpayer’s return. What may be used by the BIR is the information that may be gotten from taxpayers who engage in the same business.
When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of this Code, 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, income 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.
You should also read Section 6(C) which is really an amplification of that.
xxxxxxxxx
If a taxpayer failed to maintain books of accounts, the BIR can resort to other information. Just to search the gross sales or receipts of these taxpayers. The Best Evidence Obtainable Rule requires information may be gotten from persons who engage in the same or similar business.
It is one of those doubtful validity cases because as explained by the Supreme Court in the case of COMMISSIONER VS. HANTEX TRADING CO., INC., G.R. NO. 136975, March 31, 2005, 454 SCRA 301, this is a departure from such observance of the technical rules of procedure. Here, best evidence may be covered by this as this might come from third persons.
The new provision there is the last item, item I, but there is such an adverse decision, adverse to the BIR.
COMMISSIONER VS. HANTEX TRADING CO the general rule is that administrative agencies such as the BIR are not bound by the technical rules of evidence. It can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. It can choose to give weight or disregard such evidence, depending on its trustworthiness.
i. The Assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the bureau, but for which the Supreme Court has not decided upon with finality
If you go over those cases that fall under the financial incapacity, you will notice that these grounds are justifiable. For instance, if a corporation ceased to commence its business, has been dissolved, financial incapacity may be invoked as a ground. It files a petition for suspension of payments, insolvency, it is but just and fair to invoke this as a ground for compromise.
The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales.67 Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission.
As you can see under section 204, the BIR Commissioner can compromise criminal liability. Here, you should group those cases which can be compromised, cases which cannot be compromised. There are 6 cases, according to Rev. Reg. 52001, which can be compromised. On the other hand, there are 7 cases which cannot be compromised. Sec. 2 Cases which may be Compromised - the following cases may, upon taxpayer’s compliance with the basis set forth under Section 3 of these Regulations, be the subject matter of compromise settlement
The law allows the BIR access to all relevant or material records and data in the person of the 59
1.
Delinquent accounts
2.
Cases under administrative protest pending in the Regional Offices, Revenue District Offices, Legal Service, large Taxpayer
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Service (LTS), Collection Service, Enforcement Service, and other offices in the National office\ 3.
Civil tax cases being disputed before the courts, e.g., MTC, RTC, CTA, CA, SC
4.
Collection case filed in courts
5.
Criminal Violations other than those already filed in court or those involving criminal tax fraud
6.
Cases covered by pre-assessment notices but taxpayer is not agreeable to the findings of the audit office as confirmed by the review office
executor or administrator or the heirs to pay such tax, they cannot thereafter invoke the same as ground. That must be, I think, the reason behind this. In section 204, if there was fraud, it cannot be compromised. Even if no fraud was involved, once the case is filed in court, i.e., criminal case is filed in court that can no longer be compromised. This provision has been explained, simplified, under this brand new regulation 7-2001. Approved schedule of payment in installment. There is such an adjustment, you agree to that, you could not later on request for a compromise.
Cases which cannot be compromised 1.
Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligations to withhold
2.
Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative
3.
Criminal violation already filed in court
4.
Delinquent accounts with duly approved schedule of installment payments
5.
Cases where final reports of revinvestigation or reconsiderations have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board or the National Evaluation Board on a case to case basis
6.
Cases which become final and executor after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment
7.
Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer
P1,000,000 basic tax or P1,000,000 that is within the authority of this National Evaluation Board that is the BIR Commissioner ____ for additional members is no longer within the authority of the BIR Commissioner. It falls under the authority if the National Evaluation Board even if the compromise rate is below that minimum 40%, that can still be compromised. This time it is within the authority of the National Evaluation Board. I want you to read Section 7 of the Tax Code. A, B, C. There you will find the amount that can be compromised: P500,000. The question there is, as discussed by the SC in the case of Republic vs. Hizon, 320 SCRA 574, the jurisdiction, those powers of the BIR which cannot be delegated. That’s where you find expressio unius est exclusio alterius. Those are powers which cannot be delegated. They are mentioned under Section 7. As long as the amount is not more than P500,000, the paragraph C, they can be the subject of delegation. SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be delegated: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to 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, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and district officials, 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; and
Cases which cannot be compromised, it used to be 5. Rev. Reg. 20-2002 added 2 grounds. The 2 grounds: 1.
2.
When such judgment has become final, this has been qualified, that is if the ground is a doubtful validity – if the request for compromise is grounded on doubtful validity. Estate tax cases. Take note of the qualification that is if the request for compromise is based on financial incapacity. You should read this in relation to that section we discussed regarding Estate tax particularly sections 90 and 91. There you will find this 5-year, 2-year period. These are the periods that may be counted for such extension of time to pay estate tax.
The trouble with this rev. reg. is that it failed to give the reason, read section 91, by allowing the granting of 2 or 5 year period extension, the law has given ample time for the 60
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC (d)
The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.
commission of a crime is a source of civil liability. Every person criminally liable is also civilly liable. Article 1157 is a source of civil obligation. Such criminal liability resulted from taxpayer’s failure to pay his tax liabilities. Here you consider Sections 254 and 255. If you will be asked “What is that provision under the tax code regarding tax evasion?”, that’s the one. 254. Attempt to evade the payment of tax. Failure to file tax return is Section 255. So failure to file taxes, that will result in criminal liability. So it is the source. It is the failure of the taxpayer to pay his tax that may result in criminal violation.
Let’s have this provision under Section 205. It’s clear that the BIR can resort to judicial remedies or administrative remedies and it is allowed for BIR to avail of the same simultaneously. Section 205 must be read in relation to Section 220. This has something to do with the filing of an action court which really requires the approval of the BIR commission, whether civil action or the institution of criminal proceedings. That has been amended. Before, the prosecution of such violations of the tax code was supervised by the Department of Justice. It must be prosecuted by the legal officers of the BIR. That provision under the supervision of the DOJ has been deleted. They lacked prosecutorial skills. You read Section 220, it seems that the CTA is not strictly adhering to this provision.
Republic vs. Patano, 20 SCRA 712 In applying the principle underlying the civil liability of an offender under the penal Code to a case involving the collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual premises which are diametrically opposed to each other, and are founded on entirely different philosophies. Under the Penal Code, the civil liability is incurred by reason of the offender’s criminal act, stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot be civilly liable thereunder. The situation under x x x x the tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infraction of the tax law.
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be: (e) By 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 by levy upon real property and interest in rights to real property; and (f)
By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of tax involve is not more than One hundred pesos (P100). The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner. The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon.
SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Thirty thousand (P30,000) but not more than One hunderd thousand pesos (P100,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. 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 of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax make a return, keep any record, or supply correct the accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.
This brings us to the meaning of criminal proceedings involving tax cases. You read the case of Republic vs. Patano, 20 SCRA 712. What you learned under the Revised Penal Code, Article 100, is different. As pointed out by the SC, criminal cases under the Revised Penal Code are based on the legal foundations different from that of criminal cases involving violations of the NIRC. They are founded on different legal philosophies. What you’ve learned is that, such
Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return or 61
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of internal revenue office wherein the same was actually filed shall, upon conviction therefor, be punished by a fine of not less than Ten thousand pesos (P10,000) but not more than Twenty thousand pesos (P20,000) and suffer imprisonment of not less than one (1) year but not more than three (3) years.
assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.
I have to ask you about the prescriptive period regarding a criminal action. You refer to Section 281. There you’ll find the 5-year period. You read the case of Lim vs. CA, 190 SCRA 616. The SC made its observation and the court really is correct when it commended that given that the word “and” has been used there, these two conditions must conform. The five-year period should commence to run from such discovery of that violation AND the institution of judicial proceedings or its punishment or investigation. So that will never commence to run if no judicial proceedings have been commenced or executed by the government. So that makes it imprescriptible as far as the government is concerned. It should be amended. Because it would appear that may be the subject of whimsical discretion or comprising part of the BIR.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. 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.
Again the case involving that prescriptive period now has these two important provisions: Section 228 and Section 229. These are administrative remedies _____ in judicial proceedings. It is Revenue Regulations 12-99 that implements this provision regarding Section 228, request for investigation, request for reconsideration.
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.
So when a taxpayer receives assessment, he has two remedies. He may question the same. So he should file request for investigation or reconsideration as the case may be. Or pay the tax and if he believes that the tax is erroneous or illegally collected. He can file record to enforce such. ___________
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: (a) 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 (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (c) 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 (d) When the excise tax due on exciseable articles has not been paid; or (e) 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.
Section 228 has deficiency in that it never discussed or defined request for reinvestigation as distinguished from request for reconsideration. In the case of BPI vs. Commissioner, 473 SCRA 21 and that of Global Communication, 506 SCRA 427 - those are the notable cases regarding this request for investigation, request for reconsideration. The SC pointed out revenue regulations 1285. As explained in the BPI case, it is proper to file a request for investigation if there is the so-called newly discovered evidence. Request for reconsideration, on the other hand, is just a plea for the BIR to go over the case, review such evidence as it might ______. Now this is important in the light of Section 223. It’s clear therein that the one that will suspend the running of the prescriptive periods laid down in Section 203 and 222 is request for reinvestigation. It is not request for reconsideration. The request for reconsideration will not suspend the running of the prescriptive period, laid down in Section 203 and 222.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.
I hold you responsible about these cases which did not pass this pre-assessment notice (Section 228). There are five
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the 62
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 1.
2.
3.
4. 5.
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 When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or 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 When the excise tax due on excisable articles has not been paid; or When an article locally purchased or imported by an exempt person such as but not limited to vehicles, capital equipment, machineries and spare parts has been sold, traded or transferred to non-exempt persons.
BPI vs. Commissioner, 521 SCRA 373. (presumption of correctness in case of taxpayer’s failure to protest the assessments) Tax assessments by tax examiners are presumed correct and made in good faith. Tax taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. If you read this case of BPI, the court will mention this rule that such provision, being remedial in character may be given retroactive application. But in another case, it says “you cannot read into law what has not been expressly stated.” But in the latest case, it appeared that the court did not give retroactive application. Can we give retroactive application to this provision that such assessment must state the facts and the law upon which it is based? You learned this in Remedial Law that as long as it does not impair vested rights that may be given retroactive application.
If it is not covered by any of five, it must pass through the socalled pre-assessment notice. The importance of a revenue regulation, you really have to read revenue regulation 12-99, is its so-called informal notice of conference. And that will be followed by the ___ pre-assessment notice.
The last two paragraphs are new ones because under the old tax code, it made no mention about this 60-day period, 180day period. The 60-day period applies to the submission of these pertinent and relevant documents. The 180-day period applies to the rendition of judgment, decision, by the BIR Commission. In this regard, you read this case, regarding this 180-day period: RCBC vs. Commissioner, 522 SCRA 144. That pronouncement of the court citing the rules of Court of Tax Appeals may not be consistent with this provision, last part of Section 228. Here it is clear that if no decision has been rendered, you may appeal such inaction of the BIR within 30 days from the lapse of that 180-day period. There seems to be a deviation from this provision. This is substantive law. If we follow these rules of CTA, these are just rules; these must not contravene this substantive provision, section 228. The trouble with the SC is that once it commits an error, it becomes the ______ thereof. It remains as jurisprudence. The SC is not infallible. It is supreme because its decision is final. Have you heard about that statement of Justice Holmes? The Supreme Court is final but it is not infallible. It is infallible because its decision is final.
In regard to paragraph 2 of Section 228, this is a new provision because in the old tax code, the provision about the facts and the law upon which the assessment is based. You read the case of Commissioner vs. Reyes, 480 SCRA 382. The SC explained the meaning of this. If an assessment fails to state the facts and the law upon which it was based, the assessment is not valid. It is mandated by the standard of due process. And you should read that in relation to another case, BPI vs. Commissioner, 521 SCRA 373. Commissioner vs. Reyes, 480 SCRA 382. (the assessment notice and the demand letter should state the facts and the law on which they are based; otherwise, they are deemed void) While administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. On this score, the assessment should state the facts and the law on which it is based. The rationale behind this requirement was to ensure that taxpayers would be duly apprised of – and could effectively protest - the basis of tax assessments against them. A void assessment renders subsequent proceedings invalid and any order emanating from it could never attain finality
It is clear that, we are now in the provision relative to the jurisdiction of the CTA, it is clear that in Section 228 that such decision of the BIR Commissioner is appealable to the CTA within 30 days from receipt of such decision or 30 days from the lapse of the 180-day period. What should be filed? According to RA 9282, the petition should be filed involving this decision of the BIR Commissioner upon the tax credit (?) 63
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC assessment made must be petition for review under Rule 42 of the Rules of Court. 15 days. But don’t follow that. You follow the 30-day period. You only apply Rule 42 in suppletory character. Here it is very clear, you apply the 30day period.
income tax due, to be adjusted at the end of the calendar or fiscal year SEC. 74. Declaration of Income Tax for Individuals. (A) In General. - Except as otherwise provided in this Section, every individual subject to income tax under Sections 24 and 25(A) of this Title, who is receiving self-employment income, whether it constitutes the sole source of his income or in combination with salaries, wages and other fixed or determinable income, shall make and file a declaration of his estimated income for the current taxable year on or before April 15 of the same taxable year. In general, self-employment income consists of the earnings derived by the individual from the practice of profession or conduct of trade or business carried on by him as a sole proprietor or by a partnership of which he is a member. Nonresident Filipino citizens, with respect to income from without the Philippines, and nonresident aliens not engaged in trade or business in the Philippines, are not required to render a declaration of estimated income tax. The declaration shall contain such pertinent information as the Secretary of Finance, upon recommendation of the Commissioner, may, by rules and regulations prescribe. An individual may make amendments of a declaration filed during the taxable year under the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.
If you compare section 228 with section 229, you will notice this distinction. In section 229 it made no mention about such an appeal to the CTA. Nonetheless, it is clear under RA 9282 that such distinction of the BIR Commissioner on tax refund is appealable to the CTA. The prescriptive period is 2 years from the date of payment. Now this is the case that you should master. The case of Commissioner vs. TMX Sales, Inc. 205 SCRA 184. This applies to corporate taxpayers. What do you mean by the word payment? In so far as corporate taxpayers are concerned, when is there payment? Read sections 75 and 76. Corporate taxpayers are allowed to file their income tax returns quarterly. They are allowed to pay corporate taxes in installments. This is not so in the case of individual taxpayers. What is meant by payment? Suppose, as asked in the bar exams, excess was made with this particular corporate taxpayer filed in the first quarterly income tax return or excess payment, erroneous payment, illegal payment, rd wrongful payment, arose when it filed its 3 corporate tax return. Must the 2 year period commence to run from the st filing of the 1 ? No. Because there was no payment in contemplation of law.
(B) Return and Payment of Estimated Income Tax by Individuals. - The amount of estimated income as defined in Subsection (C) with respect to which a declaration is required under Subsection (A) shall be paid in four (4) installments. The first installment shall be paid at the time of the declaration and the second and third shall be paid on August 15 and November 15 of the current year, respectively. The fourth installment shall be paid on or before April 15 of the following calendar year when the final adjusted income tax return is due to be filed. (C) Definition of Estimated Tax. - In the case of an individual, the term "estimated tax" means the amount which the individual declared as income tax in his final adjusted and annual income tax return for the preceding taxable year minus the sum of the credits allowed under this Title against the said tax. If, during the current taxable year, the taxpayer reasonable expects to pay a bigger income tax, he shall file an amended declaration during any interval of installment payment dates.
The trouble with this case is that it never discussed the meaning of payment under the civil code. In obligations and contracts, the characteristics of payment: integrity of payment, indivisibility of payment, identity of payment. There is no payment if it is made in installment. Integrity of payment dictates that it must be payment in full. It merely says that there is payment when the tax liability of the corporate taxpayer is determined with certainty and it is only upon the filing of its Final Adjustment Corporate Tax returns (Sec. 76). That is when you commence this 2-year period. In the case of corporate taxpayers, this section 229 has to be amended. In the case of corporate taxpayers, there is payment upon the filing of this Final Adjustment Corporate Tax Return.
SEC. 75. Declaration of Quarterly Corporate Income Tax. - Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code, shall be levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year.
It is also clear under Section 229, the second paragraph thereof, that in such payment, the 2-year period shall not be suspended by any supervening event. It shall always commence from the date of payment. This two-year period is mandatory according to the SC. This two-year period applies to these two cases: filing of the written claim for refund before the BIR Commissioner and when an appeal is made through a petition for review under Rule 42 before the Court of Tax Appeals.
Commissioner vs. TMX Sales, Inc. 205 SCRA 184. Therefore, the filing of quarterly income tax returns required in Section 75 of the NIRC and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual
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 64
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC 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.
motion for reconsideration. That is not allowed under the 1997 Rules of Civil Procedure. It should have been presented before the plaintiff has rested his case. But this is a tax case, the court believed that the claim for refund is meritorious.
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.
On the other hand, in Commissioner vs. Hantex Trading, 454 SCRA 301, the court ruled that these photocopies of records or documents, these are consumption entries, are inadmissible evidence and no probative value. This is not sanctioned by the Best Evidence Obtainable Rule. In other words, in recognizing that the rule should be relaxed, this is the liberality of procedure, the court ____ however, that these photocopies of consumption entries are inadmissible in evidence. The court, with all due respect, shouldn’t have made this pronouncement. Liberality of procedure is not absolute. This should not be used as a license to disregard certain fundamental evidential rules. You should present the original documents or receipts based on fundamental evidential rules. You cannot relax the rule. As in the Hantex case, the court is absolutely correct in ruling that inadmissible evidence.
When an appeal is made before the CTA, there are 2 periods that must be observed. A decision has been rendered on tax refund; your remedy is to appeal the same to the CTA. The 2 periods must be observed: Within 30 days from receipt of such decision AND within 2 years from the date of payment. As emphasized by the SC, if such an appeal is now a Petition for Review under Rule 42 according to RA 9282, if made beyond the two-year period, it should be considered a filed out of time. But it is not clear under Section 229. Since it is mandatory, it may happen that no action is ____. If you read Section 228, there is this period within which the BIR _______ the 180-day period. If no action has been rendered, you appeal such inaction within 30 days from the lapse of that 180-day period.
RA 9282 is entitled Expanded Jurisdiction of the CTA. Expanded because the CTA has jurisdiction over cases, civil or criminal, the amount of tax liability is P1,000,000 exclusive of interest charge. That was, under the old rule, cognizable by the RTC. So that, in effect, expanded the jurisdiction of the CTA. Decisions of the Central Board of Assessment Appeals, under the old rule, were appealable to the CA or the SC. It’s now clear then that such decisions of the Central Board of Assessment Appeals are appealable to the CTA. Decisions of RTCs regarding tax cases, election cases, are also appealable to the CTA. You should make a distinction here as I pointed out in your book. There appears to be 9 decisions that may be appealed to the CTA. There are only 2 that may be appealed under Rule 43: Decisions of the CBAA and decisions of the RTC, otherwise apply Section 42.
So let’s apply that to tax refund. It should be filed within two years from the date of payment. Suppose no decision has been rendered, the two-year period shall not be suspended by such inaction. Considered that appeal as denied. You can appeal such inaction to the CTA. It must be within the twoyear period. The trouble is there is no period, corresponding period insofar as Section 229 is concerned. Since the Section 229 is the same, you have to resort to settled jurisprudence, i.e., old case: Commissioner vs. Gibbs, 107 Phil 232 and Gibbs vs. Commissioner, 15 SCRA 318. If the two-year period, according to the SC, is about to lapse, don’t wait for such decision. You can appeal such inaction to the CTA. In other words, your claim for tax refund is deemed as denied. It is now clear under RA 9282 that such inaction of the BIR is appealable to the CTA.
I want you to mark this provision regarding automatic review cases. It’s one of those cases that may be appealed to the CTA. PD 1464, amending RA 1937, (Tariff and Customs Code) made mention about these cases that may be appealed to the CTA. The situation is this: the decision of the Collector of Customs is favorable to the importer. No importer in his right mind will appeal the same. It is favorable to him. If that happens, given that the importer is the winning party, nobody will appeal the same. That’s prejudicial to the government if it turns out the decision of the collector of Customs is erroneous. That’s the concept of automatic review. To protect the entrance of the government, there is this presidential decree, PD 1 as implemented by the Bureau of Customs Memorandum Order 929, such decision of the collector of customs that is favorable to the importer is
COURT OF TAX APPEALS CTA is a specialized court. Try to observe the proceedings there. Is it really an appellate court? It conducts hearings, trial. That is inconsistent with its name. It is a trial court. I want you to read this old provision: Section 8 of RA 1125. That’s the old law creating the CTA. This has been expanded. Its jurisdiction has been expanded under RA 9282. What does it say? Proceedings in the CTA are not bound by the technical rules of evidence. In this regard, you read these two cases: One, the SC applied the liberality of procedure - BPI Family Bank vs. Commissioner, 330 SCRA 507. The court relaxed the rule, and it allowed the presentation of evidence in that 65
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC automatically appealed or elevated to the Customs Commission. (We are not yet there.)
The decision of the CTA is appealable to the SC. If you read the old book, the old rule was that the decision of the CTA was appealable to the CA. That has been abandoned by RA 9282. The case of DBP vs. Quezon City, 180 SCRA 608 has abandoned the doctrine saying that the decision of the CTA is appealable to the CA is no longer appealable. It is clear under RA 9282, the decision of the CTA is appealable to the SC under Rule 45. You apply the 15 day period from the receipt of such decision. It is clear under Rule 45 that an appeal to the SC can only raise questions of law. Is there an exception to that? Yes. Abra Valley College vs. Aquino, 162 SCRA 106. Factual issues can be raised for the first time on appeal before the SC. The key phrase is “in the interest of substantial justice.” Substantial justice dictates that this must be cognizance of the SC in order to arrive at just and fair decision. The tax issue involved has something to do with exemption from real property tax.
It may happen that the decision of the customs commissioner is favorable again to the taxpayer or importer. To protect the interest of the government, such favorable decision of the BIR commissioner, favorable to the taxpayer is automatically appealed or elevated to the Secretary of Finance. That’s the one. It may happen that the decision of the customs commissioner is adverse to the taxpayer or importer, meaning he reversed the decision of the collector. Such decision of the customs commissioner, reversing the decision of the collector of customs, is appealable to the CTA within 30 days from receipt of the same by the importer/taxpayer. But if it is favorable to the taxpayer/importer, pangalawa na yan, first collector then customs commissioner, that is automatically appealed or elevated to the Secretary of Finance. The decision of the Secretary of Finance may either be favorable to the taxpayer or importer or adverse to the same. The one that is appealable to the CTA must be a decision of the Secretary of Finance that is adverse to the taxpayer. His remedy is to appeal the same, that’s the one contemplated under RA 9282. The remedy of the importer, the aggrieved party in that case. Aggrieved party because such decision of the Secretary of Finance is adverse to him, he can appeal it to the CTA within 30 days from the receipt of the same. In this regard, don’t forget to read this case: Yaokasin vs. Customs Commissioner, 180 SCRA 591. In that case, the SC explained the rationale behind this automatic review procedure. It’s now clear, the correlation between Section 9 of RA 9282, the last paragraph of the law, must be read in relation to Section 218 of the National Internal Revenue Code as amended. Section 218 of the NIRC states that no court shall have the authority to grant an injunction to restrain, or do any collection of national internal revenue. The word “court” does not include CTA because under RA 9282, Section 9, the last paragraph, it confers upon CTA the authority to restrain the collection of internal revenue tax. First, such collection may jeopardize the interest of the taxpayer and/or government. Second, taxpayer must post a bond, double the amount of such tax liability, i.e., surety bond. These are the conditions upon which the CTA may grant such prayer or application for injunctive relief. Unlike before it only covers the old rule, old provision covered only in RA 1125, i.e., Custom duties, national internal revenue taxes, et al. Here it covers local taxes, Bureau of Customs, internal revenue taxes, dumping or countervailing duties. It expanded the coverage. Regarding procedures, just read Sections 18 and 19 of RA 9282.
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Republic Act No. 9282
March 30 2004
removed for the same causes and in the same manner provided by law for members of the judiciary of equivalent rank."
AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES
Section 2. Section 2 of the same Act is hereby amended to read as follows: "SEC. 2. Sitting En Banc or Division; Quorum; Proceedings. - The CTA may sit en banc or in two (2) Divisions, each Division consisting of three (3) Justices.
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
"Four (4) Justices shall constitute a quorum for sessions en banc and two (2) Justices for sessions of a Division: Provided, That when the required quorum cannot be constituted due to any vacancy, disqualification, inhibition, disability, or any other lawful cause, the Presiding Justice shall designate any Justice of other Divisions of the Court to sit temporarily therein.
Section 1. Section 1 of Republic Act No. 1125, as amended is hereby further amended to read as follows: "SECTION 1. Court; Justices; Qualifications; Salary; Tenure. - There is hereby created a Court of Tax Appeals (CTA) which shall be of the same level as the Court of Appeals, possessing all the inherent powers of a Court of Justice, and shall consist of a Presiding Justice and five (5) Associate Justices. The incumbent Presiding Judge and Associate Judges shall continue in office and bear the new titles of Presiding Justice and Associate Justices. The Presiding Justice and the most Senior Associate Justice shall serve as chairmen of the two (2) Divisions. The additional three (3) Justices and succeeding members of the Court shall be appointed by the President upon nomination by the Judicial and Bar Council. The Presiding Justice shall be so designated in his appointment, and the Associate Justices shall have precedence according to the date of their respective appointments, or when the appointments of two (2) or more of them shall bear the same date, according to the order in which their appointments were issued by the President. They shall have the same qualifications, rank, category, salary, emoluments and other privileges, be subject to the same inhibitions and disqualifications, and enjoy the same retirements and other benefits as those provided for under existing laws for the Presiding Justice and Associate Justices of the Court of Appeals.
"The affirmative votes of four (4) members of the Court en banc or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution." Section 3. Section 3 of the same Act is hereby amended to read as follows: "SEC. 3. Clerk of Court; Division Clerks of Court; Appointment; Qualification; Compensation. - The CTA shall have a Clerk of Court and three (3) Division Clerks of Court who shall be appointed by the Supreme Court. No person shall be appointed Clerk of Court or Division Clerk of Court unless he is duly authorized to practice law in the Philippines. The Clerk of Court and Division Clerks of Court shall exercise the same powers and perform the same duties in regard to all matters within the Court's jurisdiction, as are exercised and performed by the Clerk of Court and Division Clerks of Court of the Court of Appeals, in so far as the same may be applicable or analogous; and in the exercise of those powers and the performance of those duties they shall be under the direction of the Court. The Clerk of Court and the Division Clerks of Court shall have the same rank, privileges, salary, emoluments, retirement and other benefits as those provided for the Clerk of Court and Division Clerks of Court of the Court of Appeals, respectively.'
"Whenever the salaries of the Presiding Justice and the Associate Justices of the Court of Appeals are increased, such increases in salaries shall be deemed correspondingly extended to and enjoyed by the Presiding Justice and Associate Justices of the CTA. "The Presiding Justice and Associate Justices shall hold office during good behavior, until they reach the age of seventy (70), or become incapacitated to discharge the duties of their office, unless sooner 67
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Section 4. Section 4 of the same Act is hereby amended to read as follows:
"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;
"SEC. 4. Other Subordinate Employees. - The Supreme Court shall appoint all officials and employees of the CTA, in accordance with the Civil Service Law. The Supreme Court shall fix their salaries and prescribe their duties." Section 5. Section 5 of the same Act is hereby amended to read as follows: "SEC. 5. Disqualifications. - No Justice or other officer or employee of the CTA shall intervene, directly or indirectly, in the management or control of any private enterprise which in any way may be affected by the functions of the Court. Justices of the Court shall be disqualified from sitting in any case on the same grounds provided under Rule one hundred thirty-seven of the Rules of Court for the disqualification of judicial officers. No person who has once served in the Court in a permanent capacity, either as Presiding Justice or as Associate Justice thereof, shall be qualified to practice as counsel before the Court for a period of one (1) year from his retirement or resignation."
"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;
Section 6. Section 6 of the same Act is hereby amended to read as follows:
"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;
"SEC. 6. Place of Office. - The CTA shall have its principal office in Metro Manila and shall hold hearings at such time and place as it may, by order in writing, designate." Section 7. Section 7 of the same Act is hereby amended to read as follows:
"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;
"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;
"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, respectively, of the Tariff and Customs Code, and safeguard 68
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.
"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.
"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 criminal offenses:
jurisdiction
"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."
in
"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.
Section 8. Section 10 of the same Act is hereby amended to read as follows:
"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.
"SEC. 10. Power to Administer Oaths; Issue Subpoena; Punish for Contempt. - The Court shall have the power to administer oaths, receive evidence, summon witnesses by subpoena duces tecum, subject in all respects to the same restrictions and qualifications as applied in judicial proceedings of a similar nature. The Court shall, in 69
TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC accordance with Rule seventy-one of the Rules of Court, have the power to punish for contempt for the same causes, under the same procedure and with the same penalties provided therein."
and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.
Section 9. Section 11 of the same Act is hereby amended to read as follows: "SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
"In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction." Section 10. Section 13 of the same Act is hereby amended to read as follows:
"Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.
"SEC. 13. Decision, Maximum Period for Termination of Cases. - Cases brought before the Court shall be decided in accordance with Section 15, paragraph (1), Article VIII (Judicial Department) of the 1987 Constitution. Decisions of the Court shall be in writing, stating clearly and distinctly the facts and the law on which they are based, and signed by the Justices concurring therein. The Court shall provide for the publication of its decision in the Official Gazette in such form and manner as may best be adopted for public information and use. "The Justices of the Court shall each certify on their applications for leave, and upon salary vouchers presented by them for payment, or upon the payrolls under which their salaries are paid, that all proceedings, petitions and motions which have been submitted to the Court for determination or decision for a period required by the law or the Constitution, as the case may be, have been determined or decided by the Court on or before the date of making the certificate, and no leave shall be granted and no salary shall be paid without such certificate."
"All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof: Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply.
Section 11. Section 18 of the same Act is hereby amended as follows:
"No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint,
"SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matter arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with
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TAXATION 2 REVIEWER BY MARX, MON, JAM, AILEEN AND SOC Section 18. Separability Clause. - If for any reason, any section or provision of this Act shall be declared unconstitutional or invalid, the other parts thereof not affected thereby shall remain valid.
the CTA and disposed of in accordance with the provisions of this Act. "A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc."
Section 19. Effectivity Clause - This Act shall take effect after fifteen (15) days following its publication in at least (2) newspapers of general circulation.
"SEC. 19. Review by Certiorari. - A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure." Section 13. Distraint of Personal Property and/or Levy on Real Property. - Upon the issuance of any ruling, order or decision by the CTA favorable to the national government, the CTA shall issue an order authorizing the Bureau of Internal Revenue, through the Commissioner to seize and distraint any goods, chattels, or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property and/or levy the real property of such persons in sufficient quantity to satisfy the tax or charge together with any increment thereto incident to delinquency. This remedy shall not be exclusive and shall not preclude the Court from availing of other means under the Rules of Court. Section 14. Retention of Personnel; Security of Tenure; Upgrading of Positions and Salaries. - All existing permanent personnel of the CTA shall not be adversely affected by this Act. They shall continue in office and shall not be removed or separated from the service except for cause as provided for by existing laws. Further, the present positions and salaries of personnel shall be upgraded to the level of their counterparts in the Court of Appeals. Section 15. Transitory Provisions. - In consonance with the above provision, the incumbent Presiding Judge and Associate Judges shall comprise a Division pending the constitution of the entire Court. Section 16. Appropriations. - The amount necessary to carry out the provisions of this Act shall be included in the General Appropriations Act of the year following its enactment into law and thereafter. Section 17. Repealing Clause. - All laws, executive orders, executive issuances or letter of instructions, or any part thereof, inconsistent with or contrary to the provisions of this Act are hereby deemed repealed, amended or modified accordingly.
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