Taxation 2015 UP Pre-week
Taxation Law Review 2015 Pre-week University of the Philippines...
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TAXATION LAW 1
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I. General Principles of Taxation DEFINITION TAXATION
Taxation is a mode by which governments make exactions for revenue in order to support their existence and carry out their legitimate objectives.
Taxes are enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and all public needs. The power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses; and that for those means it has the right to compel all citizens and property within its limits to contribute. NATURE OF THE POWER OF TAXATION
(1) Inherent in sovereignty (2) Essentially a legislative function (3) Subject to constitutional and inherent limitations
SCOPE OF TAXATION Subject to constitutional and inherent restrictions, the power of taxation is regarded as supreme, unlimited and comprehensive. The principal check on its abuse rests only on the responsibility of the members of the legislature to their constituents.
EXTENT OF THE LEGISLATIVE POWER TO TAX Subject to constitutional and inherent restrictions, the legislature has discretion to determine the incidence of the power to tax.
ESSENTIAL CHARACTERISTICS OF TAX (1) an enforced contribution (2) generally payable in the form of money (3) proportionate in character or is laid by some rule of apportionment which is usually based on ability to pay; (4) levied on persons, property, rights, acts, privileges, or transactions. (5) levied by the State which has jurisdiction or control over the subject to be taxed. (6) levied by the law-making body of the State; and; (7) levied for public purpose.
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POWER OF TAXATION COMPARED WITH OTHER POWERS 1. As to concept
2. As to scope
3. As to authority
4. As to purpose
5. As to necessity of delegation
6. As to affected
Power to enforce contribution to raise government funds Plenary, comprehensive and supreme
Power to make and implement laws for the general welfare Broader in application. General power to make and implement laws. Exercised only by government or its political subdivisions Property is taken or destroyed to promote general welfare Can be expressly delegated to the local government units by the law making body Operates on a community or a class of individual Healthy economic standard of society Cost of regulation, license and other necessary expenses Protection, safety and welfare of society
Power to take private property for public use with just compensation Merely a power to take private property for public use May be granted to public service or public utility companies Private property is taken for public use
Exercised only by government or its political subdivisions Money is taken to support the government The power to make tax laws cannot be delegated
Operates on a community or a class of individual 7. As to benefits Continuous protection and organized society 8. As to amount of Generally no limit imposition
9. As importance
Inseparable for the existence of a nation – it supports police power and eminent domain
10. As relationship Constitution
Subject to Constitutional and Inherent limitations. Inferior to nonimpairment clause.
11. As to limitation
Relatively free from Constitutional limitations. Superior to nonimpairment clause.
Constraints by Limited by the demand Constitutional and for public interest and Inherent limitations due process
Can be expressly delegated to the local government units by the law making body Operates on the particular private property of an individual Market value of the property expropriated No imposition
Common necessities and interest of the community transcend individual rights in property Superior to and may override Constitutional impairment provision because the welfare of the State is superior to any private contract Bounded by public purpose and just compensation
[Valencia and Roxas, Income Taxation 6th Edition (2013-2014), Valencia Educational Supply, pp. 9-10]
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PURPOSE OF TAXATION
Jurisdiction Over Subject and Objects
1. Revenue-raising Primary purpose of taxation is to provide funds or property with which to promote the general welfare and protection it its citizens.
2. Non-revenue/Special or Regulatory Taxation is often employed as a device for regulation by means of which certain effects or conditions envisioned by governments may be achieved. These regulatory purposes are also known as Sumptuary.
PRINCIPLES OF SOUND TAX SYSTEM (1) fiscal adequacy (2) administrative feasibility (3) theoretical justice or equality Note: The non-observance of the above principles will not necessarily render the tax imposed invalid except to the extent those specific constitutional limitations are violated. (De Leon)
THEORY AND BASIS OF TAXATION Lifeblood Theory Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. [CIR v. Pineda]
Necessity Theory The power of taxation proceeds upon theory that the existence of government is a necessity; that is cannot continue without means to pay its expenses; and that for those means it has the right to compel all citizens and property within its limits to contribute.
This principle serves as the basis of taxation and is founded on the reciprocal duties of protection and support between the State and its inhabitants.
The limited powers of sovereignty are confined to objects within the respective spheres of governmental control. These objects are the proper subjects or objects of taxation and none else.
DOCTRINES IN TAXATION Prospectivity of Tax Laws General rule - Tax laws are prospective in operation. Reason: Nature and amount of the tax could not be foreseen and understood by the taxpayer at the time the transaction. Exception - Tax laws may be applied retroactively provided it is expressly declared or clearly the legislative intent.(e.g increase taxes on income already earned) when retroactive application would be so harsh and oppressive [Republic v. Fernandez, G.R. No. L-9141. September 25, 1956]. Exception to the exception - Collection of interest in tax cases is not penal in nature; it is but a just compensation to the State. The constitutional prohibition against ex post facto laws is not applicable to the collection of interest on back taxes. [Central Azucarera v.CTA]
Non-retroactivity of Rulings (sec. 246) General rule - Any revocation, modification or reversal of rules and regulations promulgated in accordance with Sections 244 and 245 of the Tax Code and rulings or circulars promulgated by the CIR, that is prejudicial to the taxpayer, shall NOT be given retroactive effect. Exceptions: (1) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by BIR; (2) Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; OR
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(3) Where the taxpayer acted in bad faith. (Sec. 246, NIRC)
concerned, the taxpayer, the subject of tax, is the person who must pay the tax to the government.
Imprescriptibility Incidence of taxation is that point on which the tax burden finally rests or settles down. It takes place when shifting has been effected from the statutory taxpayer to another.
Unless otherwise provided by the tax itself, taxes are imprescriptible. [CIR v. Ayala Securities Corporation]
Tax Avoidance (Tax Minimization) The exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. It is politely called “tax minimization” and is not punishable by law.
Means taxing twice the same taxpayer for the same tax period upon the same thing or activity, when it should be taxed but once, for the same purpose and with the same kind of character of tax. Constitutionality of Double Taxation There is no constitutional prohibition against double taxation in the Philippines. It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated. [Villanueva v. City of Iloilo, G.R. No. L-26521, December 28, 1968]
Transformation Transformation – method of escape in taxation whereby the manufacturer or producer upon whom the tax has been imposed pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost. The taxpayer escapes by a transformation of the tax into a gain through the medium of production.
Double taxation in its narrow sense is undoubtedly unconstitutional but that in the broader sense is not necessarily so. [De Leon, citing 26 R.C.L 264-265].Where double taxation (in its narrow sense) occurs, the taxpayer may seek relief under the uniformity rule or the equal protection guarantee. [De Leon, citing 84 C.J.S.138].
Tax Evasion (Tax Dodging) Tax Evasion - is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. It is also known as “tax dodging.” It is punishable by law.
ESCAPE FROM TAXATION Shifting of tax burden Shifting - the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. What is transferred is not the payment of the tax but the burden of the tax.
Elements of Tax Evasion (1) The end to be achieved. (2) An accompanying state of mind described as being “evil,” “in bad faith,” “willful” or “deliberate and not accidental.” (3) A course of action (or failure of action) which is unlawful.
All indirect taxes may be shifted; direct taxes cannot be shifted.
EXEMPTION FROM TAXATION Nature of tax exemption (1) Mere personal privilege- cannot be assigned or transferred without the
Impact of taxation is the point on which a tax is originally imposed. In so far as the law is 7
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consent of the Legislature. The legislative consent to the transfer may be given either in the original act granting the exemption or in a subsequent law (2) General rule: revocable by the government. Exception: if founded on a contract which is protected from impairment. But the contract must contain the essential elements of other contracts. An exemption provided for in a franchise, however, may be repealed or amended pursuant to the Constitution (see Sec. 11, Art. XII). A legislative franchise is in the nature of a contract. (3) Implies a waiver on the part of the government of its right to collect taxes due to it, and, in this sense, is prejudicial thereto. Hence, it exists only by virtue of an express grant and must be strictly construed. (4) Not necessarily discriminatory, provided it has reasonable foundation or rational basis. Where, however, no valid distinction exists, the exemption may be challenged as violative of the equal protection
Articles 1279 and 1290 of the NCC, and both debts are extinguished to the concurrent amount.[Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963]
COMPROMISE (a) A contract whereby the parties, by making reciprocal concessions avoid litigation or put an end to one already commenced. (Art. 2028, Civil Code). It involves a reduction of the taxpayer’s liability. (b) Requisites of a tax compromise: (1) The taxpayer must have a tax liability. (2) There must be an offer (by the taxpayer or Commissioner) of an amount to be paid by the taxpayer. (3) There must be acceptance (by the Commissioner or the taxpayer, as the case may be) of the offer in settlement of the original claim.
TAX AMNESTY A tax amnesty partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and become a part of the new society with a clean slate.[Republic v. IAC (1991)]
REVOCATION OF TAX EXEMPTION General Rule - revocable by the government. Exception - Contractual tax exemptions may not be unilaterally so revoked by the taxing authority without thereby violating the nonimpairment clause of the Constitution.
Tax Amnesty is immunity from all criminal and civil obligations arising from non-payment of taxes. It is a general pardon given to all taxpayers. It applies to past tax periods, hence of retroactive application. [People v. Castañeda, G.R. No. L-46881, September 15, 1988].
COMPENSATION AND SET-OFF General Rule - Internal revenue taxes cannot be the subject of set-off or compensation [Republic v. Mambulao Lumber, G.R. No. L17725, February 28, 1962]. Exception - If the claims against the government have been recognized and an amount has already been appropriated for that purpose. Where both claims have already become due and demandable as well as fully liquidated, compensation takes place by operation of law under Art. 1200 in relation to
Tax Exemption is an immunity from all civil liability only. It is an immunity or privilege, a freedom from a charge or burden of which others are subjected. [Greenfield v. Meer, 77 Phil. 394 (1946)]. It is generally prospective in application. [Dimaampao, 2005, p. 111] 8
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TAXATION LAW rule on strict construction does not apply. [Comm. V. Arnoldus Carpentry Shop, Inc., 159 SCRA 19 (1988)].
CONSTRUCTION AND INTERPRETATION OF: Tax Laws General Rule - Tax laws are construed strictly against the government and liberally in favor of the taxpayer. [Manila Railroad Co. v. Coll. of Customs, 52 Phil. 950 (1929)]. Exceptions (1) The rule of strict construction as against the government is not applicable where the language of the statute is plain and there is no doubt as to the legislative intent. (see 51 Am.Jur.368). In such case, the words employed are to be given their ordinary meaning. Ex. Word “individual” was changed by the law to “person”. This clearly indicates that the tax applies to both natural and juridical persons, unless otherwise expressly provided. (2) The rule does not apply where the taxpayer claims exemption from the tax.
Tax Rules and Regulations The Secretary of Finance, upon recommendation of the CIR, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. (Sec. 244) The power to interpret the provisions of the Tax Code and other tax laws is under the exclusive and original jurisdiction of the Commissioner of Internal Revenue subject to review by the Secretary of Finance (Sec. 4, par.1, NIRC).
Decisions of the Supreme Court and Court of Tax Appeals Decisions of the Supreme Court applying or interpreting existing tax laws are binding on all subordinate courts and have the force and effect of law. As provided for in Article 8 of the Civil Code, they “form part of the law of the land”. They constitute evidence of what the law means. (People v. Licera, 65 SCRA 270 ).
Tax Exemption and Exclusion General Rule - In the construction of tax statutes, exemptions are not favored and are construed strictissimi juris against the taxpayer. [Republic Flour Mills v. Comm. & CTA, 31 SCRA 520 (1970)]. Exceptions: (a) When the law itself expressly provides for a liberal construction, that is, in case of doubt, it shall be resolved in favor of exemption; and (b) When the exemption is in favor of the government itself or its agencies, or of religious, charitable, and educational institutions because the general rule is that they are exempt from tax. (c) When the exemption is granted under special circumstances to special classes of persons. (d) If there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent, the
Penal Provisions Of Tax Laws Penal provisions of tax laws must be strictly construed. It is not legitimate to stretch the language of a rule, however beneficent its intention, beyond the fair and ordinary meaning of its language. Non-Retroactive Application Of Tax Laws To Taxpayers General rule - Tax laws are prospective in operation. The reason is that the nature and amount of the tax could not be foreseen and understood by the taxpayer at the time the transaction which the law seeks to tax was completed.
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Exception - Tax laws may be applied retroactively provided it is expressly declared or clearly the legislative intent. (Lorenzo v. Posadas, 64 Phil. 353 ).
now expressly given the power to create its own sources of revenue and to levy taxes, fees and charges, subject to such guidelines and limitations as the Congress may provide which must be consistent with the basic policy of local autonomy. [Art X, Sec 5, 1987 Constitution]
Exception to the Exception - a tax law should not be given retroactive application when it would be so harsh and oppressive for in such case, the constitutional limitation of due process would be violated (Republic v. Fernandez,).
SCOPE AND TAXATION
(2) Delegation to the President (a) to enter into Executive agreements, and (b) to ratify treaties which grant tax exemption subject to Senate concurrence. (c) 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. [Art. 6, Sec. 28 (2), 1987 Consti]
Inherent Limitations 1. Public Purpose The proceeds of the tax must be used (a) for the support of the State or (b) for some recognized objects of government or directly to promote the welfare of the community. 2. Inherently Legislative Stated in another way, taxation may exceptionally be delegated, subject to such well-settled limitations as – (1) The delegation shall not contravene any constitutional provision or the inherent limitations of taxation; (2) The delegation is effected either by the Constitution or by validly enacted legislative measures or statute; and (3) The delegated levy power, except when the delegation is by an express provision of the Constitution itself, should only be in favor of the local legislative body of the local or municipal government concerned. [Vitug and Acosta]
(3) Delegation to administrative agencies Limited to the administrative implementation that calls for some degree of discretionary powers under sufficient standards expressed by law or implied from the policy and purposes of the Act. 3. Territorial Rule - A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercise and enjoyed. (51 Am.Jur. 87-88).
General Rule - Delegata potestas non potest delegari. The power to tax is exclusively vested in the legislative body and it may not be redelegated. Exceptions (1) Delegation to local governments - Under the new Constitution, however, LGUs are
4. International Comity
Comity - respect accorded by nations to each other because they are sovereign equals. Thus, the property or income of a foreign state or government may not be the subject of taxation by another state. 10
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TAXATION 1 Intangible personal property (e.g., credits, bills receivables, bank deposits, bonds, promissory notes, mortgage loans, judgments and corporate stocks)
Exemption of Government Entities, Agencies, and Instrumentalities (a) If the taxing authority is the National Government: General Rule - Agencies and instrumentalities of the government are exempt from tax. Exception - When it chooses to tax itself. Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. (Mactan Cebu Airport v Marcos, 1996) (b) If the taxing authority is the local government unit: RA 7160 expressly prohibits LGUs from levying tax on the National Government, its agencies and instrumentalities and other LGUs.
Gen Rule: Domicile of the owner. Mobilia sequuntur personam (movables follow the person) Exceptions: (1) When property has acquired a business situs in another jurisdiction; or (2) When the law provides for the situs of the subject of tax (e.g., Sec 104, NIRC)
Source of the income, nationality or residence of taxpayer (Sec. 23, NIRC) Location of property; nationality or residence of taxpayer Location of property; nationality or residence of taxpayer Where transaction is made
Poll, Capitation or Community Tax
Residence of taxpayer, regardless of the source of income or location of the property of the taxpayer
(c) Situs of Taxation Within the territorial jurisdiction, the taxing authority may determine the situs. Situs of taxation literally means the place of taxation. The basic rule is that the state where the subject to be taxed has a situs may rightfully levy and collect the tax; and the situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question. Kind of Tax
Situs Property Tax
Real property Where it is located (lexreisitae) Tangible Where property is physically Personal located although the owner property resides in another jurisdiction.
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for interns, resident doctors and other members of the hospital staff, and recreational facilities for student nurses, interns and residents, such as athletic fields. [Abra Valley College v. Aquino]
(1) Prohibition against imprisonment for nonpayment of poll tax (Art III, Sec 20, 1987 Constitution) (2) Uniformity and equality of taxation (Art VI, Sec 28(1), 1987 Constitution) (3) Taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation
Prohibition against taxation of non-stock, nonprofit educational institutions (ART XIV, SEC 4, 1987 CONSTITUTION) This provision covers only non-stock, non-profit educational institutions
(4) Grant by Congress of authority to the President to impose tariff rates Delegation of Tariff powers to the President under the flexible tariff clause [Art VI, Sec 28(2), 1987 Constitution], which authorizes the President to modify import duties. (Sec. 401, Tariff and Customs Code)
Lands, buildings, and improvements actually, directly and exclusively used for educational purposes are exempt from property tax (Sec. 28, Art. VI, 1987 Constitution), whether the educational institution is proprietary or nonprofit.
(5) Prohibition against taxation of religious, charitable entities, and educational entities (Art VI, Sec 28(3), 1987 Constitution) The tax exemption under this constitutional provision covers property taxes only and not other taxes (Lladoc v. Commissioner, 14 SCRA 292 ).
Art. VI, sec. 28, par. 3 Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes. Property taxes
Use of the property, and not the ownership Actual, direct and exclusive Nature of Use use for religious, charitable or educational purposes. Real property taxes on facilities which are (1) actual, (2) incidental to, or (3) reasonably necessary for Scope of the accomplishment of Exemption said purposes such as in the case of hospitals, a school for training nurses, a nurses’ home, property to provide housing facilities Test Exemption
Art. XIV, sec. 4, par. 3 Non-stock, nonprofit educational institutions.
Income, property, and donor’s taxes and custom duties.
(6) Majority vote of Congress for grant of tax exemption (Art VI, Sec 28, 1987 Constitution) Exemptions may be created by: (1) the Constitution or (2) statute subject to constitutional limitations 12
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Note: (1) The LGU shall have the authority to grant local tax exemption privileges. (Sec. 192, LGC) (2) The President may, when public interest so requires, condone or reduce real property taxes and interest. (Sec. 277, LGC)
(1) Due process (Art III, Sec 1, 1987 Constitution) (2) Equal protection (Art III, Sec 1, 1987 Constitution) (3) Religious freedom (Art III, Sec 5, 1987 Constitution ) The Constitution, however, does not prohibit imposing a generally applicable tax on the sale of religious materials by a religious organization. (Tolentino v. Secretary of Finance, 235 SCRA 630 )
(7) Prohibition on use of tax levied for special purpose All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only.
(4)Non-impairment of obligations of contracts (ART III, SEC 10, 1987 CONSTITUTION)
(8) President’s veto power on appropriation, revenue, tariff bills (Art VI, Sec 27(2), 1987 Constitution)
The Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. [Tolentino v. Secretary of Finance]
(9) Non-impairment of jurisdiction of the Supreme Court (Art VIII, Sec 2; Art VIII, Sec 5(2,B); Art VI, Sec 30, 1987 Constitution) (10) Grant of power to the local government units to create its own sources of revenue [Art X, Sec 5, 1987 Constitution]
STAGES OR PROCESS OF TAXATION
(13) No appropriation or use of public money for religious purposes (Art VI, Sec 29, 1987 Constitution)
The exercise of taxation involves three stages, namely: (1) Levy Or Imposition – This process involves the passage of tax laws or ordinances through the legislature. (2) Assessment And Collection – This process involves the act of administration and implementation of tax laws by the executive through its administrative agencies such as the Bureau of Internal Revenue or Bureau of Customs. (3) Payment – this process involves the act of compliance by the taxpayer in contributing his share to pay the expenses of the government. (4) Refund – A claim for refund must first be filed with the Commissioner of Internal Revenue.
PROVISIONS INDIRECTLY AFFECTING TAXATION
REQUISITES OF A VALID TAX LAW
(11) Flexible tariff clause Delegation of Tariff powers to the President under the flexible tariff clause [Art VI, Sec 28(2), 1987 Constitution] Flexible tariff clause: the authority given to the President, upon the recommendation of NEDA, to adjust the tariff rates under Sec. 401 of the Code in the interest of national economy, general welfare and/or national security. (12) Exemption from real property taxes (Art VI, Sec 28(3), 1987 Constitution)
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(1) for a public purpose (2) rule of taxation should be uniform (3) the person or property taxed is within the jurisdiction of the taxing authority (4) assessment and collection is in consonance with the due process clause (5) The tax must not infringe on the inherent and constitutional limitations of the power of taxation
License and Regulatory Fee Imposed under the Levied under the taxing power of the police power of the state for purposes of state. revenue. Forced contributions Exacted primarily to for the purpose of regulate certain maintaining businesses or government occupations. functions. Generally, unlimited Should not as to amount unreasonably exceed the expenses of issuing the license and of supervision. Imposed on persons, Imposed only on the property and to right to exercise a exercise a privilege. privilege Failure to pay does Failure to pay makes not necessarily make the act or business the act or business illegal. illegal.
TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS Tariff Taxes
All embracing term to A kind of tax imposed include various kinds on articles which are of enforced traded internationally contributions upon persons for the attainment of public purposes
Penalty for nonpayment: surcharges or imprisonment (except poll tax).
Paid for the support of the government Demand of sovereignty Generally, no limit on the amount collected as long as it is not excessive, unreasonable or confiscatory Imposed only by the government
Paid for the use of another’s property. Demand of proprietorship Amount paid depends upon the cost of construction or maintenance of the public improvement used. Imposed by the government or by private individuals or entities.
Special Assessment Taxes Levied not only on land. Imposed regardless of public improvements Contribution of a taxpayer for the support of the government. It has general application both as to
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Special Assessment Levied only on land. Imposed because of an increase in value of land benefited by public improvement. Contribution of a person for the construction of a public improvement Exceptional both as to time and locality.
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Generally intended to raise revenue May be imposed only by the government
time and place.
Cannot be a subject of set off or compensation
Based on laws
Generally based on contract, express or implied. Generally cannot be Assignable assigned Generally paid in May be paid in kind. money Cannot be a subject Can be a subject of of set off or set off or compensation compensation (see Art. 1279, Civil Code) A person cannot be Imprisonment is a imprisoned for non- sanction for nonpayment of debt payment of tax, (except when it arises except poll tax. from a crime), Governed by the Governed by the special prescriptive ordinary periods of periods provided for prescription. in the NIRC. Does not draw Draws interest when interest except only it is so stipulated or when delinquent where there is default. Imposed only by Can be imposed by public authority private individual
acts deemed injurious Designed to regulate conduct May be imposed by the government or private individuals or entities Can be a subject of set off or compensation (see Art. 1279, Civil Code)
KINDS OF TAXES As To Object (1) Personal, Poll or Capitation Tax – tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to their property or the occupation or business in which they may be engaged (e.g. community (formerly residence) tax). (2) Property Tax – tax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of apportionment (e.g., real estate tax). (3) Privilege/Excise Tax – any tax which does not fall within the classification of a poll tax or a property tax. Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, profession, or business. (e.g., income tax, value added tax, estate tax, donor’s tax).
As To Burden Or Incidence (1) Direct Taxes – taxes which are demanded from persons who also shoulder them; taxes for which the taxpayer is directly or primarily liable, or which he cannot shift to another (eg. Income tax, estate tax, donor’s tax, community tax) (2) Indirect Taxes – taxes which are demanded from one person in the expectation and
Violation of tax laws Any sanction imposed may give rise to as a punishment for imposition of penalty. violation of law or 15
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As To Scope (Or Authority Imposing The Tax)
intention that he shall indemnify himself at the expense of another, falling finally upon the ultimate purchaser or consumer; taxes levied upon transactions or activities before the articles subject matter thereof, reach the consumers who ultimately pay for them not as taxes but as part of the purchase price. (e.g., VAT, percentage tax; excise taxes on specified goods; customs duties).
(1) National – taxes imposed by the national government (e.g. national internal revenue taxes, customs duties, and national taxes imposed by laws). (2) Municipal or Local – taxes imposed by local governments (e.g. business taxes that may be imposed under the Local Government Code; professional tax).
As To Tax Rates (1) Specific Tax – a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement (e.g., taxes on distilled spirits, wines, and fermented liquors; cigars and cigarettes) (2) Ad Valorem Tax – a tax of a fixed proportion of the value of the property with respect to which the tax is assessed (e.g. real estate tax, excise tax on automobiles, nonessential goods such as jewelry and perfumes, customs duties (except on cinematographic films)). (3) Mixed
As To Graduation (1) Proportionate – The rate of tax is based on a fixed percentage of the amount of the property, receipts or other basis to be taxed. Example: real estate tax, value added tax, and other percentage taxes. (2) Progressive – The rate of tax increases as the tax base or bracket increases. Example: income tax, estate tax, donor’s tax. (3) Digressive – A fixed rate is imposed on a certain amount and diminishes gradually on sums below it. The tax rate in this case is arbitrary because the increase in tax rate is not proportionate to the increase of tax base. (4) Regressive – The rate of tax decreases as the tax base or bracket increases. There is no regressive tax in the Philippines.
As To Purposes (1) General or Fiscal Tax –levied for the general or ordinary purposes of the Government (e.g. income tax, value added tax, and almost all taxes). (2) Special/Regulatory/ Sumptuary Tax –levied for special purposes (e.g. protective tariffs or customs duties on imported goods to enable similar products manufactured locally to compete with such imports in the domestic market).
Regressive/Progressive System Of Taxation (1) A regressive tax, must not be confused with regressive system of taxation. (2) A progressive tax is also different from a progressive system of taxation.
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II. National Internal Revenue Code of 1997 as amended (NIRC)
subjected to one set of graduated tax rates or normal corporate income tax. With respect to such income the computation is global. For those other income not mentioned above, they remain subject to different sets of tax rates and covered by different returns.
Income Tax is defined as a tax on all yearly profits arising from property, professions, trades, or offices, or as a tax on the person’s income, emoluments, profits and the like (Fisher v. Trinidad, 43 Phil. 981).
Note: The Philippines, under EO 37 (1986) and RA 8424 (1998), follows a semi-schedular and semi-global tax system.
FEATURES OF THE INCOME TAX LAW
INCOME TAX SYSTEMS
Global Tax System Under a global tax system, it did not matter whether the income received by the taxpayer is classified as compensation income, business or professional income, passive investment income, capital gain, or other income. All items of gross income, deductions, and personal and additional exemptions, if any, are reported in one income tax return, and one set of tax rates are applied on the tax base.
Schedular Tax System Different types of incomes are subject to different sets of graduated or flat income tax rates. The applicable tax rate(s) will depend on the classification of the taxable income and the basis could be gross income or net income. Separate income tax returns (or other types of return applicable) are filed by the recipient of income for the particular types of income received.
All compensation income, business or professional income, capital gain and passive income not subject to final tax, and other income are added together to arrive at the gross income, and after deducting the sum of allowable deductions, the taxable income is
The tax burden is borne by the income recipient upon whom the tax is imposed. PROGRESSIVE The tax rate increases as the tax base increases. It is founded on the ability to pay principle and is consistent with Sec. 28, Art. VI, 1987 Constitution. COMPREHENSIVE The Philippines has adopted the most comprehensive system of imposing income tax by adopting the citizenship principle, the residence principle, and the source principle. SEMI-SCHEDULAR OR SEMI-GLOBAL TAX SYSTEM The Philippines follows the semi-schedular or semi-global system of income taxation NATIONAL TAX It is imposed and collected by the National Government throughout the country. EXCISE TAX It is imposed on the right or privilege of a person to receive or earn income. It is not a personal tax or a property tax. DIRECT TAX
CRITERIA IN IMPOSING PHILIPPINE INCOME TAX Citizenship or Nationality Principle A citizen of the Philippines is subject to Philippine income tax 17
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(a) on his worldwide income, if he resides in the Philippines; or (b) only on his income from sources within the Philippines, if he qualifies as a nonresident citizen.
TAXABLE PERIOD The accounting periods used in determining the taxable income of taxpayers are: (a) Calendar Year - Accounting period of 12 months ending on the last day of December (b) Fiscal Year - Accounting period of 12 months ending on the last day of any month other than December (Sec. 22(Q), NIRC). (c) Short Period- Accounting period which starts after the first month of the tax year or ends before the last month of the tax year (less than 12 months).
Residence Principle A resident alien is liable to pay Philippine income tax on his income from sources within the Philippines but is exempt from tax on his income from sources outside the Philippines.
Source of Income Principle
Instances Whereby Period Arises
An alien is subject to Philippine income tax because he derives income from sources within the Philippines. Thus, a non-resident alien or non-resident foreign corporation is liable to pay Philippine income tax on income from sources within the Philippines, such as dividend interest, rent, or royalty, despite the fact that he has not set foot in the Philippines.
(a) When a corporation is newly organized. (b) When a corporation is dissolved. (c) When a corporation changes accounting period. (d) When the taxpayer dies.
When Calendar Year Shall Be Used In Computing Taxable Income:
TYPES OF PHILIPPINE INCOME TAX (1) Graduated income tax on individuals (2) Normal corporate income tax on corporations (3) Minimum corporate income tax on corporations (4) Special income tax on certain corporations (5) Capital gains tax on sale or exchange of shares of stock of a domestic corp. classified as capital assets (6) Capital gains tax on sale or exchange of real property classified as capital asset (7) Final withholding tax on certain passive investment income paid to residents (8) Final withholding tax on income payments made to non-residents (9) Fringe benefits tax on fringe benefits of supervisory or managerial employees (10) Branch profit remittance tax (11) Tax on improperly accumulated earnings of corporations
(a) If the taxpayer's annual accounting period is other than a fiscal year; or (b) If the taxpayer has no annual accounting period; or (c) If the taxpayer does not keep books of accounts; or (d) If the taxpayer is an individual (Sec. 43, NIRC).
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TAXATION 1 Estates Trusts
KINDS OF TAXPAYERS Taxpayer- any person subject to tax imposed by Title II of the Tax Code (Sec. 22(N), NIRC). Person- means an individual, a trust, estate or corporation (Sec. 22(A), NIRC).
General Business Partnership General Professional Partnership
For income tax purposes, taxpayers are classified generally as follows: (4) Individuals; (5) Corporations; (6) Partnerships; and (7) Estates and Trusts.
Individual Taxpayers Citizens (2) Resident Citizens (RC) (3) Non-resident Citizens (NRC) (a) Citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (b) Citizen who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. (c) Citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. (d) Citizen previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines Treated as NRC with respect to his income derived from sources abroad until the date of his arrival in the Philippines
Sub-Classification(s) Citizens Residents citizens of the Non-resident Philippin citizens es Residents Engaged in Trade or Business in the Philippine s NonAliens residen Not ts Engaged in Trade or Business in the Philippine s Special Classes of Minimum Wage Individual Earner s Domestic Corporations Resident Corporations Foreign Corporations Non-resident Corporations
Aliens (1) Resident Alien - An alien actually present in the Philippines who is not a mere transient or sojourner is a resident for income tax purposes. No/Indefinite Intention = RESIDENT Definite Intention = TRANSIENT: Exception: Definite Intention but such cannot be promptly accomplished, then he becomes a resident. 19
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TAXATION LAW corporation engaged in trade or business within the Philippines.
(2) Non-resident Alien - Engaged in trade or business within the Philippines - If the aggregate period of his stay in the Philippines is more than 180 days during any calendar year.
Doing business – The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. (RA 7042, Foreign Investments Act)
Not engaged in trade or business within the Philippines - If the aggregate period of his stay in the Philippines does not exceed 180 days. Special class of individual employees Minimum Wage Earner (a) A worker in the private sector paid the statutory minimum wage; (b) An employee in the public sector with compensation income of not more than the statutory minimum wage in the nonagricultural sector where he/she is assigned.
In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character (CIR v. BOAC)
(b) Non-resident foreign corporations – Foreign corporation not engaged in trade or business within the Philippines
Includes all types of corporations, partnerships (no matter how created or organized), joint stock companies, joint accounts, associations, or insurance companies, whether or not registered with the SEC.
(3) Joint venture and consortium – Essential factors of a joint venture or consortium: (a) Each party must make a contribution, not necessarily of capital but by way of services, skill, knowledge, material or money; (b) Profits must be shared among the parties; (c) There must be a joint proprietary interest and right of mutual control over the subject matter of the enterprise; (d) There is a single business transaction.
Excludes general professional partnerships (GPP), joint venture or consortium formed for the purpose of undertaking construction projects, joint venture or consortium engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the government. (1) Domestic corporations – A corporation created and organized under its laws (the law of incorporation test).
Partnership The Tax Code mandates that every other type of business partnership is subject to income tax in the same manner and at the same rate as an ordinary corporation.
(2) Foreign corporations – A corporation which is not domestic. (a) Resident foreign corporations – Foreign
General Professional Partnerships (GPP) 20
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A general professional partnership is a partnership formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.
INCOME TAXATION Income Tax is defined as a tax on all yearly profits arising from property, professions, trades, or offices, or as a tax on the person’s income, emoluments, profits and the like (Fisher v. Trinidad).
Not considered as a taxable entity for income tax purposes. The partners themselves are liable, not the partnership, are liable for the payment of income tax in their individual capacities.
General Principles (1) A resident citizen of the Philippines is taxable on all income derived from sources within and without the Philippines; (2) A nonresident citizen is taxable only on income derived from sources within the Philippines; (3) An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines:
Estates and Trusts Taxable estates and trusts are taxed in the same manner and on the same basis as an individual. EXCEPT for the exemption: 20,000 for estates and trusts, 50,000 for individuals.
Co-ownership For income tax purposes, the co-owners in a co-ownership report their share of the income from the property owned in common by them in their individual tax returns for the year and the co-ownership is not considered as a separate taxable entity or a corporation.
Provided, That a seaman shall be treated as an overseas contract worker if he is a: (1) citizen of the Philippines; and (2) receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade (1) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines; (2) A domestic corporation is taxable on all income derived from sources within and without the Philippines; and (3) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines. (Sec. 23) Taxpayer Within Without Resident Citizen Non-resident Citizen and X OCW 21
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Resident and Non-resident Alien Domestic Corporation Foreign Corporation
(1) Actual receipt – Income is actually reduced to possession. The realization of gain may take the form of actual receipt of cash. (2) Constructive receipt – An income is considered constructively received when it is credited to the account of, or segregated in favour of a person. Examples of constructive receipt of income are: (a) Interest credited on savings bank deposit (b) Matured interest coupons not yet collected by the taxpayer (c) Dividends applied by the corporation against the indebtedness of a stockholder (d) Share in the profit of a partner in a general professional partnership, although not yet distributed, is regarded as constructively received; or (e) Intended payment deposited in court (consignation).
INCOME Income means all wealth which flows to the taxpayer other than a mere return of capital. It includes gain derived from the sale or other disposition of capital assets. Income is a gain derived from labor or capital, or both labor and capital; and includes the gain derived from the sale or exchange of capital assets. When Income is Taxable Existence of taxable income (1) There is INCOME, gain or profit (2) RECEIVED or REALIZED during the taxable year (3) NOT EXEMPT from income tax
Recognition of Income. Methods of accounting in reporting income and expenses
When is there INCOME? When there is a FLOW of wealth other than mere return of capital during the taxable period.
Cash method vis-à-vis Accrual method – Cash method generally reports income upon cash collection and reports expenses upon payment. If earned from rendering of services, income is to be reported in the year when collected, whether earned or unearned. (Sec. 108, NIRC).
Income v. Capital (Madrigal v. Rafferty) Income
Accrual method generally reports income when earned and reports expense when incurred. If earned from sale of goods, income is to be reported in the year of sale, irrespective of collection. (Sec. 106, NIRC).
Denotes a flow of Fund or property wealth during a existing at one definite period of distinct point in time. time. Service of wealth Wealth itself Subject to tax Return of capital is not subject to tax Fruit Tree
Income realized pertains to the accrual basis of accounting, when recognition of income in the books is when it is realized and expenses are recognized when incurred. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income
Realization of Income Actual vis-à-vis Constructive receipt
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Examples: (1) interest or rent income earned but not yet received (2) rent expense accrued but not yet paid (3) wages due to workers but remaining unpaid
entire purchase price has not been actually received in the year of sale. (c) The obligations of the purchaser received by the vendor are to be considered as equivalent of cash.
Installment method vis-à-vis Deferred method vis-à-vis Percentage of completion method (in long- term contracts) Installment Method is a special method of accounting whereby income on installment sales of property during the year is allowed to be reported in installments in proportion to the installment payments actually received in that year, which the gross profit realized or to be realized when payment is completed, bears to the total contract price (Sec. 49, NIRC).
Dealer Dealer in personal Installment property who method; Provided, regularly sells in initial payments do installment plan: not exceed 25% of Installment method selling price *held as ordinary If exceeds 25%-assetregardless of Deferred payment amount of method percentage of initial payments *held as inventory Casual Sale Installment method; Provided:
Income may be reported on the installment basis in the following cases: (1) Sales of personal property by a dealer (2) Sales of real property (inventory) and casual sales of personalty (3) Sales of real property considered as capital asset by individuals
(1) Selling price exceeds Php1,000 (2) Initial payments do not exceed 25% of selling price
Change from accrual to installment basis A taxpayer entitled to the benefits of a dealer in personal property may elect for any taxable year to report his taxable income on the installment basis. In computing his income for the year of change or any subsequent year, amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded. [see Sec. 49(D), NIRC].
If either of 2 or both conditions not met—Deferred payment method
Deferred Payment (a) If the initial payments exceed 25% of the selling price, the gain realized may be reported on a deferred payment method. (b) The taxable gain or income returnable during the year of sale is the difference between the selling or contract price and the cost of the property, even though the
*personal property not considered inventory Sale by Individuals Installment method; Provided, initial payments do 23
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TAXATION 1 not exceed 25% of selling price (2) *held asset
Percentage Of Completion (In Long-Term Contracts) Income from long-term construction contracts refers to the earnings derived from construction of a building, installation or other construction contract usually covering a period in excess of one year. When income is derived from long-term construction contracts, it is generally reported on the basis of percentage of completion made every year that will be evidence by the certificates of engineers or architects. The reportable income is calculated by deducting from the contract price the actual cost of construction.
In recognizing realized revenue for long-term construction contracts, accountants usually follow two methods: (a) Completed contract method – requires recognition of revenue only when the contract is finally completed; and (b) Percentage of completion method – requires recognition of income based on the progress of work.
Long-term contracts are no longer allowed to be reported based on the completed contract method basis beginning January 1, 1998 pursuant to RA 8424; hence, all longterm contracts must be reported using the percentage of completion method. Tests in determining whether income is earned for tax purposes (1) Realization test – no taxable income until there is a separation from capital of something of exchangeable value, thereby supplying the realization or transmutation
TAXATION LAW which would result in the receipt of income (Eisner v Macomber). Claim of right doctrine (or Doctrine of Ownership, command, or control) – a taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite unconditional obligation to return or repay that which would otherwise constitute a gain.. Economic benefit test, Doctrine of Proprietary Interest – any economic benefit to the employee that increases his net worth, whatever may have been the mode by which it is effected, is taxable. Severance Test - Under the doctrine of severance test of income, in order that income may exist, is necessary that there be a separation from capital of something of exchangeable value. The income required a realization of gain. All Events Test - Under the accrual method of accounting, expenses are deductible in the taxable year in which: (1) all events have occurred which determine the liability; and (2) the amount of liability can be determined with reasonable accuracy.
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(c) Taxable income – means the pertinent items of gross income specified in the Tax Code, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by the Tax Code or other special laws (Sec. 31, NIRC). It is synonymous to the term “net income” [Valencia and Roxas]
GROSS INCOME Gross Income means the pertinent items of income referred to in Section 32(A) of the Tax Code. It includes all income derived from whatever source (unless exempt from tax by law), including, but not limited to, the following items (1) Gross income derived from the conduct of Trade or business or the exercise of a profession (2) Rents (3) Interests (4) Prizes and winnings (5) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items (6) Annuities (7) Royalties (8) Dividends (9) Gains derived from dealings in property (10) Pensions (11) Partner’s distributive share from the net income of the general professional partnership (GPP) [Sec 32A, NIRC]
SOURCES OF INCOME SUBJECT TO TAX Compensation Income Income arising from an employer-employee (ER-EE) relationship. It means all remuneration for services performed by an EE for his ER, including the cash value of all remuneration paid in any medium other than cash [Sec. 78(A)], unless specifically excluded by the Tax Code. General Rule - every form of compensation income is taxable regardless of how it is earned, by whom it is paid, the label by which it is designated, the basis upon which it is determined, or the form in which it is received. The basis upon which remuneration is paid is immaterial. It may be paid on the basis of piece of work, percentage of profits, hourly, weekly, monthly, or annually. Exception - The term wages does NOT include remuneration paid: (a) For agricultural labor paid entirely in products of the farm where the labor is performed, or (b) For domestic service in a private home, or (c) For casual labor not in the course of the employer's trade or business, or (d) For services by a citizen or resident of the Philippines for a foreign government or an int’l organization. [Sec. 78(A)]
Concept of Income from Whatever Source Derived “Income derived from whatever source” means inclusion of all income not expressly exempted within the class of taxable income under the laws irrespective of the voluntary or involuntary action of the taxpayer in producing the gains, and whether derived from legal or illegal sources (i.e. gambling, extortion, smuggling, etc.)
Gross Income vis-à-vis Net Income vis-àvis Taxable Income (a) Gross Income - means income, gain or profit subject to tax. (b) Net Income– means gross income less statutory deductions and/or exemptions (Sec. 31, NIRC)
Note: Compensation income including overtime pay, holiday pay, night shift differential pay, and hazard pay, earned by MINIMUM WAGE EARNERS (MWE) who has no other returnable income are NOT taxable and 25
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not subject to withholding tax on wages [RA 9504]
the collection of compensation income of EEs, the State requires the ER to withhold the tax upon payment of the compensation income.
Forms Of Compensation And How They Are Assessed (a) Cash – If compensation is paid in cash, the full amount received is the measure of the income subject to tax.
Fringe Benefits Persons liable: The Employer (as a withholding agent), whether individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities, is liable to remit the fringe benefit tax to the BIR once fringe benefit is given to a managerial or supervisory employee.
(b) Medium other than money - If services are paid for in a medium other than money the fair market value (FMV) of the thing taken in payment is the amount to be included as compensation subject to tax. If the services are rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the FMV of the remuneration received.
The fringe benefit tax (FBT) is a final tax on the employee’s income to be withheld by the employer. The withholding and remittance of FBT shall be made on a calendar quarterly basis.
(c) Living quarters or meals General Rule - The value to the employee of the living quarters and meals given by the employer shall be added to his compensation subject to withholding. Exception - If living quarters/meals are furnished to an employee for the convenience of the employer the value needed NOT be included as part of compensation income.
Tax Rate and Tax Base (a) Tax base is based on the grossed-up monetary value (GMV) of fringe benefits. (b) Rate is generally 32% (c) GMV is determined by dividing the actual monetary value of the fringe benefit by 68% [100% - tax rate of 32%]. Special Cases: Recepient Of Fb
(d) Facilities and privileges of a relatively small value - Facilities and privileges otherwise known as “de minimis benefits” furnished or offered by an employer to his employees generally, are NOT considered as compensation subject to income tax and therefore withholding tax if such facilities are offered or furnished by the employer merely as means of promoting the health, goodwill, contentment, or efficiency of his employees.
NRA-NETB Alien individual employed by regional or area HQs of MNCs or by ROHs of MNCs Alien individual employed by OBUs of a foreign bank established in Philippines Alien individual
Withholding Tax on Compensation Income The income recipient (i.e., EE) is the person liable to pay the tax on income, yet to improve 26
Tax Rate 25% FBT on the GMV of FB
Tax Base Monetary value of FB divided by 75%
15% FBT on the GMV of FB
Monetary value of FB divided by 85%
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(c) Benefits given to the rank-and-file employees, whether granted under a collective bargaining agreement or not; and (d) Fringe benefits granted for the convenience of the employer; (e) De minimis benefits De minimis benefits (exempt from income tax as well as withholding tax on compensation income of both managerial and rank and file EEs) [Revenue Regulation No. 5-2011]: (4) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year; (5) Monetized value of vacation and sick leave credits paid to government officials and employees; (6) Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; (7) Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500; (8) Uniform and Clothing allowance not exceeding P5,000 per annum (RR 8-2012) (9) Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00 per annum; (10) Laundry allowance not exceeding P300 per month; (11) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; (12) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; and
employed by a foreign service contractor or subcontractor engaged in petroleum operations in Phils. Any of their Filipino individual employees employed and occupying the same position as those by alien employees above Subject to normal rate of FBT or Employees in special special economic zones rates of 25% or 15% as provided above
Monetary value of FB divided by 85% or 75%
Taxable And Non-Taxable Fringe Benefits Fringe Benefits NOT subject to Tax (1) Fringe benefits not considered as gross income – (a) if it is required or necessary to the business of employer (b) if it is for the convenience or advantage of employer (2) Fringe Benefit that is not taxable under Sec. 32 (B) – Exclusions from Gross Income (3) Fringe benefits not subject to Fringe Benefit Tax: (a) Fringe Benefits which are authorized and exempted from income tax under the Code or under special laws; (b) Contributions of the employer for the benefit of the employee for retirement, insurance and hospitalization benefit plans; 27
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(13) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis; Professional Income Refers to fees received by a professional from the practice of his profession, provided that there is NO employer-employee relationship between him and his clients. Income from Business (a) Any income derived from doing business (b) Doing business: The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. Income from Dealings in Property Dealings in property such as sales or exchanges may result in gain or loss. The kind of property involved (i.e., whether the property is a capital asset or an ordinary asset) determines the tax implication and income tax treatment, as follows:
Taxable Net Income
Ordinary Net Income
Net Capital Gains (other than those subject to final CGT)
which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year. (2) Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. (3) Property used in the trade or business of a character which is subject to the allowance for depreciation, or (4) Real property used in the trade or business of the taxpayer, including property held for rent.
his trade or business which is not an ordinary asset. Generally, they include: (1) stocks and securities held by taxpayers other than dealers in securities (2) real property not used in trade or business, such as residential house and lot, idle or vacant land or building (3)investment property, such as interest in a partnership, stock investment (4)Personal or nonbusiness properties, such as family car, home appliances, jewelry.
Gain from sale, exchange or other disposition Ordinary Gain (part of Capital Gain Gross Income) Loss from sale, exchange, or other disposition Ordinary Loss (part of Allowable Deductions Capital Loss from Gross Income) Excess of Gains over Losses Part of Gross Income Net Capital Gain Excess of Losses over Gains
Types of Properties Capital v. Ordinary Asset
(1)Stock in trade of the Property held by the taxpayer or other taxpayer, whether or property of a kind not connected with 28
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capital loss from the net capital gain of the subsequent taxable year; provided that the following conditions shall be observed: (5) The taxpayer is other than a corporation; (6) The amount of loss does not exceed the income before exemptions at the year when the loss was sustained; and (7) The holding period should not exceed 12 months. (Valencia)
Net Capital Loss
Types of Gains from dealings in property (1) Ordinary income vis-à-vis Capital gain. – If the asset involved is classified as ordinary, the entire amount of the gain from the transaction shall be included in the computation of gross income [Sec 32(A)], and the entire amount of the loss shall be deductible from gross income. [Sec 34(D)]. (See Allowable Deductions from Gross Income Losses)
When a capital gain or capital loss is sustained by a corporation, the following rules shall be observed: (2) There is no holding period; hence, there is no net capital loss carry-over. (3) Capital gains and losses are recognized to the extent of their full amount. (4) Capital losses are deductible only to the extent of capital gains. (5) Net capital losses are not deductible from ordinary gain or income but ordinary losses are deductible from net capital gains.
If the asset involved is a capital asset, the rules on capital gains and losses apply in the determination of the amount to be included in gross income. (See Capital Gains and Losses). These rules do not apply to: (a) real property with a capital gains tax (final tax), or (b) shares of stock of a domestic corporation with a capital gains tax (final tax). (c) Also, sale of shares of stock of a domestic corporation, held as capital assets, through the stock exchange by either individual or corporate taxpayers, is subject to ½ of 1% percentage tax based on gross selling price.
(2) Actual gain vis-à-vis Presumed gain Presumed Gain: In the sale of real property located in the Philippines, classified as capital asset, the tax base is the gross selling price or fair market value, whichever is higher. The law presumes that the seller makes a gain from such sale. Actual Gain: The tax base in the sale of real property classified as an ordinary asset is the actual gain. If the seller incurs a loss from the sale, such loss may be deducted from his gross income during the taxable year. The ordinary gain shall be added to the operating income and the net taxable income shall be subject to the graduated rates from 5% to 32% (if an individual) or to 30% corporate tax or to 2% MCIT (if a corporation).
The tax rules for the gains or losses from sales or exchanges of capital assets over ordinary assets are as follows: (1) Net capital gain is added to ordinary gain but net capital loss is not deductible from ordinary gain. (2) Net ordinary loss is deductible from ordinary gain. (3) Capital losses are deductible only to the extent of the capital gain. (4) There is a net capital loss carry-over on the net capital asset’s loss in a taxable year which may be deducted as a short-term
Computation of the amount of gain or loss Amount realized from sale or other disposition of property 29
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Less: Basis or Adjusted Basis NET GAIN (LOSS)
(1) Cost or basis of the property sold: In computing the gain or loss from the sale or other disposition of property, the BASIS shall be as follows: (a) Property acquired by purchase – its acquisition cost, i.e., the purchase price plus expenses of acquisition. (b) Property which should be included in the inventory – its latest inventory value [RR-2 sec 136] (c) Property acquired by devise, bequest or inheritance – its fair market price or value as of the date of acquisition (inheritance) (d) Property acquired by gift or donation – the basis is the same as it would be in the hands of the donor or at the last preceding owner by whom it was not acquired by gift, or the fair market value at the time the gift was made, whichever is lower (e) Property acquired for less than an adequate consideration in money’s worth – the amount paid by the transferee for the property
Note: Amount realized from sale or other disposition of property = sum of money received + fair market value of the property (other than money) received Note: When a taxpayer sells a real or personal property, he should deduct its cost from its selling price to measure the gain or loss from the sales transaction (Sec. 40, NIRC). (3) Long term capital gain vis-à-vis Short term capital gain Long-term capital gain: Capital asset is held for more than twelve month before it is sold. Only 50% of the gain is recognized. Short-term capital Gain: Capital asset is held for less than 12 months. 100% of the gain is subject to tax.
(6) Cost or basis of the property exchanged in corporate reorganizations: Sales or exchanges resulting in non-recognition of gains or losses:
(4) Net Capital Gain vis-à-vis Net Capital Loss Net Capital Gain is the excess of the gains over the losses on sales or exchange of capital assets during the taxable year.
Exchange Solely in Kind (1) If in pursuance of a plan of merger or consolidation, exchanges: (a) Between the corporations which are parties to the merger or consolidation (property solely for stocks); (b) Between a stockholder of a corporation party to a merger or consolidation and the other corporation, which is a party to the merger or consolidation (stock in a corporation solely for the stock of another corporation); (c) Between a security holder of a corporation party to a merger or consolidation and the other corporation, which is a party to the merger or
Net Capital Loss means the excess of the losses over the gains on sales or exchanges of capital assets during the taxable year. [Sec. 39A, NIRC] (5) Computation of the amount of Gain or Loss For income tax purposes the following rules should be observed regarding the cost and expenses of the capital assets: (1) the costs and expenses of the acquisition are to be capitalized, and (2) the expenses of disposition are to be treated as reduction from the selling price. (Valencia)
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consolidation (securities solely for securities) (2) Transfer to a controlled corporation – a person transfers his property to a corporation in exchange for stocks in such a corporation, resulting in acquisition of corporate control by said person, alone or together with others not exceeding four (4).
shall be recognized from the exchange, but (ii) if the corporation receiving such other property and/or money does not distribute it in pursuance of the plan of merger or consolidation, the gain, if any, but not the loss to the corporation shall be recognized.
Exchange Not Solely in Kind -Gain, but not the loss, shall be recognized if, in connection with an exchange described in the above exceptions: (a) An individual, a shareholder, a security holder or a corporation receives not only stock or securities permitted to be received without the recognition of gain or loss, but also money and/or property.
The gain shall be recognized in an amount not in excess of the sum of such money and the fair market value of such other property so received, which is not distributed (Sec. 40 (C) (3) (b), NIRC). If an individual, stockholder, security holder or corporation receives on the exchange not only stock or securities but also money and/ or property (boot), the gain but not the loss shall be recognized, in an amount not exceeding the sum of the money and fair market value of the property received.
The gain, if any, but not the loss, shall be recognized but in an amount not in excess of the sum of the money and the fair market value of such other property received.
If the money or other property received has the effect of a distribution of a taxable dividend, there shall be taxed as dividend to the stockholder an amount of the gain recognized not in excess of his proportionate share of the undistributed earnings and profits of the corporation.
As to the shareholder, if the money and/or other property received has the effect of a distribution of a taxable dividend, there shall be taxed as dividend to the shareholder an amount of the gain recognized not in excess of his proportionate share of the undistributed earnings and profits of the corporation.
The remainder, if any, of the gain recognized shall be treated as a capital gain.
The remainder, if any, of the gain recognized shall be treated as a capital gain (Sec. 40 (C) (3) (a), NIRC).
SUBSTITUTED BASIS OF STOCK OR SECURITIES RECEIVED BY TRANSFEROR UPON THE EXCHANGE:
(b) The transferor corporation receives not only stock permitted to be received without the recognition of gain or loss but also money and/or other property, then (i) if the corporation receiving such money and/or other property distributes it in pursuance of the plan of merger or consolidation, no gain to the corporation
Original basis (cost) of the property, stock or securities exchanged/transferred LESS: (a) money received, if any; and (b) FMV of the other property received. Balance ADD: (a) the amount treated as dividend of the shareholder; and 31
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which is a party to the merger or consolidation; (b) A shareholder exchanges stock in a corporation, which is a party to a merger or consolidation, solely for the stock of another corporation also a party to the merger or consolidation; or (c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely for stock or securities in another corporation, a party to the merger or consolidation. (2) If property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation, of which as a result of such exchange, said person, alone or together with others not exceeding 4 persons, gains control of the corporation. - Stocks issued for services shall not be considered as issued in property.
(b) the amount of any gain that was recognized on the exchange. Basis (Cost) of the stock received Notes: (a) The property received as “boot” shall have as basis its FMV (b) If as part of the consideration to the transferor, the transferee of property assumes a liability of the transferor or acquires from the latter property subject to a liability, such assumption or acquisition (in the amount of liability), shall be treated as money received by the transferor on the exchange (c) If the transferor receives several kinds of stocks or securities, the Commissioner is authorized to allocate the basis among the several classes of stocks or securities received.
SUBSTITUTED BASIS TRANSFERRED:
(7) Income tax treatment of capital loss
(a) Capital loss limitation rule (applicable to both corporations and individuals) General Rule: Losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges (Sec. 39(C), NIRC). Exception for Banks and Trust Companies: If a bank or trust company incorporated under the laws of the Philippines, a substantial part of whose business is the receipt of deposits, sells any bond, debenture, note, certificate or other evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision thereof) with interest coupons or in registered form, any loss resulting from such sale shall not be subject to the foregoing limitation and shall not be included in determining the applicability of such limitation to other losses (Sec. 39(C), NIRC).
The basis of the property transferred in the hands of the transferee shall be the same as it would be in the hands of the transferor increased by the amount of the gain recognized to the transferor on the transfer [Sec. 40 (C)(5), NIRC]. Recognition of gain or loss in exchange of property: General rule: Upon the sale or exchange of property, the ENTIRE amount of the gain or loss shall be recognized. Exceptions: No gain or loss shall be recognized: (1) If in pursuance of a plan of merger or consolidation: (a) A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation,
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(b) Net loss carry-over rule (applicable only to individuals) If an individual sustains in any taxable year a net capital loss, such loss (in an amount not in excess of the net income for the year) shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for not more than 12 months (Sec. 39(D), NIRC).
(b) Investor in shares of stock in a mutual fund company (c) All other persons who are specifically exempt from national internal revenue taxes under existing investment incentives and other special laws. Shares listed and traded through the stock exchange other than sale by a dealer in securities. – (1) ½ of 1% of the gross selling price of the stock or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be assumed and paid by the seller or transferor through the remittance of the stock transaction tax by the seller or transferor’s broker. (2) Note: In the nature of percentage tax and not income tax; exempt from income tax per Section 127 (d):
(8) Dealings in real property situated in the Philippines Persons Liable and Transactions Affected (a) Individual taxpayers, estates and trusts (1) Sale or exchange or other disposition of real property considered as capital assets. (2) Includes "pacto de retro sale" and other conditional sale. (b) Domestic Corporation Sale or exchange or disposition of lands and/or building which are not actually used in business and are treated as capital asset.
“Any gain derived from the sale, barter, exchange or other disposition of share of stock under this section shall be exempt from taxes 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.” (3) Note: Percentage tax under Sec. 127 is NOT DEDUCTIBLE for income tax purposes.
Rate and Basis of Tax A final withholding tax of 6% is based on the gross selling price or fair market value or zonal value whichever is higher. Note: Gain or loss is immaterial, there being a conclusive presumption of gain.
Shares not listed and traded through the stock exchange Net capital gains derived during the taxable year from sale, exchange, or transfer shall be taxed as follows (on a per transaction basis):
(9) Dealings in shares of stock of Philippine corporations Persons Liable to the Tax (a) Individual taxpayer, whether citizen or alien; (b) Corporate taxpayer, whether domestic or foreign; and (c) Other taxpayers not falling under (a) and (b) above, such as estate, trust, trust funds and pension funds, among others.
Amount of Capital Gain 1. Not over P 100,000 = Tax Rate of 5% 2. On any amount in excess of P 100,000 = 10% (10) Sale of principal residence Principal residence: the family home of the individual taxpayer (RR 14-2000)
Persons not liable (a) Dealers in securities 33
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Passive Investment Income Under Sec 24(B), a final tax is imposed upon gross passive income of citizen and resident aliens. An income is considered passive if the taxpayer merely waits for it to be realized.
Disposition of principal residence (capital asset) is exempt from Capital Gains Tax, provided: (a) Sale or disposition of the old principal residence; (b) By natural persons - citizens or aliens provided that they are residents taxable under Sec. 24 of the Code (does not include an estate or a trust); (c) The proceeds of which is fully utilized in (a) acquiring or (b) constructing a new principal residence within eighteen (18) months from date of sale or disposition; (d) Notify the Commissioner within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail the tax exemption; (e) Can only be availed of onlyonce every ten (10) years; (f) The historical cost or adjusted basis of his old principal residence shall be carried over to the cost basis of his new principal residence (g) If there is no full utilization, the portion of the gains presumed to have been realized shall be subject to capital gains tax. (h) Portion of presumed gains subject to CGT: (Unutilized/GSP) x (higher of GSP or FMV)
(a) Interest Income (b) Dividend Income 1. Cash dividend 2. Stock dividend Stock dividend is generally exempt from income tax, EXCEPT: (a) If a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent that it represents a distribution of earnings or profits (Sec. 73(B), NIRC); or (b) Where there is an option that some stockholders could take cash or property dividends instead of stock dividends; some stockholders exercised the option to take cash of property dividends; and the exercise of option resulted in a change of the stockholders’ proportionate share in the outstanding share of the corporation. 3. Property dividend 4. Liquidating dividend The difference between the cost or other basis of the stock and the amount received in liquidation of the stock is a capital gain or a capital loss.
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Aircraft, machineries and other Equipment Other assets
(2) Lease of real property Lessor Citizen Resident Alien Non-resident alien engaged in trade or business in the Philippines Non-resident alien not engaged in trade or business in the Philippines
(d) Rental Income Refers to earnings derived from leasing real estate as well as personal property. Aside from the regular amount of payment for using the property, it also includes all other obligations assumed to be paid by the lessee to the third party in behalf of the lessor (e.g., interest, taxes, loans, insurance premiums, etc.) [RR 19-86] (1) Lease of personal property Rental income on the lease of personal property located in the Philippines and paid to a non-resident taxpayer shall be taxed as follows:
Net taxable income shall be subject to the graduated income tax rates
Rental income from real property located in the Philippines shall be subject to 25% final withholding tax unless a lower rate is imposed pursuant to an effective tax treaty Domestic Corporation Net taxable income Resident Foreign shall be subject to Corporation 30% corporate income tax or its gross income will be subject to 2% MCIT Non-resident Foreign Gross rental income Corporation from real property located in the Philippines shall be subject to 30% corporate income tax, such tax to be withheld and remitted by the lessee in the Philippines
(c) Royalty Income Royalty is a valuable property that can be developed and sold on a regular basis for a consideration; in which case, any gain derived therefrom is considered as an active business income subject to the normal corporate tax.
NonResident Corporation 4.5%
NonResident Alien 25%
(3) Tax treatment of: a. Leasehold improvements by lessee
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Rent Income from leasehold improvements: i. Outright method- lessor shall report as income FMV of the buildings or improvements subject to the lease in the year of completion. ii. Spread-out method- lessor shall spread over the remaining term of the lease the estimated depreciated (book) value of such buildings or improvements at the termination of the lease, and reports as income for each remaining term of the lease an aliquot part thereof. estimated BV at the end of the lease contract/ remaining lease term = Income per year
scientific, educational, artistic, literary or civic achievements are EXCLUSIONS from gross income if: (a) The recipient was selected without any action on his part to enter a contest or proceedings; and (b) The recipient is not required to render substantial future services as a condition to receiving the prize or award. (2) Prizes and awards granted to athletes in local and international sports competitions and tournaments held in the Philippines and abroad and sanctioned by their national associations shall be EXEMPT from income tax. Pensions, retirement benefit, or separation pay (1) paid for past employment services rendered. (2) a stated allowance paid regularly to a person on his retirement or to his dependents on his death, in consideration of past services, meritorious work, age, loss or injury. It is generally taxable unless the law states otherwise. [VALENCIA, Income Taxation 5th ed. (200/’’9)]
VAT added to rental/paid by the lessee If the lessee is VAT-registered, treat VAT paid as input VAT; If the lessee is not VAT-registered OR not liable to VAT, treat VAT paid as additional rent expense deductible from gross income. Advance Rental/ Long Term Lease Pre-paid rent must be reported in full in the year of receipt, regardless of the accounting method used by the lessor.
Income from any source whatever Inclusion of all income not expressly exempted within the class of taxable income under the laws irrespective of the voluntary or involuntary action of the taxpayer in producing the gains, and whether derived from legal or illegal sources
Annuities, Proceeds from life insurance or other types of insurance The annuity payments represent a part that is taxable and not taxable. If part of annuity payment represents interest, then it is a taxable income. If the annuity is a return of premium, it is not taxable.
Tax Benefit Rule This is a general principle in taxation which states that is a taxpayer deducted an item on his income tax return and enjoyed a tax benefit (reduced his income tax) thereby, and in a subsequent year recovers all or part of that item, he will recognize gross income in the year the deducted item is recovered.
Prizes and awards Contest prizes and awards received are generally taxable. Such payment constitutes gain derived from labor. The EXCEPTIONS are as follows: (1) Prizes and awards made primarily in recognition of religious, charitable, 36
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Recovery of accounts previously writtenoff Bad debts claimed as a deduction in the preceding year(s) but subsequently recovered shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction. There is an income tax benefit when the deduction of the bad debt in the prior year resulted in lesser income and hence tax savings for the company. (Sec. 4, RR 5-99)
Income Interest Dividends
Residence of the debtor Where incorporated If Domestic: Philippines If Foreign: Look at 3 year average of gross income. If 50% or more, Philippines. Services Place of performance Rentals Location of the property Royalties Place of exercise Sale of Real Location of realty Property Sale of (a) Tangible Personal (1) Purchase and sale: Location of Sale (2) Manufactured w/in and sold w/o: Partly w/in and partly w/o (3) Manufactured w/o and sold w/in: Partly w/in and partly w/o
Receipt of tax refunds or credit General rule: a refund of a tax related to the business or the practice of profession, is taxable income (e.g., refund of fringe benefit tax) in the year of receipt to the extent of the income tax benefit of said deduction (i.e., the tax benefit rule applies). Exceptions: However, the following tax refunds are not to be included in the computation of gross income: (1) Philippine income tax, except the fringe benefit tax (2) Income tax imposed by authority of any foreign country, if the taxpayer claimed a credit for such tax in the year it was paid or incurred. (3) Estate and donor’s taxes (4) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed (Special assessments) (5) Value Added Tax (6) Fines and penalties due to late payment of tax (7) Final taxes (8) Capital Gains Tax
(b) Intangible General rule: Place of Sale Exception: Shares of stock of domestic corporations: Place of incorporation of Place of incorporation of
Shares Stock Domestic Corporation
SITUS OF INCOME TAXATION
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the insured shall be included in gross income. The interest income shall be taxed at the graduated income tax rates.
exclusions from gross income Exclusions from gross income refer to income received or earned but is not taxable as income because it is exempted by law or by treaty. Such tax-free income is not to be included in the income tax return unless information regarding it is specifically called for. Receipts which are not in fact income are, of course, excluded from gross income.
(b) Return of premium paid. General rule: The amount received by the insured as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract is a return of capital and not income. Exception: If the amounts received by the insured (when added to the amounts already received before the taxable year under such contract) exceed the aggregate premiums or considerations paid (whether or not paid during the taxable year), then the excess shall be included in gross income.
Taxpayers who may avail of the exclusions
Return of capital
All taxpayers since there is no income. Already subject to All taxpayers unless internal revenue tax provided that income is to be included. Express exclusion As expressly provided.
(c) Amounts received under life insurance, endowment or annuity contracts. Amounts received (other than amounts paid by reason of the death of the insured and interest payments on such amounts) under a life insurance, endowment or annuity contracts are excluded from gross income,
Exclusions Under the Constitution (a) Income derived by the government or its political subdivisions from the exercise of any essential governmental function (b) Also, all assets and revenues of a nonstock, non-profit private educational institution used directly, actually and exclusively for private educational purposes shall be exempt from taxation.
But if such amounts (when added to amounts already received before the taxable year under such contract) exceed the aggregate premiums of considerations paid (whether or not paid during the taxable year), then the excess shall be included in gross income.
Exclusions Under the Tax Code (Sec. 32, NIRC) (a) Proceeds of life insurance policies. General rule: The proceeds paid to his estate or to any beneficiary (but not a transferee for a valuable consideration), directly or in trust, upon the death of the insured, are excluded from the gross income of the beneficiary.
However, in the case of a transfer for valuable consideration, by assignment or otherwise, of a life insurance, endowment , or annuity contract, or any interest therein, only the actual value of such consideration and the amount of the premiums and other
However, if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments received by 38
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sums subsequently paid by the transferee are exempt from taxation.
moral damages for out-of-court settlement, including attorney’s fees (4) Alienation of affection, or breach of promise to marry (5) Any amount received as a return of capital or reimbursement of expenses
(d) Value of property acquired by gift, bequest, devise or descent. Gifts, bequests and devises (which are subject to estate or gift taxes) are excluded from gross income, BUT not the income from such property. If the amount received is on account of services rendered, whether constituting a demandable debt or not, or the use or opportunity to use of capital, the receipt is income (Pirovano v. Commissioner G.R. No. L-19865, July 31, 1965).
(2) Any other damages recovered on account of personal injuries or sickness (3) Exemplary and
(4) Any damages as compensation for unrealized income
(g) Retirement benefits, pensions, gratuities, etc. These are (1) Retirement benefits under RA 7641, RA 4917, and Section 60(B) of the NIRC (2) Terminal pay (3) Retirement Benefits from foreign government agencies (4) Veterans benefits (5) Benefits under the Social Security Act (6) GSIS benefits
Examples of nontaxable and taxable damages recoveries are:
(1) Personal (physical) injuries or sickness
taxable damages above
(f) Income exempt under tax treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.
(e) Amount received through accident or health insurance (Compensation for damages). As a rule, amounts received through accident or health insurance or under workmen’s compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received, whether by suit or agreement, on account of such injuries or sickness are excluded from gross income.
Nontaxable – compensation for damages on account of
Retirement benefits received under RA 7641(The Retirement Pay Law) and those received by officials and employees of private firms under a reasonable private benefit plan (RPBP) maintained by the employer under RA 4917 (now Section 32(B)(6)(a) of NIRC) are excluded from gross income subject to income tax.
Taxable – compensation for damages on account of (1) Actual damages for loss of anticipated profits (2) .Moral and exemplary damages awarded as a result of break of contract (3) Interest for non-
Retiring employee Retiring official or must be in the service employee must have 39
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of same employer been in the service of CONTINUOUSLY for the same employer at least five (5) years forat least ten (10) years. Retiring employee Retiring official or must be at least sixty employee must be at (60) years oldbut not least fifty (50) years more than 65 years of old at the time of age at the time of retirement retirement Availed of only once, Retiring employee and only when there shall not have is no RPBP previously availed of the privilege under a retirement benefit plan of the same or another employer
TAXATION LAW retiring government employees is considered not part of the gross salary, and is exempt from taxes. The government recognizes that for most public servants, retirement pay is always less than generous if not meager and scrimpy. Terminal leave payments are given not only at the same time but also for the same policy considerations governing retirement benefits. (Commissioner v. Castaneda, 203 SCRA 72). Retirement BENEFITS from foreign government agencies The social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public;
Plan must be reasonable. Its implementation must be fair and equitable for the benefit of all employees (e.g. from president to laborer) Plan must be approved by BIR
Payments of VETERANS benefits under U.S. Veterans Administration Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration
Terminal pay/Separation pay Any amount received by an employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness, other physical disability or for any cause beyond the control of the employee. The phrase “for any cause beyond the control of the said official or employee” means that the separation of the employee must be involuntary and not initiated by him.
Social Security Act benefits Payments of benefits received under the Social Security Act of 1954 (RA 8282), as amended, e.g., Maternity Benefits
The “terminal leave pay” (amount paid for the commutation of leave credits) of
(h) Winnings, prizes and award, including those in sports competitions.
GSIS benefits Benefits received from GSIS under the GSIS Act of 1937, as amended, and the retirement gratuity received by government officials and employees are not taxable. [Sec. 32B6., NIRC; Sec. B1, RR 2-98]
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(a) All prizes and awards granted to athletes: (1) in local and international sports competitions and tournaments whether held in the Philippines or abroad, AND (2) sanctioned by their national sports associations shall not be included in gross income and shall be tax exempt. [Sec. 32 B7d, NIRC]
deductions from gross income Deductions are items or amounts which the law allows to be deducted from the gross of income of a taxpayer in order to arrive at taxable income. Deductions are in the nature of an exemption from taxation; they are strictly construed against the claimant, who must point to a specific provision allowing them and who has the burden of proving that they falls within the purview of such provision. Thus, all deductions must be substantiated, except when the law dispenses with the records, documents or receipts to support the deductions.
(b) Prizes and awards made primarily in recognition of charitable, literary, educational, artistic, religious, scientific, or civic achievement are not taxable, provided: (1) Recipient was selected without any action on his part to enter the contest or proceeding; and (2) Recipient is not required to render substantial future services as a condition to receiving the prize or award
Types of deductions There are three (3) types of deductions from gross income: (a) itemized deductions in Section 34(A) to (J) and (M) available to all kinds of taxpayers engaged in trade or business or practice of profession in the Philippines; (b) optional standard deduction in Section 34(L) available only to individual taxpayers deriving business, professional, capital gains and passive income not subject to final tax, or other income; and (c) the special deductions in Sections 37 and 38 of the NIRC, and in special laws like the BOI law (E.O. 226). Return of capital (cost of sales or services) Income tax is levied by law only on income; hence, the amount representing return of capital should be deducted from proceeds from sales of assets and should not be subject to income tax. Costs of goods purchased for resale, with proper adjustment for opening and closing inventories, are deducted from gross sales in computing gross income (Sec. 65, Rev. Reg. 2)
Itemized deductions 41
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These are enumerated in Section 34 of the NIRC.
(4) The interest must be legally due. (5) The interest must be stipulated in writing. (6) The taxpayer is LIABLE to pay interest on the indebtedness. (7) The indebtedness must have been paid or accrued during the taxable year. (8) The interest payment arrangement must not be between related taxpayers (9) The interest must not be incurred to finance petroleum operations. (10) In case of interest incurred to acquire property used in trade, business or exercise of profession, the same was not treated as a capital expenditure,
(1) Expenses Business expenses deductible from gross income include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer’s trade or business. The cost of goods purchased for resale, with proper adjustment for opening and closing inventories, is deducted from gross sales in computing gross income. Requisites for deductibility of business expenses.— (a) Ordinary AND necessary; (b) Paid or incurred during the taxable year; (c) Others: (not in the SC syllabus) (1) Paid or incurred in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of profession; (2) Substantiated by adequate proof – documented by official receipts or adequate records, which reflect the amount of expense deducted and the connection or relation of the expense to the business/trade of the taxpayer); (3) Legitimately paid (not a BRIBE, kickback, or otherwise contrary to law, morals, public policy); (4) If subject to withholding tax, the tax required to be withheld on the expense paid or payable is shown to have been properly withheld and remitted to the BIR on time; (5) Amount must be reasonable.
Limitation: The taxpayer's allowable deduction for interest expense shall be reduced by an amount equal to 33% of the interest income subjected to final tax (see chapter on taxation of passive income for interest income); effective January 1, 2009. Non-deductible interest expense.— (a) Interest paid in advance by the taxpayer who reports income on cash basis shall only be allowed as deduction in the year the indebtedness is paid. (b) If the indebtedness is payable in periodic amortizations, only the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year. (c) Interest payments made between related taxpayers. (d) Interest on indebtedness incurred to finance petroleum exploration. Related Taxpayers (a) Between members of the family, i.e. brothers and sisters (whether by the whole or halfblood), spouse, ancestor, and lineal descendants; or (b) Except in case of distributions in liquidation, between an individual and a corporation,
(2) Interest Requisites for deductibility.— (1) There is an indebtedness. (2) The indebtedness is that of the taxpayer (3) The indebtedness is connected with the taxpayer‘s trade, profession, or business. 42
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where the individual owns directly or indirectly more than 50% of the outstanding stock of the corporation (c) Except in the case of distributions in liquidation, between two corporations where: (1) Either one is a personal holding company of a foreign personal holding company with respect to the taxable year preceding the date of the sale of exchange; and (2) More than 50% of the outstanding stock of each is owned, directly or indirectly, by or for the same individual; or (d) Between parties to a trust(1) Grantor and Fiduciary; or (2) Fiduciary of a trust and fiduciary of another trust if the same person is a grantor with respect to each trust; or (3) Fiduciary and Beneficiary
(2) A capital expenditure for which the taxpayer may claim only as a deduction the periodic amortization of such expenditure. Reduction of interest expense/interest arbitrage The taxpayer's allowable deduction for interest expense shall be reduced by an amount equal to 33% of the interest income subjected to final tax; effective January 1, 2009. (RA 9337)
(3) Taxes Taxes Proper: Refers to national and local taxes; Requisites for deductibility.— Such tax must be: (a) Paid or incurred within the taxable year; (b) Paid or incurred in connection with the taxpayer‘s trade, profession or business; (c) Imposed directly on the taxpayer. (d) Not specifically excluded by law from being deducted from the taxpayer‘s gross income.
Interest subject to special rules.— 1. Interest paid in advance (a) No deduction shall be allowed if within the taxable year an individual taxpayer reporting income on cash basis incurs an indebtedness on which an interest is paid in advance through discount or otherwise. (b) But the deduction shall be allowed in the year the indebtedness is paid
Non-deductible taxes.— (1) Philippine income tax, except Fringe Benefit Taxes; (2) Income tax imposed by authority of any foreign country, if taxpayer avails of the Foreign Tax Credit (FTC) (a) Exception to exception: When the taxpayer does NOT signify his desire to avail of the tax credit for taxes of foreign countries, the amount may be allowed as a deduction from gross income of citizens and domestic corporations subject to the limitations set forth by law. (3) Estate and donor‘s taxes (4) Percentage tax on stock transaction; (5) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed (Special Assessments) (6) Value Added Tax (7) Fines and penalties (8) Final taxes (9) Capital Gains Tax
2. Interest periodically amortized - If the indebtedness is payable in periodic amortizations, the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year 3. Interest expense incurred to acquire property for use in trade/business/profession - At the option of the taxpayer, interest expense on a capital expenditure may be allowed as: (1) A deduction in full in the year when incurred;
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(10) Import duties (11) Business taxes (12) Occupation taxes (13) Privilege and license taxes (14) Excise taxes (15) Documentary stamp taxes (16) Automobile registration fees (17) Real property taxes (18) Electric energy consumption tax under BP 36
Limitations on Tax Credit.— (1) [Per Country Limit]The amount of tax credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's taxable income from sources within such country bears to his entire taxable income for the same taxable year; and (2) [Worldwide Limit]The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's taxable income from sources without the Philippines taxable bears to his entire taxable income for the same taxable year.
Special Rules: 1. Treatments of surcharges/interests/fines for delinquency.— The amount of deductible taxes is limited to the basic tax and shall not include the amount for any surcharge or penalty on delinquent taxes. However, interest on delinquent taxes, although not deductible as tax, can be deducted as interest expense at its full amount. (CIR v Palanca, 18 SCRA 496). 2. Treatment of special assessment.—Special assessments and other taxes assessed against local benefits of a kind tending to increase the value of the property assessed are non-deductible from gross income. 3. Tax credit - amount allowed by law to reduce the Philippine income tax due, subject to limitations, on account of taxes paid or accrued to a foreign country
Formula: Limit #1 Taxable Income Per Foreign Country Worldwide Taxable Income Limit #2 Taxable Income For all Foreign Countries Worldwide Taxable Income
The following may claim tax credits: (1) Resident citizens (2) Domestic corporations, which include all partnerships except general professional partnerships (3) Members of general professional partnerships (4) Beneficiaries of estates or trusts
Phil. = Income Tax
Limit on amount of tax credit (Per Country Limit)
Phil. = Income Tax
Limit on amount of tax credit (World Wide Limit)
Note: Computation of FTC: Limit #2 applies where taxes are paid to two or more foreign countries. Allowable tax credit is the lower between the tax credit computed under Limit #1 and that computed under Limit#2.
The following may NOT claim tax credits: (1) Non-resident citizens (2) Aliens, whether resident or non-resident (3) Foreign corporations, whether resident on non-resident
FTC Limitations – lowest of the 3: (1) Actual FTC (2) For taxes paid to one foreign country 44
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(3) For taxes paid to 2 or more foreign countries
TAXATION LAW except for banks and trust companies under conditions in Sec. 39 of NIRC where loss from such sale is not subject to the foregoing limitation);
(4) Losses Requisites for deductibility.— (1) Loss must be that of the taxpayer (e.g., losses of the parent corp. cannot be deducted by its subsidiary); (2) Actually sustained and charged off within the taxable year; (3) Incurred in trade, business or profession; (4) Of property connected with the trade, business, or profession, if the loss arises from fires, storms, shipwreck or other casualties, or from robbery, theft, or embezzlement; (5) Sustained in a closed and completed transaction; (6) Not compensated for by insurance or other form of indemnity; (7) Not claimed as a deduction for estate tax purposes; (8) In case of casualty loss, filing of notice of loss with the BIR within 45 days from the date of the event that gave rise to the casualty; and (9) The taxpayer must prove the elements of the loss claimed, such as the actual nature and occurrence of the event and amount of the loss.
b. Securities becoming worthless - Loss in shrinkage in value of stock through fluctuation in the market is not deductible from gross income. Exception: If the stock of the corporation becomes worthless, the cost or other basis may be deducted by its owner in the taxable year in which the stock became worthless, provided a satisfactory showing of its worthlessness be made, as in the case of bad debts. c. Losses on wash sales of stocks or securities Wash Sale - a sale or other disposition of stock or securities where substantially identical securities (substantially the same as those disposed of) are acquired or purchased (or there was an option to acquire, and the acquisition or option should be by purchase or exchange upon which gain or loss is recognized under the income tax law) within a 61-day period, beginning 30 days before the sale and ending 30 days after the sale General rule: Not deductible from gross income Exception: If by a dealer in securities in the course of ordinary business, it is deductible.
No loss is recognized in the following.— (1) Merger, consolidation, or control securities (where no gains are recognized either); (2) Exchanges not solely in kind; (3) Related taxpayers (see above – (c) Interest expense incurred to acquire property for use in trade/business/profession) (4) Wash sales; (5) Illegal transactions
d. Wagering losses - Losses from wagering (gambling) are deductible only to the extent of gains from such transactions. A wager is made when the outcome depends upon CHANCE. e. NOLCO (Net Operating Loss Carry Over)
Other types of losses.— a. Capital losses - Incurred in the sale or exchange of capital assets (allowable only to the extent of capital gains,
Requisites for NOLCO:
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(1) The taxpayer was not exempt from income tax the year the loss was incurred; (2) There has been no substantial change in the ownership of the business or enterprise wherein: (a) AT LEAST 75% of nominal value of outstanding issued shares is held by or on behalf of the same persons; or (b) AT LEAST 75% of the paid up capital of the corporation is held by or on behalf of the same persons.
(2) Losses due to voluntary removal of building incident to renewal or replacements are deductible from gross income. (3) Loss of useful value of capital assets due to charges in business conditions is deductible only to the extent of actual loss sustained (after adjustment for improvement, depreciation and salvage value) (4) Losses from sales or exchanges of property between related taxpayers are not recognized, but the gains are taxable. (5) Losses of farmers incurred in the operation of farm business are deductible.
Taxpayers Entitled to NOLCO (1) Individuals engaged in trade or business or in the exercise of his profession (including estates and trusts); Note:An individual who avails of 40% OSD shall not simultaneously claim deduction of NOLCO. However, the three-year reglementary period shall continue to run during such period notwithstanding the fact that the aforesaid taxpayer availed of OSD during the said period.
(5) Bad debts Requisites for deductibility.— (1) Valid and legally demandable debt due to the taxpayer (2) Debt is connected with the taxpayer's trade, business or practice of profession; (3) Debt was not sustained in a transaction entered into between related parties; (4) Actually ascertained to be worthless and uncollectible as of the end of the taxable year (taxpayer had determined with reasonably degree of certainty that the claim could not be collected despite the fact that the creditor took reasonable steps to collect); and (5) Actually charged off the books of accounts of the taxpayer as of the end of the taxable year
(2) Domestic and resident foreign corporations subject to the normal income tax (e.g., manufacturers and traders) or preferential tax rates under the Code (e.g., private educational institutions, hospitals, and regional operating headquarters) or under special laws (e.g., PEZA-registered companies) Note: Domestic and resident foreign corporations taxed during the taxable year with Minimum Corporate Income Tax cannot enjoy the benefit of NOLCO. However, the three-year period for the expiry of he NOLCO is not interrupted by the fact that the corporation is subject to MCIT during such three-year period.
General rule: Taxpayer must ascertain and demonstrate with reasonable certainty the uncollectibility of debt Exceptions: (1) Banks as creditors – BSP Monetary Board shall ascertain the worthlessness and uncollectibility of the debt and shall approve the writing off (2) Receivables from an insurance or surety company (as debtor) may be written off as bad debts only when such company is
Other Losses: (1) Abandonment losses in petroleum operation and producing well. 46
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declared closed due to insolvency or similar reason
(2) in accordance with a National Priority Plan determined by NEDA (otherwise, subject to statutory limit) (b) Donations to Certain Foreign Institutions or International Organizations which are fully deductible in compliance with agreements, treaties or commitments entered into by the Government of the Philippines and the foreign institutions or international organizations or in pursuance of special laws (c) Donations to Accredited Non-government Organizations subject to conditions set forth in RR No. 13-98 – NGO means a non-stock non-profit domestic corporation or organization: (1) Organized and operated exclusively for: (a) scientific, (b) research, (c) educational, (d) character-building and youth and sports development, (e) health, (f) social welfare, (g) cultural or (h) charitable purposes, or (i) a combination thereof, (2) No part of the net income of which inures to the benefit of any private individual (3) Directly utilizes contributions for the active conduct of the activities constituting the purpose or function for which it is organized, not later than 15th day of the month following the close of its taxable year in which contributions are received, unless an extended period is granted by the Secretary of Finance, upon recommendation of the CIR (4) Administrative expense ,on an annual basis, must not exceed 30% of total expenses for the taxable year (5) Upon dissolution, its assets would be distributed to another accredited NGO organized for a similar purpose or
(6) Depreciation Requisites for Deductibility. – 1. It must be reasonable. 2. It must be charged off during the year. 3. The asset must be used in profession, trade or business. 4. The asset must have a limited useful life. 5. The depreciable asset must be located in the Philippines if the taxpayer is a nonresident alien or a foreign corporation. [Valencia and Roxas]
(7) Charitable and other contributions Requisites for deductibility.— (1) Actually PAID or made to the ENTITIES or institutions specified by law; (2) Made within the TAXABLE year. (3) It must be EVIDENCED by adequate receipts or records. (4) For Contributions Other than Money: The amount shall be BASED on the acquisition cost of the property (i.e., not the fair market value at the time of the contribution). (5) For Contributions subject to the statutory limitation: It must NOT EXCEED 10% (individual) or 5% (corporation) of the taxpayer‘s taxable income before charitable contributions Contributions Deductible in Full: (a) Donations to the Government of the Philippines, or to any of its agencies, or political subdivisions, including fully owned government corporations – (1) Exclusively to finance, provide for, or to be used in undertaking priority activities in (a) Education (b) Health (c) Youth and sports development (d) Human settlements (e) Science and culture, and (f) Economic development 47
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purposes, OR to the State for public purpose, OR would be distributed by a competent court of justice to another accredited NGO to be used in such manner as in the judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized.
TAXATION LAW deductible in year the contribution is made, the remaining balance will be amortized equally over nine consecutive years
Requisites for deductibility of payments to pension trusts.— (1) There must be a pension or retirement plan established to provide for the payment of reasonable pensions to employees; (2) The pension plan is reasonable and actuarially sound; (3) It must be funded by the employer; (4) The amount contributed must no longer be subject to the employer’s control or disposition; and (5) The payment has not theretofore been allowed before as a deduction.
Contributions subject to the Statutory Limit (a) Government or any of its agencies or political subdivisions exclusively for public purposes (contributions for non-priority activities) (b) Accredited domestic corporation or associations organized exclusively for (1) religious (2) charitable (3) scientific (4) youth and sports development (5) cultural (6) educational purposes or (7) rehabilitation of veterans (c) Social welfare institutions (d) Non-government organizations: No part of the net income of which inures to the benefit of any private stockholder or individual
Deductions under special laws. (1) Special deductions for productivity bonus and manpower training under the Productivity Incentives Act of 1990 (2) Deductions for training expenses of qualified jewelry enterprises (Jewelry Industry Development Act of 1998) (3) Deductions under the Adopt-a-School Act of 1998 (4) Deductions under the Expanded Senior Citizens Act of 2003. (Domondon)
Statutory Limit: (a) 10% in the case of an individual (individual donor), and (b) 5% in the case of a corporation (corporate donor), of the taxpayer's/donor’s income derived from trade, business or profession computed before the deduction for contributions and donations
Optional standard deduction. Individuals, except non-resident aliens (1) May be taken by an individual in lieu of itemized deductions except those earning purely compensation income. (2) If an individual opted to use OSD, he is no longer allowed to deduct cost of sales or cost of services. (3) Amount: 40% of gross sales or gross receipts(under RA 9504, effective July 6, 2008)
(8) Contributions to pension trusts Contribution to a pension trust may be claimed as deduction as follows: (1) Amount contributed for the present/normal service cost – 100% deductible (2) Amount contributed for the past service cost – 1/10 of the amount contributed is
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(1) Taxpayer is a citizen or resident alien; (2) Taxpayer’s income is not entirely from compensation; (3) Taxpayer signifies in his return his intention to elect this deduction; otherwise he is considered as having availed of the itemized deductions. (4) Election is irrevocable for the year in which made; however, he can change to itemized deductions in succeeding years.
TAXATION LAW OSD is a proxy for all the items of deductions allowed in arriving at taxable income. This means that the OSD is in lieu of the items of deductions claimed by the GPP and the items of deduction claimed by the partners. c. If the GPP avails of OSD in computing its net income, the partners comprising it can no longer claim further deduction from their share in the said net income. d. The type of deduction chosen by the GPP must be the same type of deduction that can be availed of by the partners. (RR 2-2010)
Corporations, except non-resident foreign corporations The option to elect Optional Standard Deduction granted is now granted to corporations (domestic and resident foreign corporations) by virtue of RA 9504. (1) The OSD is 40% of its gross income. (2) The domestic and resident foreign corporation shall keep such records pertaining to his gross income as defined in Section 32 of the NIRC during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance upon recommendation of the CIR. (3) Corporations availing of OSD are still required to submit their financial statements when they file their annual ITR and to keep such records pertaining to its gross income. (RR 2-2010).
PERSONAL AND ADDITIONAL EXEMPTION (R.A. NO. 9504, MINIMUM WAGE EARNER LAW).— Basic personal exemptions Basic personal exemption is Fifty thousand pesos (P50,000) for each individual taxpayer, regardless of status, i.e., whether single, married or head of the family. But note Sec 35(A) married individuals spouses is deriving spouse shall be exemption.
Partnerships (1) General Co-Partnership For purposes of taxation, the Code considers general co-partnerships as corporations. Hence, rules on OSD for corporations are applicable to general copartnerships.
of NIRC - In the case of where only one of the gross income, only such allowed the personal
Additional exemptions for taxpayer with dependents (a) An individual, whether single or married, shall be allowed an additional exemption of P25,000 for each qualified dependent child (QDC), provided that the total number of dependents for which additional exemptions may be claimed shall not exceed 4 dependents (depends on the number of qualified dependent children) (b) Married Individuals: Additional exemptions for QDC are claimed by only one spouse.
(2) General Professional Partnerships (GPP) b. If the GPP availed of itemized deductions, the partners are not allowed to claim the OSD from their share in the net income because the 49
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(c) Who is a dependent for purposes of additional exemptions? (1) A taxpayer’s child, whether legitimate, illegitimate or legally adopted child (2) chiefly dependent for support upon on the taxpayer (3) living with the taxpayer (4) not more than 21 years old, unmarried and not gainfully employed or (5) regardless of age, is incapable of selfsupport because of mental or physical defect. (Sec 35 B, NIRC) (d) Who may claim personal exemptions? (1) Citizens (whether resident or nonresident) and resident aliens (2) Non-resident aliens engaged in trade or business are entitled personal exemptions subject to reciprocity. (See below)
Non-resident aliens engaged in trade or business are entitled personal exemptions subject to reciprocity. It means that NRAETB shall be allowed a personal exemption only if the income tax law in his country grants allowance for personal exemptions to the citizens and residents of the Philippines as stipulated in the reciprocity tax treaty with the Philippine Government. Limit of PE Allowed to NRAETB: An amount equal to the exemptions allowed by the nonresident alien’s country to Filipino citizens not residing therein but deriving income therefrom, but not to exceed the amount fixed by NIRC.[In other words, whichever is lower] Items not deductible General rule: In determining deductions, one of the general rules (see above) is that deductions must be paid or incurred in connection with the taxpayer’s trade, business or profession. Capital expenditures (e.g. acquisition cost of a building) are also not deductible, because these are not expenses, but form part of assets.
Status-at-the-end-of-the-year rule Change of Status[Sec 35(C), NIRC] (1) If taxpayer marries during taxable year, taxpayer may claim the corresponding BPE in full for such year (i.e., no need to pro-rate the exemption). (2) If taxpayer should have additional dependent(s) during taxable year, taxpayer may claim corresponding AE in full for such year. (3) If taxpayer dies during taxable year, his estate may claim BPE and AE as if he died at the close of such year. (4) If during the taxable year (a) spouse dies or (b) any of the dependents dies or marries, turns 21 years old or becomes gainfully employed, taxpayer may still claim same exemptions as if the spouse or any of the dependents died, or married, turned 21 years old or became gainfully employed at the close of such year.
In computing taxable net income, no deduction shall be allowed in respect to: (1) Personal, living or family expenses (note: they are not deductible from compensation and business/professional income under Section 24(A), NIRC) (2) Any amount paid out for new buildings or for permanent improvements (capital expenditures), or betterments made to increase the value of any property or estate (3) Any amount expended in restoring property (major repairs) or in making good the exhaustion thereof for which an allowance [for depreciation or depletion] is or has been made (4) Premiums paid on any life insurance policy covering the life of any officer, employee, or any person financially interested in the trade or business carried on by the taxpayer,
Exemptions claimed by non-resident aliens
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individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy (5) Interest expense and bad debts between related parties (See Sec. 36(B), NIRC). (6) Losses from sales or exchanges of property between related taxpayers. (7) Non-deductible interest – should the taxpayer elect to deduct interest payments against its gross income, he cannot at the same time capitalize such interest and claim depreciation on the undepreciated cost which includes the interest. (PICOP v. Commissioner, G.R. No. 106949-50, Dec. 1, 1995) (8) Non –deductible taxes (9) Non-deductible losses (10) Losses on Wash Sales (except if by dealer in securities in ordinary course of
These are: (1) Proprietary Educational Institutions and hospitals (2) Government owned and controlled corporations (3) Others Proprietary Educational Institutions and hospitals By way of exception, proprietary educational institutions and hospitals are liable for net income at a rate of only ten percent (10%). Government owned and controlled corporations All corporations, agencies, or instrumentalities owned or controlled by the Government are subject to income tax, except: (1) GSIS (2) SSS (3) PHIC (4) Local water districts (LWDs) (5) PCSO Others
The following organizations shall not be taxed in respect to income received by them as such: (1) Labor,agricultural or horticultural organization not organized principally for profit (2) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit (3) A Beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or
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association, or non-stock corporation or their dependents (4) CEMETERY company owned and operated exclusively for the benefit of its members (5) Non-stock corporation or association organized and operated exclusively for Religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person (6) Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder, or individual (7) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare (8) A non-stock and non-profit Educational institution (9) Government Educational institution (10) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses and (11) Farmers', fruit growers', or like association organized and operated as a Sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;
TAXATION LAW for profit regardless of the disposition made of such income, shall be subject to tax. (b) RA 9178 Act to Promote the Establishment of Barangay Micro Business Enterprises (BMBEs) implemented by DO 17-04, April 20, 2004 (1) BMBEs shall be exempt from income tax for income arising from the operations of the enterprise. (2) BMBE is any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing trading and services, whose total assets including those arising from loans but exclusive of land on which the particular business entity’s office, plant and equipment are situated, shall not be more than P3M. (c) Recreational Clubs - RMC 35-2012 (August 3, 2012) clarifies taxability of clubs organized exclusively for pleasure, recreation and other non-profit purposes (recreational clubs). Income from whatever sources including but not limited to membership fees, assessment dues, rental income, and service fees are subject to income tax and VAT.
Note: (a) Notwithstanding the exemptions, income of whatever kind and character of the enumerated organizations from any of their properties, real or personal, or from any of their activities conducted 52
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Taxation of resident citizens, non-resident citizens and resident aliens Summary Table for Taxation of Individuals (all individual taxpayers, including non-resident aliens) Classification
Income from sources within and outside the Philippines Non-Resident Citizen Income from sources within the Philippines Resident Alien Income from sources within the Philippines Non-resident Alien Income from Engaged in Trade or sources within the Business Philippines
Basic Personal Exemption Allowed
Additional Personal Exemption Allowed
Lower amount No specific 5%-32% between PE provision allowed to Filipinos in the foreign country where he resides vs. PE in the Philippines Non-resident Alien Income from Not allowed Not allowed 25% Not Engaged in Trade sources within the or Business Philippines General rule that resident citizens are taxable on income from all sources within and without the Philippines
(2) Leaves the Philippines during the taxable year to reside abroad (as immigrant or for employment on a permanent basis) (3) Works and derives income from abroad and whose employment requires him to be present abroad most of the time during the taxable year (4) Has been previously considered as a nonresident and arrives in the Philippines at any time during the taxable year to reside here permanently (only with respect to his income from sources abroad until the date of his arrival in the country)
General rule: A Filipino resident citizen is taxable on income from all sources (within and without the Philippines) Exception: A non-resident citizen is taxable only on income derived from sources within the Philippines. A non-resident citizen is a Filipino citizen who: (1) Establishes to the satisfaction of the CIR the fact of his physical presence abroad with a definite intention to reside therein 53
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TAXATION LAW fair market value of the thing taken in payment is the measure of the income subject to tax. (a) Fringe benefit not subject to tax If the recipient of the fringe benefits is a rank and file employee, and the said fringe benefit is not tax-exempt, then the value of such fringe benefit shall be considered as part of the compensation income of such employee subject to tax payable by the employee. (Domondon)
Taxation on Compensation Income Income arising from an ER-EE relationship. Inclusions (1) Monetary compensation– If compensation is paid in cash, the full amount received is the measure of the income subject to tax. (a) Regular salary/wage (b) Separation pay - taxable if voluntarily availed of. It shall not be taxable if involuntary (c) Retirement benefit not otherwise exempt General rule: retirement pay is taxable Exceptions: (a) SSS or GSIS retirement pays. (b) Retirement pay (R.A. 7641) due to old age provided the following requirements are met: (i) The retirement program is approved by the BIR Commissioner; (ii) It must be a reasonable benefit plan. (fair and equitable) (iii) The retiree should have been employed for 10 years in the said company; (iv) The retiree should have been 50 years old or above at the time of retirement; and (v) It should have been availed of for the first time. (d) Bonuses, 13th month pay, and other benefits not exempt . (e) Directors’ fees Fees – received by an employee for the services rendered to the employer including a director’s fee of the company, fees paid to the public officials such as clerks of court or sheriffs for services rendered in the performance of their official duty over and above their regular salaries.
Exclusions (1) Fringe benefit subject to tax Convenience of the ER Rule If meals, living quarters, and other facilities and privileges are furnished to an employee for the convenience of the employer, and incidental to the requirement of the employee’s work or position, the value of that privilege need not be included as compensation (Henderson v. Collector (1961)). (2) De minimis benefits - These are exempt from fringe benefit tax and compensation income tax. (3) Bonuses, 13th month pay and other benefits and payments specifically excluded from taxable compensation income (a) Gross benefits received by employees of public and private entities provided that the total exclusion shall not exceed P82,000 (amounts in excess are considered compensation income) (R.A. 10653) Deductions (1) Personal exemptions and additional exemptions (2) Health and hospitalization insurance (a) Premium Paid on Health or Hospitalization Insurance [Sec.34 (M)] (b) Amount of premium paid on health and/or hospitalization by an individual
(2) Nonmonetary compensation - If services are paid for in a medium other than money, the 54
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taxation of business income/income from practice of profession
taxpayer (head of family or married), for himself and members of his family during the taxable year.
All income obtained from doing business and/or engaging in the practice of a profession shall be included in the computation of taxable income.
Requisites for Deductibility (1) Insurance must have actually been taken (2) The amount of premium deductible does not exceed P2,400 per family or P200 per month whichever is lower during the taxable year. (3) That said family has a gross income of not more than P250,000 for the calendar year. (4) In case of married individual, only the spouse claiming additional exemption shall be entitled to this deduction.
taxation of passive income Passive income subject to final tax “Final tax” means tax withheld from source, and the amount received by the income earner is net of the tax already. The tax withheld by the income payor is remitted by him to the BIR. The income having been tax-paid already, it need not be included in the income tax return at the end of the year. These passive income items are as follows: (1) Interest income (2) Royalties (3) Dividends from domestic corporations (4) Prizes and other winnings
Note: The spouse claiming the additional exemptions for qualified dependent children shall be the same spouse to claim the deductions for premium payments. The following may avail of the deduction (a) Individual taxpayers earning purely compensation income during the year. (b) Individual taxpayer earning business income or in practice of his profession. Taxation of compensation income of a minimum wage earner The minimum wage shall be exempt from the payment of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax
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Summary Table of Rates (Includes NRAETB and NRANETB) Section 24(B). Final Tax Rates on Certain Passive Income from Philippine sources (1) INTEREST, ROYALTIES, PRIZES AND OTHER Citizens, WINNINGS Residents (a) Interest from any currency bank deposit 20% (b) Yield or any other monetary benefit from deposit substitute 20% (c) Yield or any other monetary benefit from trust funds and 20% similar arrangements (d) Royalties, in general (other than royalties described in 20% letter “e”) (e) Royalties on books as well as other literary works and 10% musical compositions (f) Prizes exceeding P10,000 20% (g) Other winnings (other than Philippine Charity Sweepstakes 20% and Lotto winnings) (h) Interest incomes received from a depositary bank under 7 1/2% expanded foreign currency deposit system Note: NRC – Exempt (RR 12011) (i) Interest income from long-term deposit or investment Exempt evidenced by certificates prescribed by BSP. If preterminatedbefore fifth year, a final tax shall be imposed based on remaining maturity: (a) 4 years to less than 5 years 5% (b) 3 years to less than 4 years 12% (c) Less than 3 years 20% (2) CASH AND/OR PROPERTY DIVIDENDS Citizens, Residents (a) Cash and/or property dividends actually or constructively received from a domestic corp. or from a joint stock co., insurance or mutual fund companies and regional operating headquarters of multinational companies (beginning January 1, 2000) 10% (b) Share of an individual in the distributable net income after tax of a PARTNERSHIP (other than a general professional partnership) (beginning January 1, 2000) 10% (c) Share of an individual in the net income after tax of an ASSOCIATION, a JOINT ACCOUNT, or a JOINT VENTURE or CONSORTIUM taxable as a corporation, of which he is a member or a co-venturer (beginning January 1, 2000) 10% 56
NRAETB NRANETB 20% 20% 20%
25% 25% 25%
20% 25% NRAETB NRANETB
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taxation of capital gains
Passive income not subject to tax (1) Interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the BSP shall be exempt from tax
Income from sale of shares of stock of a Philippine corporation 1. Shares traded and listed in the stock exchange – exempt The transaction is exempt from income tax regardless of the nature of business of the seller or transferor. However, it is subject to the one-half of one percent (1/2 of 1%) stock transaction tax imposed under Sec. 127(A) of the Tax Code based on the gross selling price or gross value in money of the shares of stock sold or transferred.
But should the holder of the certificate preterminate the deposit or investment before the 5th year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: (a) Four (4) years to less than five (5) years 5%; (b) Three (3) years to less than four (4) years - 12%; and (c) Less than three (3) years - 20%.
2. Shares not listed and traded in the stock exchange – subject to final tax. On sale, barter, exchange or other disposition of shares of stockof a domestic corporation not listed and traded through a local stock exchange, held as a capital asset: On the net capital gain: (1) Not over P100,000 = Final Tax of 5% (2) On any amount in excess of P100,000 = plus Final Tax of 10% on the excess
(2) Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded system shall be exempt from income tax.
Income from the sale of real property situated in the Philippines What property covered Property located in the PH classified as capital assets What transactions covered Sales, exchanges, or other disposition of real property (classified as capital assets), including pacto de retro sales and other forms of conditional sales of the following: citizens, resident aliens, NRAETB, NRANETB, domestic corporations. Tax rate 57
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Determination of whether short- or longterm: If held for Standard Input VAT: excess forms part of seller’s expense/cost When Actual Input VAT < Standard Input VAT: difference is treated as taxable other income
Total Sales (Taxable Base) xxx Multiplied by 12% 12% Output VAT on sales or gross recipts xxx Less: Input VAT on purchases and services xxx Transitional Input VAT, if applicable xxx Presumptive Input VAT, if applicable xxx Input VAT Carry-over from previous period xxx Creditable VAT withheld xxx xxx Net VAT payable (refundable) xxx
Sales xxx Output VAT (Sales x 12%) Purchases xxx Input VAT (Purchases x 12%) xxx
OUTPUT VAT Payable: Output VAT xxx Less: Actual Input VAT xxx Standard Input VAT (Sales x 7%) xxx xxx Cost of sale/Expense (Income and expense summary) xxx Net VAT Payable xxx Less: Creditable Withholding Tax (Sales x 5%) xxx Output VAT Payable xxx
MONTHLY RETURN Gross Sales/Receipts for the Month xxx Multiplied by VAT rate 12% Output VAT xxx Less Input Taxes: Transitional/Presumptive Input Tax xxx 131
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Quick Notes on VAT Transactions subject to VAT General Requirements Done in the course of trade or business (w/n profit-oriented): rule of regularity + incidental thereto (inc isolated) exception: (a) NRC/NRA who perform services in Phil, even if no regularity (b) Importation of Goods may be for business or non-business use Gross sales or receipts for the past 12 months or the next 12 months > 1,919,500php OR there are reasonable grounds to believe
(1) Seller (w/n natural) executes contract to SBE of RP (2) RP is in the Phil (3) Seller is engaged in sale or exchange of RP or real estate (dealer, developer, lessor) (4) RP is held primarily for sale/lease ICT/B or an ordinary asset used in T/B as an incident to his vatable activity (NOT a capital asset) (5) not exempt from VAT (NIRC, special law, special agreement) NB: Deferred Payments (initial > 25% GSP) Instalment Plan (initial ≤ 25% GSP)
S of Services29 (1) for a valuable consideration (actually/constructively received) (2) performed ICTB in the Phil. (3) not exempt from VAT (NIRC, special law, special agreement) (4) person rendering service is VAT-liable (5) no ee-er relationship (6) I of Goods
Taxable Transactions and Specific Requirements SBEL of Goods or Properties27 Goods/Personal Properties (1) Actual/deemed sale (4) for a valuable consideration (2) for use or consumption in the Phil (regardless of the payment arrangements) (3) not exempt from VAT (NIRC, special law, special agreement)
Persons Liable to pay VAT Any person who SBEL goods or properties if real property: persons engaged in real estate business: (1) Any person who SBE of real properties ICT/B (2) Real estate lessors/ sub-lessors (3) NRA/NRC lessors when RP is in Phil (4) non-stock, non-profit corp engaged in SBE of real properties ICT/B, regardless of disposition of income (5) Gov’t inc GOCCs in SBEL of RP ICT/B who renders services who imports goods
Real Properties28: 27
Casual Sale (Capital Assets) Regular Sales (Ordinary Assets) Commercial Property (Sale/Lease ) Residential Units (Lease)
Residential Lot Residential House and Lot
Subject to CGT (6%)
Subject to 12% VAT
If importer is tax-exempt/VAT-exempt AND goods are subsequently SBE to non-exempt persons, purchasers/recipients = importer if the Philippine branch of an NRFC “imported”, first local buyer = importer
If monthly rental ≤ 12,800 = VAT and OPT-exempt If monthly rental > 12,800 but aggregate annual rentals ≤1,919,500 = subject to OPT If monthly rental > 12,800 and aggregate annual rentals > 1,919,500 = subject to VAT If SP > 1,919,500.00 = subject to VAT IF SP ≤ 1,919,500.00 = VAT-exempt If SP > 3,199,200.00 = subject to VAT IF SP ≤ 3,199,200.00 = VAT-exempt
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Tax Bases of VAT Gross (Sales) Selling Price: total amount of money paid in consideration of SBEL Excludes: VAT, sales discounts 30 and, allowances and returns (2) Includes: Excise tax paid, initial payments 31 , interests and penalties (if instalment), commission income (if exported), purchase price, charges for packing, delivery and insurance
Upon full collection, if a difference is uncovered because the zonal value or market value at the date of sale is higher than the total receipts or collections based on the agreed consideration, the additional VAT shall be paid accordingly (RMC 03-96) IF DEFERRED GSP = entire selling price or zonal/FMV, whichever is higher NB: CIR has the power to determine the appropriate tax base in 1) SBE in deemed sales and 2) when GSP is unreasonably lower than AMV32
If goods/personal properties, GSP = amount paid in consideration IF DEEMED SALE: FMV at the time of the transaction NB: in retirement/cessation, inventory (raw materials, finished goods, machinery, equipment, furniture, fixture), tax base = whichever is lower, (1) acquisition cost (2) current market price of goods (3) If real property, GSP = amount higher: (1) consideration stated in the sales document (2) FMV, whichever is higher of
GROSS VALUE IN MONEY OF GOODS Gross Receipts derived from transaction: total amount of money/equivalent = contract price + compensation + service fee + rental fee + royalties + amount charged for materials supplied with the services + deposits and advanced payments actually or constructively received + costs items of construction projects – (VAT + amounts earmarked for payments to unrelated 3rd party + amounts received as reimbursement + monies/receipts held in trust w/c do not redound to the benefit of taxpayer + universal charge passed on and collected by distribution companies and electric coop (if sale of electricity) + receivables + local taxes)
Zonal value: FMV as determined by CIR Real Property Tax Value: FMV as determined by provincial & city assessors IF ON INSTALLMENT: GSP = down payments received + interests + penalties + other charges – amount of mortgage (paid) NB: If zonal/FMV, tax base =
IF DEALER IN SECURITIES: gross selling price – cost of securities sold
Total Value/Landed Cost (determined on the basis of quantity/volume of goods) 𝑥 𝑧𝑜𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑟 𝐹𝑀𝑉, ℎ𝑖𝑔ℎ𝑒𝑟 Total Value used by Customs: tariff and customs duties + custom duties +excise tax + charges 30 It should be determined at the time of the sale, Landed Cost: invoice amount inc. cost of loading, shipping, unloading, + custom duties indicated in the invoice and granting does not depend on 𝐴𝑐𝑡𝑢𝑎𝑙 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 (𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑉𝐴𝑇) 𝐴𝑔𝑟𝑒𝑒𝑑 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 (𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑉𝐴𝑇)
the happening of a future event 31 Initial payments does not include the amount of mortgage on RP sold (except excess when mortgage exceeds the cost of the property), notes and other evidence on=f indebtedness issued by the purchaser at the time of the sale
GSP is unreasonably lower than the actual market value if it is lower than 30% of AMV of the same goods of the same quantity or quality sold in the immediate locality or the nearest date of sale. 32
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+ freight + insurance + other charges +excise tax – expenses incurred after release of goods (e.g. cost of delivery) Customs duty: amount of customs duty legally due and paid by the importer Charges: special import tax,foreign marginal fees, bank and arrastre charges, wharfage dues, broker fees, other charges paid to complete importation
TAXATION LAW FORMULA
INPUT TAX TREATMENT
Input x Creditable Input (𝑉𝐴𝑇 𝑡𝑎𝑥𝑎𝑏𝑙𝑒 𝑠𝑎𝑙𝑒𝑠) VAT 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
Input Input VAT Credit, x eligible for tax (𝑍𝑒𝑟𝑜−𝑟𝑎𝑡𝑒𝑑 𝑠𝑎𝑙𝑒𝑠) refund or TCC 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 Untraceable Input Cost of Sales or VAT x Operating (𝑉𝐴𝑇−𝑒𝑥𝑒𝑚𝑝𝑡 𝑠𝑎𝑙𝑒𝑠) Expense 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 Compare to Untraceable Input Standard Input (𝑆𝑎𝑙𝑒 𝑡𝑜 𝐺𝑜𝑣′𝑡) VAT (Creditable VAT x 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 against Standard input VAT)
Rates of VAT (a) Output Tax (Sale/Barter/Exchange/Lease) 12% standard rate: applied directly to TB 0%: applied directly to TB (b) Input Tax (Purchase from VAT-registered businesses/Importation of goods) 12% standard rate: applied directly to TB 0%: applied directly to TB 2% transitional VAT: applied to the (inventory on hand) value of goods (exc. VAT-exempt good) existing at the date a person commences business and/or becomes liable to VAT) or 12% actual input tax rate, higher 4% presumptive input tax rate: applies to purchases of VAT-exempt goods used as inputs by a VAT-registered person in manufacturing or processing certain food products 7% FWT (standard input VAT, when government), 5% withholding
NB: Creditable Input VAT is increased by any input VAT carried over from the preceding month or quarter decreased by: (1) amount of the claim for refund or tax credit for VAT filed during the same period (2) input tax attributable to exempt sales and unauthorized input tax attributable of depreciable capital goods (3) amount of input VAT wrt uncollected portion of instalment receivable in instalment sales
Creditable Input VAT Requirements (1) Proper documentation (2) No double input tax credit is allowed. (3) Input VAT on a particular purchase transaction can be claimed once only upon consummation of the sale of goods and based on the entire GSP (whether paid on cash, credit or instalment) (4) Ignore erroneous VAT rate. The correct rate of input VAT can still be claimed. (5) Transactions should have been made with VAT-registered persons. (6) IF MIXED TRANSACTIONS and input VAT cannot be directly attributable: 134
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VAT-EXEMPT AND 0% VAT VAT-Exempt Non-VAT taxable transaction Taxpayer is relieved from payment of VAT for w/c he is directly liable NO output and input VAT Optional VAT Registration Partial relief Only removes VAT at the exempt stage
0% VAT Taxable transaction No output VAT, but input VAT is available as tax credit or refund Total relief All VAT is removed at whatever stage
SALE OF SERVICES VAT-Exempt 0% VAT NB: There are 31 VAT-exempt sales of Processing, manufacturing, repacking goods to nonservices (Sec 109 and special laws) resident (5) Processing, manufacturing, repacking goods to export-oriented (3) Services other than processing, manufacturing, repacking (4) Services to exempted persons (3): effectively 0-rate Sale of power/fuel-generated through renewable wrt lease of property =exempt resources (3) if advance payment = loan, option money, Services rendered to int’l shipping/air transport (2) security deposit Transport of passengers and cargo by air from Phil to NB: if security deposit is applied to rental = Foreign (3) VAT Transactions of VAT-reg person to foreign embassies wrt persons engaged in milling, processing, (2) manufacturing or repacking goods = exempt if palay rice; corn corn grits; sugar cane raw sugar wrt franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting = exempt if annual gross receipts P50,000
Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations Related to the Printing of Such Receipts or Invoices and Other Violations (Sec. 264) Offenses Relating to Stamps (Sec. 265) Failure to Obey Summons (Sec. 266)
Declaration under Penalties of Perjury (Sec. 267)
Misdeclaration Misrepresentation Manufacturers Subject Excise Tax (Sec. 268)
or of to
Fine: P50,000 P100,000 (4) AND V alue of goods > P150,000 Imprisonment: 10-12 years Any person who, being required Fine: P 1,000 - P50,000 under Section 237 to issue AND receipts or sales or commercial Imprisonment: 2- 4 years invoices
Fine: P20,000 - P50,000 AND Imprisonment: 4-8 years Any person who being duly Fine: P 5,000 - 10,000; summoned to appear to testify, AND or to appear and produce books Imprisonment:1-2 years of accounts, records, memoranda or other papers, or to furnish information as required under the pertinent provisions of this Code. Any person who willfully files a Penalty for Perjury under declaration, return or statement the Revised Penal Code containing information which is not true and correct as to every material matter Any manufacturer subject to Summary cancellation or excise tax withdrawal of the permit to engage in business as a manufacturer of articles subject to excise tax Any person who conducts an Forfeiture of property unlicensed business or uses dies used for printing false stamps
Use of Property in Unlicensed Business or Use of Dies for Printing False Stamps, Etc. (Sec. 268) Illegal Storage or Removal of Any person subject to excise tax Forfeiture of goods Goods (Sec. 268) who fails to store the goods in proper place, or removes goods without payment of excise tax Penalty for Second and Maximum of the penalty 166
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Who is liable
Subsequent Offenses (Sec. 274) Violation of Other Provisions of the Tax Code or Rules or Regulations in General (Sec. 275)
Penalty prescribed for the offense
Any person who violates any provision of this Code or any rule or regulation promulgated by the Department of Finance for which no specific penalty is provided by law Penalty for Selling, Any taxpayer, whose property Transferring, Encumbering or has been placed under in any way disposing of constructive distraint property Placed under Constructive Distraint (Sec. 276)
Fine: P1000 or less OR Imprisonment: 6 months or less OR Both Fine: at least P5,000 AND at least twice the value of the property OR Imprisonment: 2 years 1 day - 4 years OR Both Fine: P 5,000 or more OR Imprisonment: 6 months 1 day - 2 years, OR Both
Failure to Surrender Property Any person having in his Placed under Distraint and possession or under his control Levy (Sec. 277) any property or rights to property, upon which a warrant of constructive distraint or actual distraint and levy has been issued Procuring Unlawful Divulgence Any person procures an officer Fine: not more than P of Trade Secrets (Sec. 278) or employee of the BIR to 2,000 divulge any confidential OR information regarding the Imprisonment: 6 months business, income or inheritance 5 years of any taxpayer, knowledge of OR Both which was acquired by him in the discharge of his official duties, and which it is unlawful for him to reveal, and any person who publishes or prints in any manner whatever, not provided by law, any income, profit, loss or expenditure appearing in any income tax return The law imposes a fine of not less than Penalties Imposed on Public Officers [Sec. 269, P50,000 nor more than P100,000 or NIRC] imprisonment for not less than 10 years nor 167
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Informer’s Reward[Sec. 282, NIRC] To whom given:
more than fifteen years on every official, agent or employee of the BIR or of any agency or employee of the Government charged with the enforcement of the Tax Code, who shall: (CONED- FRAP) (a) Extort or willfully oppress under color of law; (b) knowingly Demand other or greater sums than are authorized by law or receive any fee, compensation or reward, except as by law prescribed, for the performance of any duty; (c) willfully Neglect to give receipts, as by law required, for any sums collected in the performance of duty, or who willfully neglect to perform any of the duties enjoined by law; (d) Conspire or collude with another or others to defraud the revenues or otherwise violate the law; (e) willfully make Opportunity for any person to defraud the revenues, or who do or omit to do any act with intent to enable any other person to defraud the revenues; (f) negligently or by design Permit the violation of the law by any other person; (g) make or sign any False certificate or return in any case where the law requires the making by them of such entry, certificate or return; (h) having knowledge or information of a violation of any provision of the Code or of any fraud committed on the revenues collectible by the BIR, fail to Report such knowledge or information to their superior officer, or to report as otherwise required by law; or (i) without the authority of law, demand or Accept or attempt to collect, directly or indirectly, as payment or otherwise, any sum of money or other thing of value for the compromise, adjustment or settlement of any charge or complaint for any violation or alleged violation of law.
Persons instrumental in the discovery of violations of the NIRC and in discovery and seizure of smuggled goods.
Amount of reward: 10% of the revenues, surcharges or fees recovered and/or fine/penalty imposed, or P1,000,000, whichever is LOWER. (a) The same amount shall be given if the offender offered to compromise and such offer has been accepted and collected by the Commissioner. (b) If no revenue, surcharge or fees be actually collected, such person is not entitled to a reward (c) For discovery and seizure of SMUGGLED GOODS: The cash reward is 10% of the FMV of the smuggled and confiscated goods, or P1,000,000, whichever is LOWER.
STATUTORY OFFENSES AND PENALTIES Civil Penalties (1) Surcharge (2) Interest SURCHARGE Surcharge - penalty imposed in addition to the tax required to be paid [Sec. 248(A), NIRC] Rates of Surcharge (25% or 50%) (1) 25% of the amount due in the following cases: (a) Failure to file any return and pay the tax due on the date prescribed; or (b) Filing a return with an internal revenue officer other than those with whom the return is required to be filed unless the Commissioner authorizes otherwise; or (c) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or (d) Failure to pay the full or part of the 168
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amount of tax due on or before the date prescribed for its payment [Sec. 246 (A),
(c) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the letter of demand and assessment notice (Sec. 249(C), NIRC)
NIRC] (2) 50% of the tax or of the deficiency tax in the following cases: (a) Willful neglect to file the return within the period prescribed; or (b) A false or fraudulent return is willfully made [Sec. 248(B), NIRC]
Interest on extended payment 20% per annum on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid if any person required to pay the tax is: (a) Qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part of such amount or installment or before the date prescribed for its payment; or (b) Where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof (249(D), NIRC)
Prima facie evidence of a false or fraudulent return: Substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions. Failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration or for overstatement. (Sec. 248(B), NIRC)
COMPROMISE AND ABATEMENT OF TAXES (see discussion under Remedies of the Taxpayer)
INTEREST In General 20% per annum on the unpaid amount of tax, interest at the rate of twenty percent (20%) per annum from the date prescribed for payment until the amount is fully paid. (Sec. 249(A), NIRC)
Cases which may be compromised: [Sec. 2, R.R. 30-2002] (1) Delinquent accounts (2) Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office (3) Civil tax cases being disputed before the courts (4) Collection cases filed in courts (5) Criminal violations, other than those already filed in court or those involving criminal tax fraud
Deficiency Interest 20% per annum on any deficiency in the tax due from the date prescribed for its payment until the full payment thereof. (Sec. 249(B), NIRC) Delinquency interest 20% per annum on the unpaid amount in case of failure to pay: (a) The amount of the tax due on any return required to be filed; or (b) The amount of the tax due for which no return is required; or
Cases which cannot be compromised: [Sec. 2, R.R. 30-2002] 169
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(1) Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer's obligation to withhold (2) Criminal tax fraud cases confirmed as such by the CIR or his duly authorized representative (3) Criminal violations already filed in court (4) Delinquent accounts with duly approved schedule of installment payments (5) Cases where final reports of reinvestigation ore reconsideration 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 (REB) or the National Evaluation Board (NEB) on a case to case basis (6) Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; and (7) Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer
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Flowchart I: Taxpayer’s Remedies from Tax Assessment-NIRC START
Commissioner or Regional Director Issues Letter of Authority (LA)
Revenue Officer (RO) conducts Audit w/in 120 days. If 120 days lapse LA is revalidated,
Send Formal Letter of demand and Final Assessment Notice (FAN) is issued
Is response w/n 15 days? Is it meritorious?
NO to either
Yes to both
File protest w/n 30 days from receipt of assessment. Submit supporting papers wi/in 60 days from protest
Protest made w/in 30 days? Supporting papers submitted w/in 60 days?
Assessment becomes Final, Warrant of Distraint & Levy Issued
RO sends notice of informal conference
Taxpayer responds w/in 15 days
Taxpayer responds w/in 15 days
Regional Assessment Division issues a Preliminary Assessment Notice (PAN)
YES to both
Commissioner decides on protest within 180 days
NO to either
Decision favorable to taxpayer?
Commissioner decides w/n 180 days?
Appeal to the Court of Tax appeals within 30 days OR file motion for reconsideration within 30 days. MR tolls 30 day period to appeal to CTA
Appeal to the Court of Tax Appeals w/in 30 days after lapse of 180 days OR wait for a decision by the BIR (Lascona Land oil vs. CIR)
If MR is denied, appeal to the CTA within remainder of the 30 days
CTA decides on the appeal
Appeal made on time?
If CTA decision is unfavorable to taxpayer, file MR with CTA Division w/in 15 days. Appeal to CTA en banc if MR denied.
Appeal to Supreme Court
Assessment becomes Final, Warrant of Distraint & Levy Issued
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Flowchart II: Procedures for Distraint and Levy-NIRC RCO - Revenue Collection Officer RDO - Revenue District officer RRD - Revenue Regional Director LGU- Local Government Unit
Person owing any delinquent tax to fails to pay w/in the time required
Delinquent tax more than 1M?
No RDO posts notice in at least 2 public places in the municipality/city where the distraint is made. One place of posting must be at the mayor’s office. Time of sale shall not be less than 20 days after the notice (Sec. 209)
Goods shall be restored to owner, if charges are paid (Sec. 210)
Commissioner seizes sufficient personal property to satisfy the tax, charge & expenses of seizure (Sec. 207 (A))
RDO seizes sufficient personal property to satisfy the tax, charges & expenses of seizure (Sec. 207 (A))
Property may be resold and the net proceeds shall be remitted to the National Treasury as internal revenue. (Sec. 212)
Distraining Officer accounts for the goods distrained (Sec. 208)
Bid less than amount of tax/ FMV of goods distrained?
Officer conducts public auction
Commissioner may purchase property for the National Government (Sec. 212)
No, bid just right W/in 5 days after sale, distraining officer shall enter return of proceedings in the records of RCO, RDO and RRD (Sec. 213)
W/in 2 days after the sale, officer shall report to the Commissioner. (Sec. 211)
Internal revenue officer, designated by the Commissioner, shall prepare a certificate with the force of a nationwide legal execution (Sec. 207 B)
Real property may be levied on before, simultaneously, or after the distraint of personal property (207 (B))
W/n 10 days after receipt of the warrant, levying officer shall report to the Commissioner who shall have the authority to lift the warrant of levy (Sec. 207 B)
W/n 1 year from forfeiture, the taxpayer, may redeem said property by paying full amount of the taxes and charges (Sec. 215)
Excess of proceeds over the entire claim, shall be returned to the owner. No charge shall be imposed for the services of the officer (Sec. 209)
Levy shall be affected by writing upon said certificate a description of the property. Notice of the levy shall be served upon the Register of Deeds of LGU where the property is located and upon the owner (Sec. 207 B)
W/n 20 days after levy, officer shall post notice at the main entrance of the municipal/city hall & in public place in the barrio/district where the real estate lies for at least 30 days by AND publish it once a week for 3 weeks. Owner may prevent sale by paying all charges (Sec. 213)
W/n 2 days, he shall make a return of the forfeiture. Register of Deeds, upon registration of forfeiture shall transfer title to the Government w/o court order. (Sec. 215)
Officer sells the goods to the highest bidder for cash or with the Commissioner’s approval, through commodity/ stock exchanges. (Sec. 209)
Sale shall be held at the main entrance of the municipal/city hall, or on the premises of the levied property. (Sec. 213)
Officer conducting the sale shall forfeit the property to the Government (Sec. 215)
No bidder or highest bid insufficient?
No, bid ok The Commissioner may, after 20 days notice, sell property at public auction or at private sale with approval of the SoF. Proceeds shall be deposited with the National Treasury (Sec. 216)
W/n 1 year from sale, the owner may redeem, by paying to the RDO the amount of the taxes, penalties, and interest thereon from the date of delinquency to the date of sale, and 15% per annum interest on purchase price from the date of purchase to the date of redemption. (Sec. 214)
W/n 5 days after the sale, levying officer shall enter return of the proceedings upon the records of the RCO, RDO and RRD (Sec. 213)
Excess of proceeds of the sale over claim and cost of sale shall be turned over to the owner (Sec. 213)
Owner shall not be deprived of the possession and shall be entitled to the fruits until 1 year expires (Sec. 214)
Levy and distraint may be repeated until the full amount due, and all expenses are collected. (Sec. 217)
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VII. Organization and Function of the BIR RULE-MAKING AUTHORITY SECRETARY OF FINANCE
TAXATION LAW (3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts for the taxable quarter.
B. Failure of any person to register as required under section 236. The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.
Authority of secretary of finance to promulgate rules and regulations [Sec. 244, NIRC] The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for effective enforcement of the provisions of the Code. Non-retroactivity of rulings [Sec. 246, NIRC] General Rule:No retroactive application if the revocation, modification or reversal of rules and regulations, rulings or circulars will be prejudicial to the taxpayers
Exceptions: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR; (b) Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith. POWER OF THE COMMISSIONER TO SUSPEND THE BUSINESS OPERATION OF A TAXPAYER [Sec 115, NIRC] The Commissioner or his authorized representative is empowered to suspend the business operations and temporarily close the business establishment of any person for any of the following violations: A. In the case of a vat-registered person. (1) Failure to issue receipts or invoices; (2) Failure to file a value-added tax return as required under Section 114; or
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VIII. LOCAL GOVERNMENT CODE OF 1991, AS AMENDED
TAXATION LAW Unless otherwise provided, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or judicial, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and education institutions, are withdrawn upon the effectivity of the Code. (Sec. 193, LGC)
LOCAL GOVERNMENT TAXATION NATURE AND SOURCE OF TAXING POWER (A) Grant of local taxing power under the Local Government Code (1) Each LGU shall exercise its power to a. create its own sources of revenue b. levy taxes, fees, and charges. (2) Both are subject to the provisions in the LGC and consistent with local autonomy (3) Taxes, fees and charges levied accrue exclusively to the local government units.
(E) Authority to adjust local tax rates LGUs shall have the authority to adjust the tax rates as prescribed not oftener than once every five (5) years, but in no case shall the adjustment exceed ten percent (10%) of the rates fixed by the Code. (Sec. 191, LGC) (F) Residual taxing power of local governments LGU may exercise the power to levy taxes or charges on ANY base or subject
[Sec. 129, LGC] (B) Authority to prescribe penalties for tax violations The sanggunian may impose (1) a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fees or charges not paid on time and (2) an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. [Sec. 168, LGC]
Required: Not otherwise specifically enumerated in the LGC or taxed under NIRC or other applicable laws (1) Not unjust, excessive, oppressive, confiscatory or contrary to declared national policy (2) Pursuant to an ordinance enacted with public hearing conducted for the purpose.
[Sec. 186, LGC] (g) Authority to issue local tax ordinances The power to impose a tax, fee, or charge, or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. [Sec. 132, LGC]
(C) Authority to grant local tax exemptions LGUs may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary. [Sec. 192,
LOCAL TAXING AUTHORITY (a) Power to create revenues exercised thru LGUs
LGC] (D) Withdrawal of exemptions 175
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(a) Each LGU shall exercise its power to create its power to create its own sources of revenue and to levy taxes, fees and charges. [Sec. 128, LGC] (b) Exercised by the Sanggunian concerned through an appropriate ordinance. [Sec.
132, LGC] (c) Ordinances may be vetoed by local chief executives of the LGUs, except the Punong Barangay, on the ground that it is ultra vires or prejudicial to public welfare. His reasons shall be stated in writing. [Sec. 55 (a) and (b), LGC] (b) Procedure for approval and effectivity of tax
ordinances (1) A public hearing must be conducted prior to the enactment of a tax ordinance.
[Sec. 187, LGC] (2) Within ten (10) days after the approval of the ordinance, certified true copies of all tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation. In provinces, cities and municipalities where there are no newspapers of local circulation, it must be posted in at least two (2) conspicuous and publicly accessible places. [Sec. 188,
SPECIFIC TAXING POWER OF LOCAL GOVERNMENT UNIT (LGUS) Power Tax on Transfer of Real Property Tax on Business of Printing and Publication Franchise tax Tax on sand, gravel and other quarry resources Professional tax Amusement tax Annual Fixed Tax For Every
(139) (140) (141)
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Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products Tax on Business Fees and charges on regulation/licensing of business and occupation Fees for Sealing and Licensing of Weights and Measures Fishery Rentals, Fees and Charges Community Tax Tax on Gross Sales or Receipts of Small-Scale Stores/Retailers Service Fees on the use of Barangay-owned properties Barangay Clearance Other Fees and Charges (on commercial breeding of fighting cocks, cockfights, cockpits; places of recreation which charge admission fees; outside ads) Service Fees and Charges (153) Public Utility Charges (154) Toll Fees or Charges (155) Real Property Tax
(152a) (152b) (152c)
(within Metro Manila) 2007): Business tax must be based on gross receipts, it being different from gross revenue. The right to receive income, and not the actual receipt determines when to include the amount in gross income.
Yamane vs. Lepanto Condo Corp. (Oct. 23, 1995): Condominium corporations are not business entities, and are thus not subject to local business tax. Even though the corporation is empowered to levy assessments or dues from the unit owners, these amounts are not intended for the incurrence of profit by the corporation, but to shoulder the multitude of necessary expenses for maintenance of the condominium.
Common revenue raising powers (1) Service fees and charges LGUs may impose and collect such reasonable fees and charges for services rendered. [Sec. 153, LGC] (2) Public utility charges LGUs may fix the rates for the operation of public utilities owned, operated and
Ericsson Telecoms vs. City of Pasig. (Nov 177
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maintained by them within their jurisdiction.
Common limitations on the taxing powers of LGUs Unless otherwise provided, the following cannot be levied by the local governments: (IDEC-GAPEP-GRR-ECN): (1) Income tax, except when levied on banks and other financial institutions; (2) Documentary stamp tax; (3) Estate tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided; (4) 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
tolls for bridges or otherwise, or other taxes, fees, or otherwise (6) Taxes, fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen; (7) Taxes on business enterprises certified to by the Board of Investments as Pioneer or non-pioneer for a period of 6 and 4 years, respectively from the date of registration; (8) Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees or charges on petroleum products; (9) Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (10) 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 the Code; (11) Taxes on premiums paid by way or Reinsurance or retrocession; (12) Taxes, fees or charges for the Registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles; (13) Taxes, fees, or other charges on Philippine products actually Exported, except as otherwise provided; (14) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and Cooperatives duly registered under the Cooperative Code of the Philippines; and (15) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. [Sec. 133, LGC]
wharves constructed and maintained by the LGU concerned; (5) Taxes, fees or charges on Goods carried into or out of, or passing through, the territorial jurisdictions of local government
[Sec. 154, LGC] (3) Toll fees or charges (a) The sanggunian may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned. (b) The sanggunian may also discontinue the collection of the tolls when public safety and welfare requires. (c) NO toll fees or charges shall be collected from: (i) Officers and enlisted men of the AFP and members of the PNP on mission (ii) Post office personnel delivering mail (iii) Physically-handicapped (iv) Disabled citizens who are sixty-five (65) years or older. [Sec. 155, LGC]
units in the guise of charges for wharfage, 178
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(a) Periods of assessment and collection of local taxes, fees or charges (a) Assessment: Within 5 years from the date they become due (b) In case of Fraud or Intent to Evade Tax: Within 10 years from discovery of fraud or intent to evade payment. (Sec. 194, LGC) (c) Collection: 5 years from the date of assessment by administrative or judicial action.
(a) Local government’s lien for delinquent taxes, fees or charges (1) Non-payment of a tax, fee or charge creates a lien superior to all liens or encumbrances in favor of any other person, enforceable by administrative or judicial action (2) The lien may only be extinguished upon full payment of the delinquent local taxes, fees, and charges including related surcharges and interests. [Sec.
Instances When Running of Prescription Periods is Suspended
(1) When the treasurer is legally prevented from making the assessment or collection (2) When taxpayer requests for reinvestigation and executes a waiver in writing before lapse of the period for assessment or collection. (3) When the taxpayer is out of the country or otherwise cannot be located (Sec. 194 (d), LGC)
(b) Civil remedies, in general (1) Administrative action (2) Judicial action (c) Procedure for administrative action (1) Distraint of personal property Personal properties subject to distraint: 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
(b) Protest of assessment Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise it shall become final and executory. (Sec. 195, LGC)
PROCEDURE: [Sec. 175, LGC] (a) Seizure of personal property (b) Accounting of distrained goods (c) Publication of time and place of sale and the articles distrained (d) Release of distrained property upon payment prior to sale (e) Procedure of sale (f) Disposition of proceeds
(c) Claim for refund of tax credit for erroneously or illegally collected tax, fee or charge (a) Requires a written claim for refund or credit to be filed with local treasurer before protest is entertained (b) Must be brought within 2 years from payment of tax or from the date the taxpayer became entitled to refund or credit (Sec. 196, LGC)
(2) Levy of real property, procedure Levy upon real property and interest in or rights to real property
CIVIL REMEDIES BY THE LGU FOR COLLECTION OF REVENUES
PROCEDURE [Sec. 176, LGC]
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(a) Preparation of a duly authenticated certificate by the LGU Treasurer effecting the levy on the real property (b) Service of written notice of levy to the assessor and Register of Deeds (c) Annotation of the levy on the tax declaration and the certificate of title (d) Advertisement and Sale [Sec. 178,
(5) Penalty on local treasurer for failure to
issue and execute warrant of distraint or levy Automatically dismissed from the service after due notice and hearing (Sec. 177, LGC)
(d) Procedure for judicial action (1) The local government may institute an ordinary civil action with regular courts of proper jurisdiction for the collection of delinquent taxes, fees, charges or other revenues. (2) The civil action shall be filed by the local treasurer. (Sec. 183, LGC)
(3) Further distraint or levy The remedies by distraint or levy may be repeated if necessary until the full amount due, including all expenses, is collected (Sec. 184, LGC) (4) Exemption of personal property from
distraint or levy
Valley Trading Co. vs. CFI of Isabela, (1989); Angeles City v. Angeles City Electric Corporation, (2010):
(ToB-CUPLA) (a) Tools and implements necessarily used by the taxpayer in his trade or employment (b) one horse, cow, carabao, or other Beast of burden, such as the delinquent taxpayer may select and necessarily used by him in his ordinary occupation (c) his necessary Clothing, and that of all his family (d) household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding P10,000 (e) Provisions, including crops, actually provided for individual or family use sufficient for 4 months (f) the professional Libraries of doctors, engineers, one fishing boat and net, not exceeding the total value of P10,000 by the lawful use of which a fisherman earns his livelihood (g) any material or Article forming part of a house or improvement of any real property
LGC does not contain a provision prohibiting courts from enjoining the collection of local taxes. Such lapse may have allowed preliminary injunction under Rule 58, ROC where local taxes are involved.
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(d) Other improvements not exempted [Sec. 232, LGC]
REAL PROPERTY TAXATION FUNDAMENTAL PRINCIPLES
All real property, whether taxable or exempt, shall be appraised at the CURRENT AND FAIR MARKET VALUE prevailing in the locality where the property is situated. (Sec. 201, LGC) basis
The rate shall be as follows: (a) Province: not exceeding one percent (1%) of the assessed value of real property; and (b) City or municipality within Metro Manila: not exceeding two percent (2%) of the assessed value of real property. (Sec. 233, LGC)
(CAPUE) (1) Current fair market value is the basis for assessment
(2) Actual use shall be the classification for assessment
Special Levy on Idle Lands (a) A province, or city or municipality within Metro Manila may levy an annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value of the property in addition to the basic tax (b) Lands covered (1) Agricultural Lands More than one (1) hectare in area suitable for cultivation, dairying, inland fishery, and other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved (2) Other than Agricultural More than one thousand (1000) square meters in area one half (1/2) of which remain unutilized or unimproved (Sec. 236 and 237, LGC) (c) Exempt Idle Lands Lands exempt by reason of force majeure, civil disturbance, natural calamity or any cause or circumstance which physically or legally prevents improving, utilizing or cultivating the same. (Sec. 238, LGC)
(a) Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever
owns it, and whoever uses it. (b) Actual Use- refers to the purpose for which the property is PRINCIPALLY or PREDOMINANTLY utilized by the person in possession thereof [Sec. 199(b), LGC] (c) MCIAA v. Marcos [G.R. No. 120082, Sept. 11, 1996]- “Usage means direct, immediate and actual application of the property (3) Private persons cannot be left to the appraisal, assessment, levy and collection of real property tax. (4) Uniform classification within each local government unit shall be observed. (5) Equitable appraisal and assessment is required. (Sec. 197, LGC)
Special Levy for Public Works (a) A tax ordinance shall describe with reasonable accuracy the nature, extent and location of the public works to be undertaken, the estimated cost, the metes and bounds by monuments and lines and the number of annual installments which should not be less than five (5) nor more than ten (10) years.
Imposition of Real Property Tax
Coverage For a Province, or a City or Municipality within Metro Manila (a) Land (b) Building (c) Machinery 181
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(b) The sanggunian may fix different rates for different parts or sections thereof, depending on whether such land is more or less benefited by the proposed work. (Sec. 241, LGC)
GOCCs Philippine Ports Authority vs. City of Iloilo (G.R. No. 109791, July 14, 2003):GOCCs are NOT covered by the exemption since the exemption only refers to instrumentalities without personalities distinct from the government.
Special Education Fund (SEF) A province, or city or municipality within Metro Manila may levy and collect an annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax.
Mactan Airport v. MIAA cases Provision SC Ruling involved Mactan Sec 133 (o), Airport Airport LGC. LGUs Authority is a Authorit not allowed GOCC, not y vs. to levy… (o) exempt from Marcos taxes/fees/ch RPT. (1996) arges of any Legislature in
Exemption from real property tax (1) Owned by the Republic of the Philippines or any of its political subdivisions except when beneficial use is granted for a consideration or to a taxable person. (2) Charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques, non-profit or religious cemeteries, and all lands, buildings, and improvements actually, directly and exclusively used for religious, charitable, or educational purposes. (3) Machinery and equipment actually, directly and exclusively used by local Water utilities and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power. (4) Real property owned by duly registered Cooperatives as provided for under Republic Act No. 6938 (Cooperative Code of the Philippines). (5) Machinery and equipment used for Pollution control and Environmental protection. (Sec. 234, LGC)
kind on the national gov’t, its agencies, instrumentalit ies and LGUs.
amending the law specifically deleted GOCCS from the enumeration Sec 234 (a), in Sec 234(a). LGC. Properties exempt from RPT: (a) real properties owned by the Republic or any of its political subdivisions… Manila Sec 133 (o), MIAA falls Airport LGC under the Authorit term y vs. CA Sec 234 (a), “instrumenta (2006) LGC) lity” outside the scope of LGS’s local taxing powers under Sec
Provincial Assessor of Marinduque v. CA [G.R. No. 170532, Apr. 30, 2009]-A claim for exemption under Sec. 234(e) should be supported by evidence that the property sought to be exempt is actually, directly and exclusively used for pollution control and environmental protection. 182
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include a duly authenticated certificate showing the name of the owner or person having legal interest therein, description of the property, amount of the tax due and interest thereon. (a) Warrant must be mailed or served to owner or person having legal interest in the property (b) Written notice of levy must be mailed or served to the assessor and the Register of Deeds where the property is located (c) The Register of Deeds must annotate the levy on the tax declaration and certificate of title [Sec. 258, LGC]
Charitable Institutions LUNG CENTER of the PHILS vs. QUEZON CITY (G.R. No. 144104, June 29, 2004): A charitable institution doesn't lose its character and its exemption simply because it derives income from paying patients so long as the money received is devoted to the charitable object it was intended to achieve, and no money inures to the benefit of persons managing the institution.
Failure to issue or execute the warrant of levy within one year from the time the tax becomes delinquent or within thirty days from the date of the issuance thereof shall be dismissed from service [Sec. 259, LGC]
Property leased to private entities is NOT exempt from RPT, as it is not actually, directly and exclusively used for charitable purposes. Portions of the land occupied by the hospital and portions used for its patients, whether paying or non-paying, are EXEMPT from real property taxes.
Judicial The LGU may enforce the collection by civil action in any court of competent jurisdiction.
REMEDIES OF LGUS FOR COLLECTION OF REAL PROPERTY TAX
Must be filed by local treasurer within five (5) to ten (10) years. [Sec. 266 in relation to Sec.
Local Government’s Lien— The basic real property tax shall constitute a lien on the property subject to tax, superior to all liens, charges or encumbrances in favour of any person, irrespective of the owner or possessor thereof, enforceable by administrative or judicial action and may only be extinguished upon payment of the tax and the related interests and expenses. [Sec. 257,
ADMINISTRATIVE (a) Protest
Appeal to the Local Board of Assessment Appeals (LBAA) Appeal must be filed within 60 days from the date of receipt of the written notice of assessment (a) By filing a petition under oath in the form prescribed for the purpose (b) Copies of tax declarations and other affidavits or documents must be submitted [Sec. 226, LGC]
LGC] Levy Upon the failure to pay the tax when due, the local treasurer shall issue a warrant levying the real property subject to tax. The warrant shall 183
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The LBAA shall decide the appeal within 120 days from the date of receipt of such appeal (a) The LBAA shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena duces tecum and/or subpoena (b) The LBAA must furnish the appellant a copy of the decision of the board. [Sec. 229, LGC]
Meralco v. Nelia Barlis (G.R. No. 114231, May 18, 2001): The trial court has no jurisdiction to issue a writ of prohibition which seeks to set aside the warrant of garnishment over petitioner’s bank deposit in satisfaction of real property taxes without paying first under protest the tax assessed and without exhausting available administrative remedies.
Fels Energy v. Province of Batangas (G.R. No. 168557, Feb. 16, 2007)- Under Section 226 of
The local treasurer shall decide the protest within 60 days from receipt.
R.A. No 7160, the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor.
Appeal to the LBAA Appeal must be filed within 60 days from the date of receipt of denial of protest or upon lapse of 60 days to decide (a) By filing a petition under oath in the form prescribed for the purpose (b) Copies of tax declarations and other affidavits or documents must be submitted
Victorias Milling v. CTA (G.R. No. L-24213, Mar. 13, 1968)- The failure to appeal within the
[Sec. 226, LGC]
statutory period renders the assessment final and unappealable.
The LBAA shall decided the appeal within 120 days from the date of receipt of such appeal
[Sec. 229, LGC]
Appeal to the Central Board of Assessment Appeals (CBAA)
Appeal to the CBAA
Appeal must be filed within 30 days from the receipt of the decision of LBAA [Sec. 229, LGC]
Appeal must be filed within 30 days from the receipt of the decision of LBAA [Sec. 229, LGC]
Effect of payment of tax
Appeal to the CTA En Banc
Appeal on assessments of real property shall NOT SUSPEND the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor without prejudice to the subsequent readjustment depending upon the final outcome of the appeal. [Sec. 231, LGC]
Appeal must be filed through a petition for review within 30 days from the receipt of the decision of CBAA [Sec. 11, R.A. 1125 as
amended] Appeal to the SC Appeal must be filed within fifteen (15) days from receipt of decision of the CTA [Rule 45,
(b) Payment of real property under protest
File protest with local treasurer
Rules of Court]
No protest shall be entertained unless the tax is first paid. The protest must be in writing and filed within 30 days from payment of the tax to the local treasurer.
(1) Question on the legality of a tax ordinance 184
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(a) Any question on the constitutionality or legality of a tax ordinance may be raised on appeal within thirty (30) days from effectivity to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal. (b) The appeal shall not have the effect of suspending the effectivity of the tax ordinance and the accrual and payment of the tax. (c) Within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved
TAXATION LAW party may file appropriate proceedings with a court of competent jurisdiction. (Sec. 187, LGC)
(2) Assailing the validity of a tax sale No court shall entertain any action assailing the validity of any sale at public auction until the taxpayer shall have deposited with the court the amount for which the real property was sold, together with interest of two percent (2%) per month from the date of sale to the time of the institution of the action. [Sec. 267, LGC]
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Flowchart V: Procedure for Assessment of Land Value for Real Property Tax Purposes-Local Gov’t Code For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto Owner declares real property once every 3 years (sec. 202) w/n Jan 1 to June 30
Submit documents supporting exemption w/ in 30 days from declaration (sec. 206)
Required Documents submitted w/in 30 days?
Property proven as tax exempt?
Yes No Property shall be listed as taxable in the assessment roll (sec. 206)
Assessor prepares assessment rolls wherein real property shall be listed, valued and assessed (sec. 205)
Assessor declares real property if owner/ administrator fails to do so (sec. 204)
Owner may claim for tax exemption (sec. 206)
Is real property tax exempt?
Property shall be dropped from assessment roll (sec. 206)
Within 30 days from assessment, assessor sends notice to owner (sec. 223)
Owner may protest assessment within 60 days from receipt of notice to the Local Board of Assessment Appeals (LBAA) (Sec. 226)
LBAA must decide within 120 days from receipt of appeal (sec. 229)
If CBAA rejects protest, owner may appeal to the CTA en banc within 30 days from receipt of decision
Appeal to the Supreme Court w/ in 15 days
If LBAA rejects protest, owner may appeal to the Central Board of Assessment Appeals (CBAA) w/in 30 days from receipt of notice (Sec. 229)
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Flowchart VI: Taxpayer’s Remedies Involving Collection of Real Property Tax-Loc Gov’t Code For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto LT- Local Treasurer LGU - Local Government Unit LBAA- Local Board of Assessment Appeals CBAA- Central Board of Assessment Appeals CTA- Court of Tax Appeals
Assessor submits assessment roll to local treasurer (sec. 248)
Amount of tax protested shall be refunded or applied as tax credit (Sec. 252)
LT posts notice of deadline for payment at a conspicuous place at the LGU hall OR publish the same in a newspaper of general circulation in the LGU 1x a week for 2 consecutive weeks (sec. 249)
LT grants protest?
LT collects the tax starting Jan 1 of the calendar year. (Sec. 257)
LT decides w/in 60 days?
Owner pays the tax. Written protest must be filed with the local treasurer w/in 30 days from payment. (sec. 252)
LT must decide w/ in 60 days from receipt of protest (sec. 252)
No Refund or tax credit must be claimed with the local treasurer w/in 2 years from the date taxpayer is entitled to such (sec. 253)
LT acts on claim for refund/tax credit w/in 60 days?
Taxpayer may appeal within within 60 days from receipt of notice (or expiration of 60 days) to the LBAA (Sec. 226) LBAA must decide within 120 days from receipt of appeal (sec. 229)
LT grants refund/tax credit?
Taxpayer happy. END
If LBAA rejects protest/ refund, owner may appeal to the CBAA w/ in 30 days from receipt of notice (Sec. 229)
Taxpayer may appeal w/in 60 days from receipt of notice (or expiration of 60 days) to LBAA (Sec. 226)
Appeal to the Supreme Court w/ in 15 days
If CBAA rejects protest/ refund, owner may appeal to the CTA en banc within 30 days from receipt of decision (Rule 43, ROC)
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Flowchart VII: Procedure for Levy for Purposes of Satisfying Real Property Taxes-Local Gov’t Code START
Tax constitutes a lien on the property superior to all liens & may only be extinguished upon payment of the tax and charges. (sec. 257)
Before the date of sale, the owner may stay the proceedings by paying the delinquent tax, interest & the expenses of sale.
Sale is held: 1. at the main entrance of the LGU building, OR 2. on the property to be sold, OR at 3. any other place specified in the notice
Is there a bidder?
Yes Bidder pays & 30 days after the sale, the LT shall report the sale to the sanggunian
LT shall deliver to purchaser certificate of sale
Proceeds of sale in excess of delinquent tax, interest & expenses of sale remitted to the owner (sec. 260)
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto Warrant of Levy issued by the Local Treasurer (LT), which has the force of legal execution in the LGU concerned. (sec. 258)
Time for payment of real property taxes expires
30 days from service of warrant, local treasurer shall advertise sale of the property by: 1. posting notice at main entrance of LGU hall/bldg and in a conspicuous place in the barangay where prope is located AND 2. by publication once a week for 2 weeks (sec. 260) (Note: In cases of levy for unpaid local taxes publication is once a week for 3 weeks)
Warrant is mailed to or served upon the delinquent owner (sec. 258)
written notice of the levy & the warrant is mailed/served upon the assessor and the Registrar of Deeds of the LGU (sec. 258)
LT shall purchase the property in behalf of the LGU (sec. 263) (Note: in cases of levy for unpaid local taxes, LT may purchase if there is no bidder or if the highest bid is insufficient-sec. 181)
w/in 1 year from sale, owner may redeem upon payment of the 1. delinquent tax, 2. interest due, 3. expenses of sale (from date of delinquency to date of sale) and 4. add’l interest of 2% per month on the purchase price from date of sale to date of redemption. (sec. 261) Delinquent owner retains possession and right to the fruits (sec. 261)
LT returns to the purchaser/bidder the price paid + interest of 2% per month (sec. 261)
If property is not redeemed, the local treasurer shall execute a deed of conveyance to the purchaser (sec. 262)
Registrar of Deeds shall transfer the title of the forfeited property to the LGU w/o need of a court order (sec. 263)
W/n 1 year from forfeiture, the owner, may redeem the property by paying to the local treasurer the full amount of the tax and the related interest and the costs of sale otherwise the ownership shall be vested on the local government unit concerned. (sec. 263)
Sanggunian concerned may, by ordinance sell and dispose of the real property acquired under the preceding section at public auction. (sec. 264)
Levy may be repeated until the full amount due, including all expenses, is collected. (sec. 265)
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General Rule: All imported articles are subject to duty. importation by the government taxable.
IX. TARIFF AND CUSTOMS CODE OF 1978, AS AMENDED
FLEXIBLE TARIFF CLAUSE Constitutional Basis: Sec. 28(2), Art. VI, 1987 Constitution: The President is empowered to: (1) increase, reduce or remove existing rates (increase in the rate cannot exceed 100% ad valorem), including authority to modify the form of duty (2) establish import quota or ban import of any commodity (3) impose an additional duty not exceeding 10% ad valorem
TARIFF AND DUTIES, DEFINED TARIFF (a) Taxes or list of articles liable to duties (b) A list or schedule of articles on which a duty is imposed upon the importation into the country, with the rates at which they are severally taxed. And derivatively, the system of imposing duties or taxes on the importation of foreign merchandise
REQUIREMENTS OF IMPORTATION
(1) Export tariff – levied, assessed and collected an export duty on the gross FOB value at the time of shipment based on the prevailing rate on traditional export products, such as certain wood products, mineral products, plant and vegetable products [Sec. 514, TCC]
Beginning and ending of importation (a) Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein [Sec. 1202, TCC] (b) 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. [Sec. 1202, TCC]
Note: export tariff had been abolished except upon logs [Sec. 1, EO 26].
Note: The payment of the duties, taxes, fees and other charges must be in full.
(a) Taxes on the importation or exportation of commodities (b) Tariff or tax assessed upon the merchandise imported from or exported to a foreign country
[Papa v. Mago, G.R. No. L-27360, February 28, 1968]
(2) Import tariff – articles, when imported from any foreign country, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided under the Code or special laws [Sec. 100, TCC]
Import entry Imported articles must be entered in the customhouse at the port of entry within fifteen days from date of discharge of the last package from the vessel either (a) by the importer, being holder of the bill of lading, (b) by any other 189
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holder of the bill of lading in due course, (c) by a customs broker acting under authority from a holder of the bill, or (d) by a person duly empowered to act as agent or attorney-in-fact for such holder. The Collector may grant an extension of not more than fifteen days. [Sec.
TAXATION LAW to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in other laws. [Sec. 100, TCC]
(2) Prohibited importation [Sec. 101, TCC](POPP-LAW-DING) (a) Dynamite, gunpowder, ammunitions and other explosives, firearm and weapons of war, and detached parts thereof, except when authorized by law. (b) Written or printed article in any form containing: (1) any matter advocating or inciting treason, rebellion, insurrection or sedition against the Government of the Philippines (2) forcible resistance to any law of the Philippines (3) containing any threat to take the life of or inflict bodily harm upon any person in the Philippines. (c) Written or printed articles, photographs, engravings, lithographs, objects, paintings, drawings or other representation of an obscene or Immoral character. (d) Articles, instruments, drugs and substances designed, intended or adapted for preventing human conception or producing unlawful abortion, or any printed matter which advertises or describes or gives directly or indirectly information where, how or by whom human conception is prevented or unlawful abortion produced. (e) Roulette wheels, Gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used in gambling, or in the distribution of money, cigars, cigarettes or other articles when such distribution is dependent upon chance, including jackpot and pinball machines or similar contrivances.
1301, TCC] All imported articles, except importation admitted free of duty, shall be subject to a formal or informal entry. Kinds of Import Entry: (1) Formal Entry (2) Informal Entry Types of Formal Entry [Sec. 1302, as amended]: A formal entry may be: (a) for immediate consumption, or (b) under irrevocable domestic letter of credit, bank guarantee or bond for: (1) placing the article in customs bonded warehouse; (2) Constructive warehousing and immediate transportation to other ports of the Philippines upon proper examination and appraisal; or (3) Constructive warehousing and immediate exportation. Note: Import entries under irrevocable domestic letter of credit, bank guarantee or bond shall be subject to the provisions of Title V, Book 11 of this Code. All importations entered under formal entry shall be covered by a letter of credit or any other verifiable document evidencing payment." [R.A. 9135,
April 27, 2001]
CLASSIFICATION OF GOODS (1) Taxable importation All articles, when imported from any foreign country into the Philippines, shall be subject 190
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(f) Lottery and sweepstakes tickets, advertisements thereof and lists of drawings therein. Except those authorized Philippine Government
TAXATION LAW (a) Aquatic products (e.g., fishes, crustaceans, mollusks, marine animals, seaweeds, fish oil, roe), caught or gathered by fishing vessels of Philippine registry: Provided, That they are imported in such vessels or in crafts attached thereto: And provided, further, That they have not been landed in any foreign territory or, if so landed, they have been landed solely for transshipment without having been advanced in condition;
(g) Any article manufactured in whole or in part of gold silver or other Precious metal, or alloys thereof, the stamps brands or marks of which do not indicate the actual fineness or quality of said metals or alloys. (h) Any Adulterated or misbranded article of food or any adulterated or misbranded drug in violation of the provisions of the "Food and Drugs Act." (i) Marijuana, opium poppies, coca leaves, or any other Narcotics or synthetic drugs which are or may hereafter be declared habit forming by the President of the Philippines, any compound, manufactured salt, derivative, or preparation thereof,
(b) Equipment for use in the salvage of vessels or aircrafts, not available locally, upon identification and the giving of a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges thereon, conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months from the date of acceptance of the import entry: Provided, That the Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges for a term not exceeding six (6) months from the expiration of the original period;
Except when imported by the Government of the Philippines or any person duly authorized by the Collector of Internal Revenue for medicinal purposes only.
(c) Cost of repairs, excluding the value of the article used, made in foreign countries upon vessels or aircraft documented, registered or licensed in the Philippines, upon proof satisfactory to the Collector of Customs (1) that adequate facilities for such repairs are not afforded in the Philippines, or (2) that such vessels or aircrafts, while in the regular course of her voyage or flight was compelled by stress of weather or other casualty to put into a foreign port to make such repairs in order to secure the safety, seaworthiness or airworthiness of the
(j) Opium pipes and parts thereof, of whatever material. (k) All other articles the importation of which is Prohibited by law. Conditionally-free importation [Sec. 105, TCC] The following articles shall be exempt from the payment of import duties upon compliance with the formalities prescribed in, or with, the regulations which shall be promulgated by the Commissioner of Customs with the approval of the Secretary of Finance:
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vessel or aircraft to enable her to reach her port of destination;
TAXATION LAW to the Collector of Customs that same have been in their use abroad for more than six (6) months and accompanying them on their return, or arriving within a reasonable time which, barring unforeseen circumstances, in no case shall exceed ninety (90) days before or after the owners' return: Provided, That the personal and household effects shall neither be in commercial quantities nor intended for barter, sale or hire and that the total dutiable value of which shall not exceed two thousand pesos (P2,000.00): Provided further, That the returning residents have not previously received the benefit under this section within one year from and after the last exemption granted: Provided furthermore, That a fifty (50) per cent ad valorem duty across the board shall be levied and collected on the personal and household effects (except luxury items) in excess of two thousand pesos (P2,000.00): And provided, finally, That the personal and household effects (except luxury items) of a returning resident who has not stayed abroad for six (6) months shall be subject to fifty (50)per cent ad valorem duty across the board, the total dutiable value of which does not exceed two thousand pesos (P2,000.00); any excess shall be subject to the corresponding duty provided in this Code;
(d) Articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon completion of the repair, processing or reconditioning: Provided, That the Collector of Customs shall require the giving of a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges thereon, conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months from the date of acceptance of the import entry; (e) Medals, badges, cups and other small articles bestowed as trophies or prizes, or those received or accepted as honorary distinction; (f) Personal and household effects belonging to residents of the Philippines returning from abroad including jewelry, precious stones and other articles of luxury which were formally declared and listed before departure and identified under oath before the Collector of Customs when exported from the Philippines by such returning residents upon their departure therefrom and during their stay abroad; personal and household effects including wearing apparel, articles of personal adornment (except luxury items), toilet articles, portable appliances and instruments and similar personal effects, excluding vehicles, watercrafts, aircrafts, and animals purchased in foreign countries by residents of the Philippines which were necessary, appropriate and normally used for the comfort and convenience in their journey and during their stay abroad upon proof satisfactory
(g) Wearing apparel, articles of personal adornment, toilet articles, portable tools and instruments, theatrical costumes and similar effects accompanying travelers, or tourists. or arriving within a reasonable time before and after their arrival in the Philippines, which are necessary and appropriate for the wear and use of such persons according to the nature of the journey, their comfort and 192
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convenience: Provided, That this exemption shall not apply to articles intended for other persons or for barter, sale or hire: Provided, further, That the Collector of Customs may, in his discretion, require either a written commitment or a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within three (3) months from the date of acceptance of the import entry: And Provided finally, That the Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges for a term not exceeding three (3) months from the expiration of the original period;
TAXATION LAW Customs may extend the time for exportation or payment of duties, taxes and other charges for term not exceeding six (6) months from the expiration of the original period; (h) Professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the Philippines or Filipinos and/or their families and descendants who are now residents or citizens of other countries, such parties hereinafter referred to as Overseas Filipinos, in quantities and of the class suitable to the profession, rank or position of the persons importing them, for their own use and not for barter or sale, accompanying such persons, or arriving within a reasonable time, in the discretion of the Collector of Customs, before or after the arrival of their owners, which shall not be later than February 28, 1979 upon the production of evidence satisfactory to the Collector of Customs that such persons are actually coming to settle in the Philippines, that change of residence was bona fide and that the privilege of free entry was never granted to them before or that such person qualifies under the provisions of Letters of Instructions 105, 163 and 210, and that the articles are brought from their former place of abode, shall be exempt from the payment of customs duties and taxes: Provided, That vehicles, vessels, aircrafts, machineries and other similar articles for use in manufacture, shall not be classified hereunder;
(g-1) Personal and household effects and vehicles belonging to foreign consultants and experts hired by, and/or rendering service to, the government, and their staff or personnel and families, accompanying them or arriving within a reasonable time before or after their arrival in the Philippines, in quantities and of the kind necessary and suitable to the profession, rank or position of the person importing them, for their own use and not for barter, sale or hire provided that, the Collector of Customs may in his discretion require either a written commitment or a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges upon the articles classified under this subsection; conditioned for the exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months after the expiration of their term or contract; And Provided, finally, That the Collector of
(i) Articles used exclusively for public entertainment, and for display in public expositions, or for exhibition or 193
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competition for prizes, and devices for projecting pictures and parts and appurtenances thereof, upon identification, examination, and appraisal and the giving of a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges thereon, conditioned for exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months from the date of acceptance of the import entry; Provided, That the Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges for a term not exceeding six (6) months from the expiration of the original period; and technical and scientific films when imported by technical, cultural and scientific institutions, and not to be exhibited for profit: Provided, further, That if any of the said films is exhibited for profit, the proceeds therefrom shall be subject to confiscation, in addition to the penalty provided under Section Thirty-six hundred and ten as amended, of this Code;
TAXATION LAW undeveloped, exposed outside the Philippines by resident Filipino citizens or by producing companies of Philippine registry where the principal actors and artists employed for the production are Filipinos, upon affidavit by the importer and identification that such exposed films are the same films previously exported from the Philippines. As used in this paragraph, the terms "actors" and "artists" include the persons operating the photographic cameras or other photographic and sound recording apparatus by which the film is made; (k) Importations for the official use of foreign embassies, legations, and other agencies of foreign governments: Provided, That those foreign countries accord like privileges to corresponding agencies of the Philippines; Articles imported for the personal or family use of the members and attaches of foreign embassies, legations, consular officers and other representatives of foreign governments: Provided, That such privilege shall be accorded under special agreements between the Philippines and the countries which they represent: And Provided, further, That the privilege may be granted only upon specific instructions of the Secretary of Finance in each instance which will be issued only upon request of the Department of Foreign Affairs;
(j) Articles brought by foreign film producers directly and exclusively used for making or recording motion picture films on location in the Philippines, upon their identification, examination and appraisal and the giving of a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges thereon, conditioned for exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months from the date of acceptance of the import entry, unless extended by the Collector of Customs for another six (6) months; photographic and cinematographic films,
(l) Imported articles donated to, or for the account of, any duly registered relief organization, not operated for profit, for free distribution among the needy, upon certification by the Department of Social Services and Development or the Department of Education, Culture and Sports, as the case may be; 194
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TAXATION LAW salvage recovered within the said period of two (2) years shall be dutiable;
(m) Containers, holders and other similar receptacles of any material including kraft paper bags for locally manufactured cement for export, including corrugated boxes for bananas, mangoes, pineapples and other fresh fruits for export, except other containers made of paper, paperboard and textile fabrics, which are of such character as to be readily identifiable and/or reusable for shipment or transportation of goods shall be delivered to the importer thereof upon identification, examination and appraisal and the giving of a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges within six (6) months from the date of acceptance of the import entry;
(p) Coffins or urns containing human remains, bones or ashes, used personal and household effects (not merchandise) of the deceased person, except vehicles, the value of which does not exceed ten thousand pesos (P10,000.00), upon identification as such; (q) Samples of the kind, in such quantity and of such dimension or construction as to render them unsalable or of no appreciable commercial value; models not adapted for practical use; and samples of medicines, properly marked "sample-sale punishable by law," for the purpose of introducing a new article in the Philippine market and imported only once in a quantity sufficient for such purpose by a person duly registered and identified to be engaged in that trade: Provided, That importations under this subsection shall be previously authorized by the Secretary of Finance: Provided, however, That importation of sample medicine shall be previously authorized by the Secretary of Health that such samples are new medicines not available in the Philippines: Provided, finally, That samples not previously authorized and/or properly marked in accordance with this section shall be levied the corresponding tariff duty.
(n) Supplies which are necessary for the reasonable requirements of the vessel or aircraft in her voyage or flight outside the Philippines, including articles transferred from a bonded warehouse in any collection district to any vessel or aircraft engaged in foreign trade, for use or consumption of the passengers or its crew on board such vessel or aircrafts as sea or air stores; or articles purchased abroad for sale on board a vessel or aircraft as saloon stores or air store supplies: Provided, That any surplus or excess of such vessel or aircraft supplies arriving from foreign ports or airports shall be dutiable;
Commercial samples, except those that are not readily and easily identifiable (e.g., precious and semi-precious stones, cut or uncut, and jewelry set with precious stones), the value of any single importation of which does not exceed ten thousand pesos (P10,000.00) upon the giving of a bond in an amount equal to twice the ascertained duties, taxes and
(o) Articles and salvage from vessels recovered after a period of two (2) years from the date of filing the marine protest or the time when the vessel was wrecked or abandoned, or parts of a foreign vessel or her equipment, wrecked, abandoned in Philippine waters or elsewhere: Provided, That articles and 195
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other charges thereon, conditioned for the exportation of said samples within six (6) months from the date of the acceptance of the import entry or in default thereof, the payment of the corresponding duties, taxes and other charges. If the value of any single consignment of such commercial samples exceeds ten thousand pesos (P10,000.00),the importer thereof may select any portion of same not exceeding in value of ten thousand pesos (P10,000.00) for entry under the provision of this subsection, and the excess of the consignment may be entered in bond, or for consumption, as the importer may elect;
TAXATION LAW Economic and Development Authority as necessary for economic development; (s) Economic, technical, vocational, scientific, philosophical, historical, and cultural books and/or publications: Provided, That those which may have already been imported but pending release by the Bureau of Customs at the effectivity of this Decree may still enjoy the privilege herein provided upon certification by the Department of Education, Culture and Sports that such imported books and/or publications are for economic, technical, vocational, scientific, philosophical, historical or cultural purposes or that the same are educational, scientific or cultural materials covered by the International Agreement on Importation of Educational Scientific and Cultural Materials signed by the President of the Philippines on August 2, 1952, or other agreements binding upon the Philippines.
(r) Animals (except race horses), and plants for scientific, experimental, propagation, botanical, breeding, zoological and national defense purposes: Provided, That no live trees, shoots, plants, moss, and bulbs, tubers and seeds for propagation purposes may be imported under this section, except by order of the Government or other duly authorized institutions: Provided, further, That the free entry of animals for breeding purposes shall be restricted to animals of recognized breed, duly registered in the book of record established for that breed, certified as such by the Bureau of Animal Industry: Provided, furthermore, That certificate of such record, and pedigree of such animal duly authenticated by the proper custodian of such book of record, shall be produced and submitted to the Collector of Customs, together with affidavit of the owner or importer, that such animal is the animal described in said certificate of record and pedigree: And Provided, finally, That the animals and plants are certified by the National
Educational, scientific and cultural materials covered by international agreements or commitments binding upon the Philippine Government so certified by the Department of Education, Culture and Sports. Bibles, missals, prayer books, Koran, Ahadith and other religious books of similar nature and extracts therefrom, hymnal and hymns for religious uses; (t) Philippine articles previously exported from the Philippines and returned without having been advanced in value or improved in condition by any process of manufacture or other means, and upon which no drawback or bounty has been allowed, including instruments and implements, tools of trade, machinery 196
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and equipment, used abroad by Filipino citizens in the pursuit of their business, occupation or profession; and foreign articles previously imported when returned after having been exported and loaned for use temporarily abroad solely for exhibition, testing and experimentation, for scientific or educational purposes; and foreign containers previously imported which have been used in packing exported Philippine articles and returned empty if imported by or for the account of the person or institution who exported them from the Philippines and not for sale, barter or hire subject to identification: Provided, That any Philippine article falling under this subsection upon which drawback or bounty has been allowed shall, upon re-importation thereof, be subject to a duty under this subsection equal to the amount of such drawback or bounty.
TAXATION LAW operations, when certified to as such by the Secretary of Agriculture and Natural Resources upon the recommendation of the Director of Mines, for a period ending five (5) years from the first date of actual commercial production of saleable mineral products: Provided, That such articles are not locally available in reasonable quantity, quality and price and are necessary or incidental in the proper operation of the mine; and aircrafts imported by agro-industrial companies to be used by them in their agriculture and industrial operations or activities, spare parts and accessories thereof; (w) Spare parts of vessels or aircraft of foreign registry engaged in foreign trade when brought into the Philippine exclusively as replacements or for the emergency repair thereof, upon proof satisfactory to the Collector of Customs that such spare parts shall be utilized to secure the safety, seaworthiness or airworthiness of the vessel or aircraft, to enable it to continue its voyage or flight;
(u) Aircraft, equipment and machinery, spare parts commissary and catering supplies, aviation gas, fuel and oil, whether crude or refined, and such other articles or supplies imported by and for the use of scheduled airlines operating under Congressional franchise: Provided, That such articles or supplies are not locally available in reasonable quantity, quality and price and are necessary or incidental for the proper operation of the scheduled airline importing the same;
(x) Articles of easy identification exported from the Philippines for repair and subsequently reimported upon proof satisfactory to the Collector of Customs that such articles are not capable of being repaired locally: Provided, That the cost of the repairs made to any such article shall pay a rate of duty of thirty per cent ad valorem;
(v) Machineries, equipment, tools for production, plants to convert mineral ores into saleable form, spare parts, supplies, materials, accessories, explosives, chemicals, and transportation and communication facilities imported by and for the use of new mines and old mines which resume
(y) Trailer chassis when imported by shipping companies for their exclusive use in handling containerized cargo, upon posting a bond in an amount equal to one and one-half times the ascertained duties, taxes and other charges due thereon to cover a period of 197
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TAXATION LAW for expenses and profits. [Sec. 201,
one year from the date of acceptance of the entry, which period for meritorious reasons may be extended by the Commissioner of Customs from year to year, subject to the following conditions:
TCC] General Rule: The following methods are sequentially applied
Exception: (CAO 4-2004) Methods 4 and 5
(1) That they shall be properly identified and registered with the Land Transportation Commission; (2) That they shall be subject to customs supervision fee to be fixed by the Collector of Customs and subject to the approval of the Commissioner of Customs; (3) That they shall be deposited in the Customs zone when not in use; and (4) That upon the expiration of the period prescribed above, duties and taxes shall be paid, unless otherwise reexported
may be reversed at the request of the importer, subject to the approval of the Commissioner. Ground to refuse the request: if the Commissioner deems that he will experience real difficulties in determining the dutiable value using Method 5 (Basis for all Methods of Valuation: Sec. 201, TCC and CAO 4-2004)
(1) Transaction value Price actually paid or payable for goods when sold for export to Philippines (a) commissions & brokerage fees (b) cost of containers (c) cost of packing (labor, materials) (d) assists (value of goods and services supplied by the buyer free of charge or at a reduced price for use in connection with the production and sale for export of the good) (e) royalties & license fees (f) value of any part of the proceeds of subsequent resale, disposal or use of imported goods that accrue directly or indirectly to seller (g) cost of transport (h) loading, unloading, handling (i) insurance
CLASSIFICATION OF DUTIES (1)ORDINARY/REGULAR DUTIES Ordinary or regular duties refer to those that, as a matter of course, are imposed on dutiable articles [Sec. 104, TCC] (a) Ad valorem; Methods of valuation The tax rates are based on the cost (FMV) or price of the imported articles, in wholesale quantities in the principal market of the exporting country or the country of origin, including expenses connected with the importation, such as insurance, freight, packaging, loading and unloading charges, but excluding internal excise taxes to be remitted or rebated; or (a) In case such value is not ascertainable, the reports of the Revenue or commercial attaches; or (b) If still not ascertainable, the domestic wholesale market price in the ordinary course of trade less import duty and not more than 25%
Dutiable Value (DV) must NOT include: (a) charges for construction, erection, assembly maintenance or technical assistance undertaken after importation (b) cost of transport after importation (c) duties and taxes of Phil
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(d) other permissible deduction under WTO Valuation Agreement
TAXATION LAW Similar goods must be same commercial level and substantially same quantity as the goods being valued.
Transaction Value of Identical Goods The DV shall be the transaction value of identical goods sold for export to the Phil and exported at or about the same time as the goods being valued. Identical goods must be same commercial level and substantially same quantity as the goods being valued.
Similar goods (a) like characteristics and like component materials (b) capable of performing same functions (c) commercially interchangeable (d) produced in same country (e) produced by same producer
Identical goods (a) Same in all respects (physical characteristics, quality and reputation) (b) Produced in the same country as the goods being valued (c) Produced by producer of the goods being valued
imported goods for which engineering, development, artwork, design work, plans and sketches is undertaken in the Phil and provided by the buyer to the producer free of charge or at a reduced rate When no similar goods produced by the same person:
imported goods for which engineering, development, artwork, design work, plans and sketches is undertaken in the Phil and provided by the buyer to the producer free of charge or at a reduced rate
similar goods produced by different producer in the same country If NO similar goods at same commercial level and same quantity, (a) TV of similar goods at a different commercial level and different quantity may be utilized (b) TV shall be adjusted upward or downward to account for the difference
When no identical goods produced by the same person:
Identical goods produced by different producer in the same country If NO identical goods at same commercial level and same quantity, (a) TV of identical goods at a different commercial level and different quantity may be utilized (b) TV shall be adjusted upward or downward to account for the difference
Deductive value DV is determined on the basis of sales in the Phil of goods being valued of identical or similar imported goods less certain expenses resulting from importation and sale of goods. Deductive Value is determined by making a deduction from the established price per unit for the aggregate of the ff elements: (a) Commissions OR (b) additions made in connection with profit and general expenses AND (c) transport, insurance and associated costs (d) customs duties and other national taxes
Transaction value of similar goods The DV shall be the transaction value of similar goods sold for export to the Phil and exported at or about the same time as the goods being valued.
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Less: Less: Less:
*Note: these additional costs are added only if not included in the determination of the aggregate of relevant costs, charges and expenses or value of materials and production.
PRICE COMMISSIONS/ADDITIONS COSTS DUTIES and TAXES DEDUCTIVE VALUE
Fallback value DV cannot be determined using any of the above methods
The Sales must meet the following CONDITIONS: (1) sold in the Phil in the same condition as imported (2) sales taken place at or about the same time of importation of good being valued (3) if no sale took place at or about the time of importation - use sales at the earliest date after importation (of the similar or identical good) but before expiration of 90 days (4) if no sale meet the above conditions, importer may choose the use of sales of goods being valued after further processing
Use other reasonable means consistent with principles and general provisions of General Agreements on Tariffs and Trade (GATT) (b) Specific (Sec. 202, TCC) Rates are based on unit of weight number or measurement Kinds of weight: (a) Gross Weight - weight of same, together with the weight of all containers, packages, holders and packings, of any kind, in which said articles are contained, held or packed at the time of importation (b) Legal Weight – weight at the time of their sale to the public in usual retail quantities (c) Net Weight – only the actual weight at the time of importation excluding the weight of the immediate and all other containers
“At or about the same time” 45 days prior to and 45 days following the importation Computed value DV is determined on the basis of cost of production + profit + general expenses reflected in sales from exporting country to the Phil of goods of same class or kind
(2)SPECIAL DUTIES – ADDITIONAL IMPORT DUTIES IMPOSED ON SPECIFIC KINDS OF IMPORTED ARTICLES (SEE TABLE OF SPECIAL DUTIES)
DV is calculated by: determining aggregate of relevant costs, charges and expenses or value of (1) materials and (2) production or processing costs: (a) Costs* (containers, packing, assists, engineering, artwork, plans and sketches undertaken in Phil and charged to producer (b) profits and general expenses (c) cost of transport, insurance and charges to the port or place of importation 200
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Rules on appeal including jurisdiction
The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals, in the manner and within the period prescribed by law and regulations.
Search, seizure, forfeiture, arrest (1) Enforcement of Tax Lien Tax Lien – attaches upon the articles imported which may be enforced while such are in custody or subject to the control of the government [Sec. 1204]
Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by laws and regulations, the action or ruling of the Commissioner shall be final and conclusive. (Sec. 2402, TCC)
(2) Seizure and Forfeiture [Sec. 2205]
Who may effect: customs official; Fisheries Philippine Coast Guard
When made:at the time payment of the amount claimed to be due is made within 15 days thereafter (Sec. 2308)
Settlement [Sec. 2307] While case is pending, Collector may accept settlement of any seizure case (a) Upon approval of Commissioner (b) Payment of fine ( 25% - 80% of the landed cost of the article) (c) In case of forfeiture, should pay the domestic market value of the seized article
Form: (a) Must be in writing (b) Must point out the particular decision or ruling of the Collector of Customs to which exception is taken or objection made (c) Must state the grounds relied upon for relief (Sec. 2310, TCC)
When Settlement NOT allowed: (a) Fraud in importation (b) Importation prohibited by law (c) Release would be contrary to law
Scope: Limited to the subject matter of a single adjustment (refers to the entire content of one liquidation including duties, fees, surcharges and fines) or other independent transaction
Compromise(Sec. 2316, TCC)
Commissioner may compromise any case subject to approval by Secretary of Finance
(a) Payment of the amount due and the corresponding docket fee shall be made before protest [Sec. 2308] (b) Upon demand of Collector, the importer shall furnish samples of the articles which are the subject of the protest
Requisites for filing of criminal/civil case [Sec, 2401, TCC]: (1) Brought in the name of the government of the Phil (2) Conducted by Customs officers (3) With approval from the Commissioner
Effect of Failure to Protest: render the action of the Collector final and conclusive except for manifest error
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Review of Commissioner [Sec. 2313]:
(b) custody or charge of such article (c) fails to report within 24 hours from time article deemed abandoned shall be punished according to sec. 3604 (fine: P5000 – P50,000; imprisonment: 1 yr – 10 yrs, perpetual disqualification to hold public office, vote and participate in election)
person aggrieved by the decision or Collector in any matter presented upon protest or by his action in any case of seizure may, within days after notification on writing by the Collector of his actions or decisions, file a written notice to the Collector with a copy furnished to the Commissioner of his intention to appeal the action or decision of the Collector to the Commissioner
Abatement and Refund
When available: (1) Abatement for Damage incurred during Voyage (Sec. 1701) (2) Abatement or Refund for the following: (a) Missing Packages (Sec. 1702) (b) Deficiency of Contents in Packages (Sec. 1703) (c) Articles Lost or Destroyed after Arrival (Sec. 1704) (d) Dead or Injured Animals (Sec. 1705) (3) Refund in case of excess payments due to: (a) manifest clerical error made in invoice or entry (b) error in return of weight, measure and gauge (certified, under penalties of falsification or perjury, by examining official) (c) error in the distribution of charges on invoices (which does not involve any question of law and certified, under penalties of falsification or perjury, by examining official) (Sec. 1707)
Automatic Review: Happens in case a decision is made adverse to the Government Abandonment
Article is deemed abandoned when (Sec. 1801, TCC): (1) owner, importer or consignee expressly signifies in writing to Collector his intention to abandon (2) after due notice, fails to file an entry within 30 days from date of discharge of last package from vessel or aircraft (3) after filing entry, fails to claim his importation 15 days from date of posting of the notice to claim such importation
Effect [Sec. 1802, TCC]: (a) deemed to have renounced his interest and property rights (b) ipso facto deemed property of the Government (c) If the abandoned articles are transferred to a customs bonded warehouse, the operator shall be liable for the payment of duties and taxes in the case of loss of the stored abandoned imported articles [R.V. Marzan v.
Conditions for refund of Excess Payments (1) errors discovered before payment OR discovered within 1 year after the final liquidation (2) written request and notice from importer OR statement of error certified by the Collector
CA, GR No. 128064, March 4, 2004] Liability of Official for Failure to Report Abandonment Any official or employee who: (a) had knowledge of the abandoned article
How: (1) Claim made in writing (2) Collector shall verify with the records in his office
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(3) Certify claim to Commissioner with his recommendation and necessary papers (4) Commissioner shall then cause the claim to be paid if found correct If the result of the refund would result to a corresponding refund of the internal revenue taxes on the same importation, Collector shall certify to Commissioner who shall cause the said excess to be paid, refunded or credited in favor of the importer
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Flowchart IX: Remedies from Seizure and Forfeiture Cases-Tariffs and Customs Code START
Collector seizes goods and reports it to the Commissioner and to COA. Owner is notified of seizure
Collector determines probable cause (illegal importation)
Collector’s decision favorable to taxpayer/ adverse to gov’t?
Importer may secure release of goods by filing of cash bond (Sec. 2301)
Amount involved less than 5M?
Collector conducts hearing
Automatic review* by Customs Commisioner (Sec. 2313)
Does commissioner decide w/in 30 days?
No Taxpayer appeals to Customs Commissioner 15 days from receipt of notice
Is Commissioner’s decision favorable to taxpayer/ adverse to gov’t?
No Inaction construed as affirmation of Collector’s decision
Does Commissioner decide w/n 30 days?
No, amount is at least 5M Is Commissioner’s decision favorable to Yes taxpayer/ adverse to gov’t?
Automatic Review* by the Secretary of Finance (SOF) (Sec. 2313, CMO 3-2002)
Is SOF’s decision favorable to taxpayer/adverse to gov’t?
Does SOF decide within 30 days?
No Yes Decision becomes final & unappealable
Inaction construed as affirmation of Collector’s decision
Appeal to the Court of Tax Appeals within 30 days from notice of decision
MR within 15 days from receipt of decision
Appeal to CTA en banc 15 days from receipt of decision denying MR
Inaction construed as affirmation of commissioner’s decision (or of collector’s decision in case of inaction by commissioner)
Appeal to the Supreme Court
No Appeal to CTA
*Automatic review is intended to protect the interest of the Government. W/o auto review, the Commissioner and SoF would not know about the decision laid down by the Collector favoring the taxpayer. Automatic review is necessary because nobody is expected to appeal the decision of the Collector which is favorable to the taxpayer & adverse to the Government. (Yaokasin v. Commissioner 180 SCTA 591
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Anti-Dumping [Sec. 301, TCC as amended by RA 8752] Where a product or commodity is imported in the Philippines at an export price less than the normal value in the ordinary course of trade for the like product or article destines for consumption in the exporting country or materially regarding establishment of a domestic industry producing the like product (Sec. 3, RA 8752)
TABLE OF SPECIAL DUTIES: WHEN IMPOSED Countervailing Marking Discriminatory Safeguard [RA 8800] [Sec. 302 as [Sec. 303] [Sec. 304] amended by RA 8751] Whenever any product, commodity or article of commerce is granted directly or indirectly by the government in the country of origin or exportation, any kind or form of specific subsidy upon the production, manufacture or exportation of such product, commodity or article, and the importation of such subsidized product, has caused or threatens to cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry
If at the time of importation any article (or its container if the article cannot be marked), is not marked in in any official language of the Philippines and in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or container). This is used to prevent deception of consumers.
Whenever the President finds that the public interest will be served thereby, additional customs duty shall be imposed upon articles wholly or in part the growth or product of, or imported in a vessel of, any foreign country whenever he shall find as a fact that such country — (1) Imposes, directly or indirectly, upon any Phil product unreasonable charge, exaction, regulation or limitation which is not equally enforced upon the like articles of other foreign countries; or (2)
(Sec 5) General Safeguard Measure: Whenever there is a positive final determination of the Commission that a product is being imported into the country in increased quantities, whether absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat thereof to the domestic industry; however, in the case of nonagricultural products, the Secretary of Agriculture shall first establish that the application of such safeguard
(Sec 21) Special Safeguard Measure for Agricultural Products: Imposed upon agricultural products, consistent with Phil international treaty obligations, if its: a) Cumulative import volume in a given year exceeds its trigger volume subject to the conditions under Sec. 23, RA 8800, or but not currently; and b) Actual CIF import price is less than its trigger price subject to conditions under Sec. 24, RA 8800
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Discriminates measures will in fact against be in the the commerce public interest of the Philippines, as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country.
TABLE OF SPECIAL DUTIES: Imposing Authority and Amount
AntiDumping (Sec. 301, TCC as amended by RA 8752)
Countervailing (Sec. 302 as amended by RA 8751)
Marking (Sec. 303)
(1) Secretary of Trade and Commissioner Industry - non-agricultural of Customs products (2) Secretary of Agriculture agricultural products (3) Tariff Commission - decides whether or not to impose antidumping/countervailing duty
AntiEquivalent Dumping the subsidy Duty = Normal Value Export Price
Discriminatory (Sec. 304)
Safeguard (RA 8800)
President For non- Secretary of (through a agricultural Agriculture proclamation) products: Secretary of Trade and Industry For agricultural products: Secretary of Agriculture
to 5% ad valorem Not exceeding of the articles 100% ad valorem upon the articles
tariff For a): increase, either ad appropriately valorem or set to a level specific, or not exceeding both, to be one-third of
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TAXATION LAW paid through a cash bond set at a level sufficient to redress or prevent injury to the domestic industry (Sec. 8, RA 8800)
the applicable out-quota customs duty on the agricultural product under consideration in the year when it is imposed For b), compute as follows: (a) 0 - if price difference is at most 10% of the trigger price (b) 30% of the amount by which the price difference exceeds 10% of the trigger price (c) 50% - if it exceeds 40% but less than 60% (d) 70% - if it exceeds 60 but at most 75% (e) 90% - if it exceeds 75%
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X. JUDICIAL REMEDIES
TAXATION LAW originally decided or resolved by them in their ORIGINAL jurisdiction.
JURISDICTION OF THE COURT OF TAX APPEALS
(3) 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;
CIVIL TAX CASES Exclusive Original Jurisdiction Tax collection cases involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is one million pesos or more.
(4) 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;
Exclusive Appellate Jurisdiction
CTA Division (1) Decisions and Inaction 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;
(5) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties. [Sec. 7, RA No. 1125 as
(a) Inaction of the Commissioner shall be deemed a denial in which the taxpayer may appeal. (b) Inaction does not necessarily constitute a formal decision and the taxpayer may opt to await the final decision of the Commissioner by constitute a formal decision and the taxpayer may opt to await the final decision of the Commissioner beyond the 180 days and may appeal such final decision. (c) For claim for refund, the taxpayer must file a petition for review with the CTA prior to the expiration of the two year prescriptive period.
amended] CTA en Banc (1) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (a) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture;
(2) Decisions, orders or resolutions of the RTC in local tax cases and in tax collection cases 208
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(b) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction; and
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.
(c) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and penalties claimed is less than one million pesos;
Exclusive appellate jurisdiction in criminal cases
CTA Division (1) 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. (2) 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.
(2) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases and in tax collection cases decided or resolved by them in the exercise of their APPELLATE jurisdiction; (3) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over tax collection cases;
CTA En Banc (1) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs; (2) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; and (3) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their appellate jurisdiction over criminal offenses mentioned in subparagraph (f).
(4) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals;
CRIMINAL CASES [SEC. 7, RA 1125 AS AMENDED] Exclusive Original Jurisdiction 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. Principal amount of taxes and fees, exclusive of charges and penalties, claimed is more than or equal to One million pesos (P1,000,000.00). 209
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(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect; and (3) The taxpayer is out of the country or otherwise cannot be located. (Sec. 194, LGC)
JUDICIAL PROCEDURES JUDICIAL ACTION FOR COLLECTION OF TAXES Internal revenue taxes The remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency can be through the institution of a civil or criminal action. [Sec. 205, NIRC]
CIVIL CASES Who may appeal, mode of appeal, effect of appeal Appeal to CTA Division
NOTE: Please refer to Taxpayer’s Remedies (B. Collection)
A party aggrieved or adversely affected by the decision or ruling or inaction of (1) The Commissioner of Internal Revenue; (2) The Commissioner of Customs; (3) The Secretary of Finance; (4) The Secretary of Trade and Industry; (5) The Secretary of Agriculture; or (6) The RTC exercising original jurisdiction
When this remedy is resorted to: (1) The tax assessment becomes final and executory because of the failure to appeal. (2) Even pending decision of the administrative protest (CIR v. Union Shipping, 1990)
may appeal within 30 days from the receipt of the copy of the decision or ruling, or the expiration of the period fixed by law for the Commissioner to decide, to the Court of Tax Appeals Division.
Local taxes The LGU concerned may enforce the collection of delinquent taxes, fees, charges or other revenues by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer. (Sec. 183, LGC) MTC/RTC depending threshold amount.
Mode of Appeal: Rule 42 Aggrieved party may file a motion for reconsideration or new trial within 15 days from receipt of the copy of the decision.
Prescriptive period Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. No judicial or administrative action for collection can be instituted after lapse of the period for assessment except when there is fraud or intent to evade tax. (Sec. 194 LGC)
Appeal to CTA en Banc
The running of the periods of prescription shall be suspended for the time during which: (1) The treasurer is legally prevented from making the assessment of collection;
A party adversely affected by a decision or ruling of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of their appellate jurisdiction may
A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal within 15 days from receipt of the copy of the decision.
Mode of Appeal: Rule 43
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appeal within 30 days from the receipt of the copy of the decision.
TAXATION LAW trial pursuant to Section 2, Rule 53 and Section 12, Rule 124 of the Rules of Court. [Sec. 2, Rule 12, A.M. No. 05-11-
Mode of Appeal: Rule 43
07] (ii) Taking of evidence by: (a) Justice— The Court may, motu proprio or upon proper motion, direct that a case, or any issue therein, be assigned to one of its members for the taking of evidence, when the determination of a question of fact arises at any stage of the proceedings, or when the taking of an account is necessary, or when the determination of an issue of fact requires the examination of a long account. The hearing before such justice shall proceed in all respects as though the same had been made before the Court.
(1) Suspension of collection of tax General Rule: No appeal taken to the Court shall suspend the payment, levy, distraint, or sale of any property of the taxpayer for the satisfaction of his tax liability as provided under existing laws. Exception: Where the collection of the amount of the taxpayer’s liability, sought by means of a demand for payment, by levy, distraint or sale of any property of the taxpayer, or by whatever means, as provided under existing laws, may
jeopardize the interest of the Government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability
Upon the completion of such hearing, the justice concerned shall promptly submit to the Court a written report thereon, stating therein his findings and conclusions. Thereafter, the Court shall render its decision on the case, adopting, modifying, or rejecting the report in whole or in part, or, the Court may, in its discretion, recommit it to the justice with instructions, or receive further evidence. (Sec. 12, RA No. 1125, as amended; also Sec. 3, Rule 12, A.M. No. 05-11-07)
(i) Injunction not available to restrain collection No court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the Code. [Sec. 217,
NIRC] Note: The Local Government Code does not have a provision prohibiting injunction in the collection of tax.
(b) Court Official – In default or ex parte hearings, or in any case where the parties agree in writing, the Court may delegate the reception of evidence to the Clerk of Court, the Division Clerks of Court, their assistants who are members of the Philippine bar, or any Court attorney. The reception of documentary evidence by a Court official shall be for
(2) Taking of evidence (i) The Court may receive evidence in the following cases: (a) In all cases falling within the original jurisdiction of the Court in Division pursuant to Section 3, Rule 4 of these Rules; and (b) In appeals in both civil and criminal cases where the Court grants a new 211
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the sole purpose of marking, comparison with the original, and identification by witnesses of such documentary evidence. The Court official shall have no power to rule on objections to any question or to the admission of exhibits, which objections shall be resolved by the Court upon submission of his report and the transcripts within ten days from termination of the hearing. (Sec. 4, Rule 12, A.M. No. 05-11-07)
shall be supported by affidavits of merits which may be rebutted by counter-affidavits. A motion for the cause mentioned in subparagraph (b) of the preceding section shall be supported by affidavits of the witnesses by whom such evidence is expected to be given, or by duly authenticated documents which are proposed to be introduced in evidence. A motion for reconsideration or new trial that does not comply with the foregoing provisions shall be deemed pro forma, which shall not toll the reglementary period for appeal.
(3) Motion for reconsideration or new trial [Rule 15, A.M. No. 05-11-07]
Effect: Who: Any aggrieved party may seek a
The filing of a motion for reconsideration or new trial shall suspend the
reconsideration or new trial of any decision, resolution or order of the Court.
running of the period within which an appeal may be perfected.
Maybe opposed by: The adverse party may file
Grounds: A motion for new trial may be based
an opposition to the motion for reconsideration or new trial within ten days after his receipt of a copy of the motion for reconsideration or new trial of a decision, resolution or order of the Court.
on one or more of the following causes materially affecting the substantial rights of the movant: (a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or (b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial and, which, if presented, would probably alter the result.
He shall file a motion for reconsideration or new trial within fifteen days from the date he received notice of the decision, resolution or order of the Court in question. The Court shall resolve the motion for reconsideration or new trial within three months from the time it is deemed submitted for resolution.
A motion for new trial shall include all grounds then available and those not included shall be deemed waived.
How: The motion shall be in writing stating its grounds, a written notice of which shall be served by the movant on the adverse party.
Restrictions: No party shall be allowed to file a A motion for new trial shall be proved in the manner provided for proof of motions. A motion for the cause mentioned in subparagraph (a) of the preceding section
second motion for reconsideration of a decision, final resolution or order; or for new trial. Appeal to the CTA, en banc 212
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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 the CTA and disposed of in accordance with the provisions of this Act.
(b) Those involving violations of the tariff and Customs Code and other laws enforced by the Bureau of Customs- Must be approved by the Commissioner of Customs Shall interrupt the running of the period of prescription (2) Prosecution of criminal action (a) Conducted and prosecuted under the direction and control of the public prosecutor (b) Those involving violations of the NIRC and other laws enforced by the BIR or violations of the tariff and Customs Code and other laws enforced by the Bureau of Customs - The prosecution may be conducted by their respective duly deputized legal officers.
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. (Sec. 18, RA No. 1125 as amended) Petition for review on certiorari to the Supreme Court [Rule 16, A.M. No. 05-11-07] A party adversely affected by a decision or ruling of the Court en banc may appeal by filing with the Supreme Court a verified petition for review on certiorari within fifteen days from receipt of a copy of the decision or resolution, as provided in Rule 45 of the Rules of Court. If such party has filed a motion for reconsideration or for new trial, the period herein fixed shall run from the party’s receipt of a copy of the resolution denying the motion for reconsideration or for new trial.
(3) Institution on civil action in criminal action In cases within the jurisdiction of the Court, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall be deemed jointly instituted in the same proceeding. The filing of the criminal action shall necessarily carry with it the filing of the civil action. No right to reserve the filing of such civil action separately from the criminal action shall be allowed or recognized.
The motion for reconsideration or for new trial filed before the Court shall be deemed abandoned if, during its pendency, the movant shall appeal to the Supreme Court.
Appeal and period to appeal criminal cases
CRIMINAL CASES Institution and prosecution of criminal actions
Regional Trial Court in the exercise of its original jurisdiction (to CTA Division) CTA Division (to CTA En
(1) Institution of criminal action Instituted by the filing an information in the name of the People of the Philippines (a) Those involving violations of the NIRC and other laws enforced by the BIR - Must be approved by the Commissioner of Internal Revenue
Period to Appeal
Mode of Appeal
15 days from Appeal receipt of pursuant to decision Sec. 3(a) and 6, Rule 122 of the Rules of Court 15 days from Petition receipt of review
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certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure. (Sec. 19, R.A. No. 1125 as amended)
provided in Rule 43 of the May be Rules of extended for Court good cause for not more The Court en than 15 days banc shall act on the appeal. Regional Trial 15 days from Petition for Courts in the receipt of review as exercise of decision provided in their Rule 43 of the appellate Rules of jurisdiction Court (To CTA division)
TAXPAYER’S SUIT IMPUGNING THE VALIDITY OF TAX MEASURES OR ACTS OF TAXING AUTHORITIES Taxpayer’s suit, defined A "taxpayer's suit" refers to a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. [Kilosbayan v. Guingona, Jr. (1994)] Distinguished from citizen’s suit The plaintiff in a taxpayer's suit is in a different category from the plaintiff in a citizen's suit. In the former, the plaintiff is affected by the expenditure of public funds, while in the latter, he is but the mere instrument of the public concern. (De Castro v. Judicial and Bar Council (2010))
Solicitor General as counsel for the People and government officials sued in their official capacity The Solicitor General shall represent the People of the Philippines and government officials sued in their official capacity in all cases brought to the Court in the exercise of its appellate jurisdiction. He may deputize the legal officers of the Bureau of Internal Revenue in cases brought under the National Internal Revenue Code or other laws enforced by the Bureau of Internal Revenue, or the legal officers of the Bureau of Customs in cases brought under the Tariff and Customs Code of the Philippines or other laws enforced by the Bureau of Customs, to appear in behalf of the officials of said agencies sued in their official capacity: Provided, however, such duly deputized legal officers shall remain at all times under the direct control and supervision of the Solicitor General.
Requisites for challenging the constitutionality of a tax measure or act of taxing authority (1) Concept of locus standi as applied in
taxation (a) CONCEPT OF LOCUS STANDI: The doctrine of locus standi is the right of appearance in a court of justice. The doctrine requires a litigant to have a material interest in the outcome of a case. In private suits, locus standi requires a litigant to be a "real party in interest," which is defined as "the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."
Petition for review on certiorari to the Supreme Court 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
In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts a public right on behalf of the general public 214
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because of conflicting public policy issues. On one end, there is the right of the ordinary citizen to petition the courts to be freed from unlawful government intrusion and illegal official action. At the other end, there is the public policy precluding excessive judicial interference in official acts, which may unnecessarily hinder the delivery of basic public services.
TAXATION LAW money is being deflected to any improper purpose, or that there is wastage of public funds through the enforcement of an invalid or unconstitutional law. A person suing as a taxpayer, however, must show that the act complained of directly involves the illegal disbursement of public funds derived from taxation. He must also prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury because of the enforcement of the questioned statute or contract. In other words, for a
The Court has adopted the "direct injury test" to determine locus standi in public suits. In People v. Vera, it was held that a person who impugns the validity of a statute must have "a personal and substantial interest in the case such that he has sustained, or will sustain direct injury as a result." The "direct injury test" in public suits is similar to the "real party in interest" rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure. (Planter’s Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, March 14, 2008)
taxpayer’s suit to prosper, two requisites must be met: (1) public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed and (2) the petitioner is directly affected by the alleged act. [Mamba v. Lara, G.R. No. 165109, Dec. 14, 2009]
(b) AS APPLIED TO TAXATION: (i) It is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer. (Pascual v. Secretary of Public Works (1960)) (ii) A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that the public
(2) Doctrine of transcendental importance Recognizing that a strict application of the "direct injury" test may hamper public interest, this Court relaxed the requirement in cases of "transcendental importance" or with "far reaching implications." Being a mere procedural technicality, it has also been held that locus standi may be waived in the public interest. (Ibid)
Planters Products, Inc. v. Fertiphil Corp.: Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted by this Court on locus standi must apply. The issues raised by Fertiphil are of paramount public importance. It involves not only the constitutionality of a tax law but, more 215
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importantly, the use of taxes for public purpose. Former President Marcos issued LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and conditional upon PPI becoming financially viable. The LOI provided that "the capital contribution shall be collected until adequate capital is raised to make PPI viable."
TAXATION LAW adequate relief available in any other form or proceeding.
CJH Development Corp. v. BIR (GR No. 172457, Dec. 24, 2008) However, CJH is not left without recourse. The Tariff and Customs Code (TCC) provides for the administrative and judicial remedies available to a taxpayer who is minded to contest an assessment, subject of course to certain reglementary periods. The TCC provides that a protest can be raised provided that payment first be made of the amount due.The decision of the Collector can be reviewed by the Commissioner of Customs who can approve, modify or reverse the decision or action of the Collector. If the party is not satisfied with the ruling of the Commissioner, he may file the necessary appeal to the Court of Tax Appeals. Afterwards, the decision of the Court of Tax Appeals can be appealed to this Court.
The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty to squarely resolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing, being a mere procedural technicality, should be waived, if at all, to adequately thresh out an important constitutional issue. (3) Ripeness for judicial determination “Ripeness for judicial determination” means that litigation is inevitable or there is no