Taxation Memory Aid
Short Description
Download Taxation Memory Aid...
Description
MEMORY AID CBO OVER-ALL CHAIRPERSON: Evangeline Co ASSISTANT CHAIRPERSON: Rose Lyn Rabanera ACADEMICS COMMITTEE - HEADS: Reigel Prado, Omar Gabrieles SECRETARIAT – HEAD: Romino Arzadon FINANCE COMMITTEE – HEAD: Kyan Sioco LOGISTICS COMMITTEE - HEAD: Janis Ruckenbrod TAXATION COMMITTEE HEAD: Jocelyn Manalo CO-HEAD: Marlyn Reyes GENERAL PRINCIPLES: Marissa Asencion INCOME TAXATION: Cheryl Hernandez MEMBERS: Fatima Kristine Franco, Aries Magpantay TRANSFER TAXATION: Nieves Elegado MEMBER: Rosevee Paylip TAX REMEDIES AND LOCAL TAXATION: Marlyn Reyes, Jocelyn Manalo MEMBER: Claudine Mayor SUBJECT ADVISERS: Justice Japar Dimaampao
Atty. Bernard Bandonell
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
TABLE OF CONTENTS Page 1
General Principles National Taxation A. Income Taxation
19
B. Transfer Taxes 1. Estate Tax 2. Donor’s Tax
41 49
C. Business Tax 1. Value- Added Tax 2. Excise tax 3. Percentage tax 4. Documentary Stamp Tax
54 60 61 62
Tax Remedies
66
Tariff and Customs Code
83
Local Taxation
94
Court of Tax Appeals
104
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 1 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
It has the right to compel all persons and property within its limits to contribute.
I. GENERAL PRINCIPLES TAXATION is the inherent power of the state to raise revenues by impositions to defray government expenses. as a process, taxation to the manner by which the government exercises the power of taxation from the act of levy until final collection of the imposition. TAXES enforced proportional contributions from persons and property, levied by the state by virtue of its sovereignty for the support of the government and for all its public needs. CHARACTERISTICS OF A TAX: (Code: CPP SP) an enforced contribution it is levied on persons and property it is a personal liability of the taxpayer it is imposed by the state which has jurisdiction over the person and property, and 5. it is levied for public purpose.
1. 2. 3. 4.
THEORIES OF TAXATION 1. Lifeblood Theory Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. This implies that: 1) The BIR is justified in availing of the most expedient remedy in the collection of the tax (CIR vs. Pineda) 2) The BIR is not bound by the mistakes, errors, or omissions of its agents (thus, the Doctrine of Estoppel does not apply to the collection of taxes) (Rivera vs. Fernandez) 3) No court other than the CTA may enjoin the collection of taxes. 2. Necessity Theory The existence of the government is a necessity. No government can exist or continue without means to pay its expenses and to raise those means.
Although the power to tax is almost unlimited, it must not be exercised in an arbitrary manner. We may seek redress to courts in case of irregularities. 3. Benefits-Protection Theory In return for the taxes received, the government only secures to the citizen that general benefit which results from protection to his person and property and the promotion of those various schemes which have for their object the welfare of all. This theory spawned the doctrine of symbiotic relationship. DOCTRINE OF SYMBIOTIC RELATIONSHIP “Taxes are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard-earned income to the taxing authorities, every person who is able to must contribute his share in the burden of running the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their material and moral values.” NATURE OF THE TAXING POWER a.
inherent attribute of sovereignty
The power of taxation is an incident of sovereignty as it is inherent in the State, belonging as a matter of right to every independent government. It does not need of constitutional conferment. Constitutional provisions do not give rise to the power to tax but merely impose limitations on what would otherwise be an invincible power. No attribute of sovereignty is more pervading and at no point does the power of government affect more constantly and intimately all the relations of life than through the exactions made under it.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 2 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
[Churchill and Tait vs. Concepcion, 34 Phil. 969]
11. Freedom of religion ((Art. III, Sec. 5) 12. Exemption from property tax of properties of religious, educational, charitable institutions (Art. VI, Sec. 28[3]) 13. Tax exemptions granted to non-stock, non-profit educational institutions (Art. XIV, Sec. [4,5]) 14. No public money or property used for a particular sect, priest, religious minister, etc. (Art. VI, Sec. 29[1]) 15. Grant of tax exemptions (Art. VI, Sec. 28[4]) 16. Grant of power of taxation to local government units (Art. X, Sec. 5) 17. Money collected for a special purposes shall be considered a special fund (Art. VI, 29[3]) 18. Exclusive appellate jurisdiction of the SC over judgments of lower courts involving the legality of taxes, imports, assessments, fees, penalty. (Art. VIII, Sec. 5)
Being attribute of sovereignty, its relinquishment is never presumed. [Luzon Stevedoring Co. vs. CTA, L-30232, July 29, 1988] Tax is an attribute of sovereignty which emanates from necessity upon which the very existence of the government is dependent. b. legislative in character "the power to tax is exclusively vested in the legislature and it cannot be delegated as a whole." In short, only the legislature can impose taxes. This is why a person, activity, or property is subject to tax because and only because the law says so. Further, about local government, taxation remains exclusively legislative. Meaning, only the local legislative body thru an ordinance may impose taxes.
ASPECTS, PROCESS, PHASES OF TAXATION. (Code: LAP – Levying, Assessment, Payment)
Inherent limitations 1. 2. 3. 4. 5.
Public Purpose Inherently Legislative Territorial International Comity Exemption from Taxation of Government Agencies/Instrumentalities
a. Levying/Imposition of the tax. This is essentially legislative. It refers to the enactment of tax laws or statutes. Note: Courts have no power to interfere in the wisdom, objective, motive or expediency in the passage of a tax law, as this is purely legislative in character. To do so would be tantamount to a violation of both the letter and spirit of the organic laws by which the Philippine Government was brought into existence to invade a coordinate and independent department of the Government and to interfere with the legitimate powers and functions of the Legislature. [Tolentino, et al. vs. Secretary of Finance, 235 SCRA 630]
Constitutional Limitations 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Due Process Clause (Art. III, Sec. 1) Equal Protection Clause (Art. III, Sec. 1) Uniformity (Art. VI, Sec. 28[1]) Progressive system of taxation (Art. VI, Sec. 28[1]) Non-impairment of contracts (Art. III, Sec. 10) Non-imprisonment for Non-payment of Poll Tax (Art. III, Sec. 20) Appropriation, revenue and tariff bills must originate exclusively in the House of Representatives (Art. III, Sec. 24) Presidential veto (Art. VI, Sec. 27[2]) Presidential power to tax tariff rates (Art. VIII, Sec. 28[2]) Freedom of the press (Art. III, Sec. 4)
b. Assessment and Collection. This is essentially administrative. It is the act of administration and implementation of tax law by the executive branch through its administrative agencies. Nonetheless, the delegation must pass the completeness and sufficient standard test in order to prevent the abuse of its exercise.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 3 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
c. Payment. This signifies compliance by the taxpayer.
A I D
an act of
SCOPE OF THE LEGISLATIVE POWER TO TAX [Code: SPASM]
T A X A T I O N
Taxation shall only be exercised on persons, properties and excises within the taxing power. e. Manner, means and collection of the tax.
a. Subjects or Objects of Taxation. Coverage and the kind or nature of the tax. They may be persons (natural or juridical), property (real or personal); tangible or intangible), businesses, transactions, rights or privileges. It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation. [Walter Lutz vs. J. Antonio Araneta, 98 Phil. 148] b. Public Purpose. The legislature primarily determines the public purpose of taxation although the courts can inquire as to whether the purpose is really public or private. However, judicial action is limited to the determination of the validity of the tax in relation to constitutional precepts or provisions or the determination in an appropriate case of the application of a tax law. c. Amount or Tax Rate. The legislature is free to levy a tax on any amount, provided, it is exercised within the bounds of constitutional limitations. Note: Not only is the power to tax unlimited in its reach as to subjects, but in its very nature, it acknowledges no limits and may be carried even to the extent of exhaustion and destruction, thus becoming in its exercise a power to destroy. d. Situs of taxation.
I N
agencies
of
Corollary to the sole power to tax is the sole power to prescribe the mode or method by which the tax shall be collected and to designate the officers through whom its will shall be enforced. Q. Is the power to tax the power to destroy? IT DEPENDS. The power to tax includes the power to destroy if it is used validly as an implement of police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. But where the power to tax is used solely for the purpose of raising revenues, the modern view is that it cannot be allowed to confiscate or destroy. Note: While taxation is said to be the power to destroy, it is no means unlimited. If so great an abuse is manifested as to destroy natural and fundamental rights which no free governmental could consistently violate, it is the duty of the judiciary to hold such an act unconstitutional. Hence, the modification: “the power to tax is not the power to destroy while the Supreme Court sits.” PRINCIPLES OF A SOUND TAX SYSTEM (Code: FAT) a. Fiscal Adequacy. The taxes envisioned to be collected must be sufficient for government expenditures and other public needs. NOTE: Be careful as sometimes... "an approximate estimate of government expenditures" is sufficient to satisfy the requirement. Fiscal adequacy... requires that the sources of revenues must be adequate to meet government expenditures and their variations" (Chavez v. Ongpin)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 4 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
o P
O t
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
b. Administrative Feasibility. The tax law must be capable of convenient, just, effective and efficient enforcement and administration. Likewise, tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials from committing fraud.
runs contrary to the principle of theoretical justice, such violation will render the law unconstitutional considering that under the Constitution, the rule of taxation should be uniform and equitable. [Sec. 28(1), Art. VI, 1987 Constitution]
Equally applies to taxpayers.. meaning, they must not have difficulty understanding what the tax law is all about.
Rule that taxes are personal to the taxpayer
c. Theoretical Justice. The tax law or system must be based on the taxpayer’s ability to pay.
GEN. RULE: Taxes are personal to the taxpayer. Corporation’s tax delinquency cannot be enforced on the stockholder nor transfer taxes on the estate are assessed on the heirs.
EXCEPTIONS:
Rule of taxation must be uniform and equitable. The State must evolve a progressive system of taxation.
Q. Will a violation of these principles invalidate a tax law? IT DEPENDS. A tax law will retain its validity even if it is not in consonance with the principles of fiscal adequacy and administrative feasibility because the Constitution does not expressly require so. HOWEVER, if a tax law
1. Stockholders may be held liable for unpaid taxes of a dissolved corporation if corporate assets have passed into their hands; 2. Heirs may be held liable for the transfer taxes on the estate if the properties of the decedent have been distributed to them prior to the payment of the required transfer taxes.
TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND IMPOSOTIONS A. Purpose Amt of Exaction Benefits
Contracts Transfer
Taxation Police Power To levied for the To promote public welfare purpose of raising through regulation revenues No limits Limited to the cost of regulation, issuance of the license or surveillance No special or direct No direct benefited, yet a benefit is received healthy economic standard by the taxpayer of society is maintained. other than that the government secures the general welfare of the citizens. Recognized the Does not apply to police obligations imposed power by of Taxes paid form part Allows merely the restraint of the public funds on the exercise of property rights.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 5 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
B. Purpose
A I D
I N
T A X A T I O N
C. Power
Eminent Domain Taking of property for public use General benefit of the citizens Just compensation is given to the owner of the expropriated property Applies to all persons, property Only particular property is and excises that may be subject comprehended. thereto Taxation License Exercise of the taxing power Exercise of police power
Purpose
To raise government fund
Compensation Person Affected
Amt. of exaction
Imposition Scope Effect of Non-payment
Taxation To raise public fund
Imposed for regulatory purposes No limits Limited to the cost of regulation, issuance of the license or surveillance EXCEPT: when the fees are imposed for the purpose of regulating non-useful business, occupation, or activity, the amount may now exceed the cost of regulation. If the primary purpose is to If the primary purpose is to generate funds and regulation regulate and to generate merely incidental funds merely incidental covers legitimate and only legitimate business illegitimate business, etc... Non-payment of tax does not Non-payment of fee renders render business illegal the business illegal
D. Taxation Not limited to land As a rule, cannot be made a personal liability of the persons assessed Is based wholly on benefits It is exceptional both as to time and locality. A charge imposed only on the property owners benefited is a special assessment rather than a tax. E. Taxation It is a demand of sovereignty for the purpose of raising public revenues.
Special Assessment Can be levied only on land Personal liability
The imposition of a charge on all property in a prescribed area is a tax not an assessment although the purpose is to make a local improvement on street or highway. Toll It is a demand of proprietorship, an amount charged for the cost and maintenance of the property used F. Taxation Penalty It is a civil liability. Person is criminally liable It is a punishment for the commission of a only when he fails to satisfy his civil obligation crime. to pay taxes
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 6 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
o P
O t
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
TAX as distinguished from DEBT TAX
DEBT Basis
Law
Contract or judgment.
Effect of non-payment Imprisonment (except in case of poll tax) No imprisonment Mode of Payment Generally payable in money Payable in money, property or services Assignability Not assignable
Assignable Set –off
May not be a subject of compensation or set-off
May be a subject of compensation or set-off
Interest Does not draw interest unless delinquent
Draws interest if stipulated or delayed
Authority Imposed by public authority
It is a private transaction
Taxes are not debts because a tax does not depend upon the consent of the taxpayer and there is no express or implied contract to pay taxes. Exceptions: 1. tax collection being enforceable by court action [ Sambrano v. TA, 101 Phil. ] 2. in the application of certain statutes of limitation [ Rep. Far Eastern American, Co., 7 SCRA 399] 3. in the matter of deductible items from gross income [ Commissioner v. Prieto, 109 Phil. 592] ( Vitug Book) 4. when it is secured by a bond, the tax is considered as a bond. SET-OFF General Rule: Taxes cannot be the subject of compensation or set-off. Reasons: 1. Lifeblood theory 2. Taxes are not contractual obligation but arise out of duty to the government.
3. The government and the taxpayers are not mutually creditors and debtors of each other. Exception: Where both claims already became overdue and demandable as well as fully liquidated, or where the government and the taxpayer are in their own right reciprocally debtors and creditors of each other, compensation takes place by operation of law. Doctrine of EQUITABLE RECOUPMENT not followed in the Philippines Thus, a tax presently being assessed against a taxpayer may not be recouped or set-off against an overpaid tax the refund of which is already barred by prescription REQUISITE OF A VALID TAX. (Code: PUJAN) a. It should be for public purpose b. The rule of taxation should be uniform c. That either the person or property taxed be within the jurisdiction of the taxing authority
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 7 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
d. That the assessment and collection be in consonance with the due process clause. e. The tax must not infringe on the inherent and constitutional limitations of the power of taxation.
b. Secondary/non-revenue purposes (RIPE) 1. To reduce social inequality 2. To implement the police power of the State (regulatory purpose) 3. To protect our local industries against unfair competition 4. To encourage the growth of local industries OF
THE
T A X A T I O N
a. the thing to be furthered by the appropriation of public revenue is something which is the duty of the government to provide; or b. When the proceeds of the tax will directly promote the welfare of the community in equal measure
PURPOSES OF TAXATION a. Primary – to raise revenues
EXTENT/SCOPE POWER (CUPS)
I N
TAXING
a. It is comprehensive. It covers persons, businesses, activities, professions, rights and privileges.
NOTE: Incidental advantage to the public or to the State, which results from the promotion of private enterprise or business, does not justify their aid by the use of public money. Q. Who purpose”?
may
determine
“public
A. This is a legislative prerogative. The power to determine whether the purpose of taxation is public or private resides in Congress. However, this will not prevent the court from questioning the propriety of such a statute on the ground that the law enacted is not for public purpose; but once it is settled that the law is for a public purpose, the court may no longer inquire into the wisdom, expediency or necessity of such tax measure.
b. It is unlimited. “The power to impose taxes is one so unlimited in force and so searching in extent that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it
It is the purpose which determines the public character of the tax law, not the number of persons benefited. As long as the ultimate result favors the welfare of the public in general, the appropriation of public revenue is deemed done for the public purpose.
c. It is plenary as it is complete.
Q. When must public purpose exist?
d. It is supreme. “Taxation, although referred to as the strongest of all the powers of the government, cannot be interpreted to mean that it is superior to the other inherent powers of the government, only that it is supreme insofar as the selection of the subject is concerned
A. "It must exist at the time the tax proceeds are being used or a tax law is being passed for a certain purpose, whichever comes first. [Pascual vs. Sec. of Public Works]
LIMITATIONS ON THE TAXING POWER A. Inherent limitations of the taxing power
2. International Comity –- principle of sovereign equality among states and of their freedom from suit without their consent limit the authority of the government to effectively impose taxes on a sovereign state and its instrumentalities, as well as on its property held, and activities taken in that capacity.
1. Public purpose
Thus, if a tax law violates certain international laws, it is not only invalid but it is also UNCONSTITUTIONAL because the constitution says " the Philippines....
Taxation is for public purpose when:
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 8 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
adopts the generally accepted principles of international law as part of the law of the land.... etc.."
The territoriality rule does not merely relate to "geographical" location, but to the jural concept or nexus or bond between the taxing authority and the taxpayers. And this nexus depends on the type of taxes imposed, the personal circumstances of the taxpayers, and also the location of the subject of taxation.
3. Non-delegation of taxing power GEN. RULE: Power of taxation is vested in Congress and may not be delegated. EXCEPTIONS: a. Local taxing power granted Constitution (Art. X, Sec. 5);
Rules Observed in Fixing Tax Situs by
the
a. POLL/CAPITATION/COMMUNITY TAX Poll or capitation, or community taxes are based upon the residence of the taxpayer, regardless of the source of income or location of the property of the taxpayer.
Suppose this provision does not exist, may LGU exercise the power of taxation? Yes, under the Doctrine of Implied Necessity... meaning, the power to create municipal corporations carries with it by necessary implication the power to compel upon it the power to tax. Now, the importance of this provision now is: in case of doubt as to whether the LGU has the power to tax or not, all doubts must be resolved in favor of the existence of such power. This is not the rule without such provision in the Constitution.
b. PROPERTY TAX b.1. Real Property- is subject to taxation in the state or country where it is located, regardless of whether the owner is a resident or a non-resident. [First National Bank vs. Marine, 284 U.S. 321. 77 ALR 401] b.2. Personal Property- the situs is wherever it was actually kept or located, was held to be the domiciled of its owner, following the age-old Doctrine of Mobilia sequuntur personam (movables follow the person).
b. Authority of the President, under the Constitution, to fix tariff rates, import and export quotas (Art 6, Sec. 28[2])
MOBILIA SEQUUNTUR PERSONAM c. When delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law. NOTE: Some authors often include this because when you talk of enforcement, it is no longer legislative in character; thus, there is nothing to delegate. In the ordinary set-up of our bureaucracy, Congress makes the law (impose the tax), the Executive (BIR) executes the law.
Although a mere fiction of law, without any constitutional foundation, it is nevertheless applied when convenient, provided it is not inconsistent with express provisions of the law. To acquire a situs in a state other than the domicile of the owner, tangible property must have a definite location there, accompanied by some degree of permanency; mere temporary or transient presence in the state is not sufficient. Exception:
Whether Congress likes it or not, it can't collect the tax! So, what's being delegated?
Actual or business situs [Wells Fargo v. CIR] which has been codified in Section 104, R.A. 8424 enumerates certain properties which acquired actual situs in the Philippines, viz:
4. Territoriality or situs of taxation – persons or property must be within the jurisdiction of the taxing power.
b.2.1. franchise exercised in the Philippines; b.2.2 shares of stock, obligations, bonds issued by domestic corporations organized
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 9 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
and constituted Philippine laws;
in
M E M O R Y
A I D
accordance
with
b.2.3 shares, obligation, bonds issued by foreign corporation where 85% of its business is located in the Philippines. It is subject to donor’s tax and estate tax; b.2.4. shares/right in a partnership business or industry established in the Philippines; b.2.5. shares, obligations, bonds, issued by foreign corporations which acquired business situs, when such have been used in the furtherance of the business of the foreign corporation. Thus, the RULE: irrespective of the owner, donor’s tax or estate tax can be imposed upon these properties. EXCEPT where the foreign corporation grants exemption or does not impose taxes on intangible properties of Filipino citizen. c. BUSINESS TAX- place of business
I N
T A X A T I O N
d. EXCISE TAX- Where the act is performed or where occupation is pursued e. SALES TAXwhere the sale is consummated f. INCOME TAXconsider citizenship residence and sources of income (Sec. 42, R.A. 8424) g. TRANSFER TAX- residence or citizenship of the taxpayer or location of property h. FRANCHISE TAX- state which granted the franchise i. VALUE ADDED TAX‘Destination Principle’ is followed 5. Tax-exemption of the Government – as a matter of public policy, property of the State or any of its political subdivisions devoted to government uses and purposes are generally exempt from taxation. However, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing functions may be subject to tax. [ MCIAA vs. Marcos, 261 SCRA 667]
Agencies performing governmental functions distinguished from proprietary functions Agencies performing governmental functions Tax-exempt unless expressly taxed
Agencies performing proprietary functions Subject to tax unless expressly exempted. Government-owned and controlled corporations perform proprietary functions; hence, they are subject to taxation. General Rule: government is taxable. Exception: when there is a law which says that it is exempt from tax. From these rules, you now make a distinction: 1) agencies performing governmental function as a rule are tax exempt (by reason of public policy) UNLESS expressly subject to tax; and, 2) agencies performing proprietary function are subject to tax UNLESS expressly exempt. (Posadas vs. Standard Well)
Now, with respect to government properties, NDC vs. Cebu City, enunciated these principles: 1. Properties owned by the Republic of the Philippines AND agencies without separate and distinct personality are exempt from taxation. (In other words, those agencies with charter are treated for tax purposes in accordance with the provisions of their respective charters.) 2. The exemption of public properties from taxation does not extend to the improvements introduced upon them by the present occupants at their expense.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 10 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
B. Constitutional taxing power:
limitations
of
A I D
the
I N
T A X A T I O N
2. EQUAL PROTECTION OF THE LAW “Nor shall any person be denied the equal protection of the law.” (Art. 3, sec.1 of the Constitution)
1. DUE PROCESS OF LAW “No person shall be deprived of life, liberty or property without due process of law….” (Art 3, Sec.1 of the Constitution) Requisites of Due Process: Substantive Limitation- The interests of the public generally as distinguished from those of a particular class require the intervention of the State; and Procedural LimitationThe means employed must be reasonably necessary to the accomplishment of the purpose and not unduly oppressive. The requirement of due process whether taken from the substantive to the procedural aspect simply means one thing -reasonableness of the legislation. Substantive means that it should not be harsh, confiscatory, unjust and oppressive. Procedural means that it must provide notice and opportunity to be heard. Thus, they simply mean that the law must be reasonable. There must be evidence to support a claim of violation of this constitutional provision. Without proof, the presumption of constitutionality of law applies. However, due process is violation by any of these situations: (Code: VCORP) 1. where the law is in violation of inherent limitations
Note: it merely requires that all persons subjected to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the obligations imposed. Requisites for a valid Classification: a. It must be based on SUBSTANTIAL distinctions b. It must APPLY to both present and future conditions c. It must be GERMANE to the purposes of the law d. It must apply EQUALLY to all members of the same class Substantial distinction - it must be real, material and not superficial distinction [See cases of Punzalan, Association of Customs Brokers, Hiu Tsong Pao, Ormoc Sugar, etc...] 3. UNIFORMITY OF TAXATION “The rule of taxation shall be uniform and equitable.” (Art. 6, Sec.28(1) of the Constitution) Uniformity in taxation is similar to equality in taxation, but equitable taxation means that the taxes must be reasonable, fair, etc... and therefore, ... ability to pay. [See case of Almanzor to illustrate this.] UNIFORMITY DISTINGUISHED EQUALITY IN TAXATION
2. if the tax amounts to a confiscation of property 3. if the subject of confiscation is outside the jurisdiction of the taxing authority 4. if the law which is applied retroactively imposes unjust and oppressive taxes 5. if the law is imposed for a purpose other than public purpose
Is accomplished when the burden of the tax falls equally and impartially upon all the persons and property subject to it Equitability achieved when the burden of taxation falls to those better able to pay.
AND
EQUALITY
UNIFORMITY A tax is considered uniform when it operates with the same force/effect in every place where the subject may be found. All property belonging to the same class shall e taxed alike.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 11 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Constitutional Equality in Taxation
5. NON-IMPAIRMENT CLAUSE
means that all persons who are similarly situated should be treated alike both in the privilege conferred and burdens imposed.
“No law impairing the obligation of contracts shall be passed.”(Art. 3, Sec.10 of the Constitution)
the application of the concept of equal protection of the laws which prohibits discrimination other than those instances where there is valid classification.
Non-impairment clause of the Constitution constitutes a limitation on the power of taxation
Thus, persons who are similarly situated, or who belong to the same class, should be given by law the same protection and privileges as well as imposed the same burdens and obligations. Uniformity of taxation NOT the same as equality in taxation Uniformity of taxation means that all articles or properties of the same class shall be taxed at the same rate. Different articles or other subjects like transactions, business, right, etc. may be taxed at different rates provided that the rate (not necessarily the amount) is uniform in the same class everywhere. 4. PROGRESSIVE TAXATION
SYSTEM
OF
“Congress shall evolve a progressive system of taxation” (Art.6, Sec.28 (1) of the Constitution) Tax rate increases as tax base increases. The Constitution provides that the Congress shall evolve a progressive system of taxation. However, this provision is merely a directive to Congress, NOT a right enforceable before the courts. Q. Is a tax adopting a regressive system of taxation is valid? A. Yes. The Constitution does not really prohibit the imposition of indirect tax is which like the VAT are regressive. The Constitution provision means simply that indirect taxes shall be minimized. The mandate to Congress is not to prescribe but to evolve a progressive tax system. [EVAT En Banc Resolution, Tolentino, et.al vs. Secretary of Finance, Oct. 30, 1995]
The obligation or contract is impaired when its terms or conditions are changed by law or by a party without consent of the other thereby weakening the position of the latter. Thus, there is impairment by law when a tax exemption based on a contract is revoked by a later taxing statute. It may be well to point out that the nonimpairment clause will only be violated if and when the taxing authority was a party to the contract in question. Note: The rule, however, does not apply to public utility franchises on right since they are subject to amendment, alteration or repeal by the Congress when the public interest so requires. [Cagayan Electric and Light Co., Inc. vs. Commissioner, G.R. no. 60216, September 25, 1985] NOTE: This provision was NOT REALLY thought of as a limitation on the power of taxation EXCEPT in case where tax exemption was granted for a valuable consideration. So the question now should be are tax exemptions falling under the subject constitutional provision revocable? You have to qualify, if the exemption is granted via a franchise, it can be revoked because of Section 11 Article 12 of the Constitution. However, if the exemption is via a contract, it cannot be revoked. Why the distinction? Because in the grant of franchise, the government is exercising a governmental function (thus, in so doing in the first place, it considered public good etc...) while in contract, the government merely exercises a proprietary function (presumably there was no prior determination of public good, etc...)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 12 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
6. NON-IMPRISONMENT PAYMENT OF POLL TAX
FOR
A I D
NON-
“No person shall be imprisoned for nonpayment of a debt or poll tax.” (Art 3, Sec.20 of the constitution) NOTE: But if acts, violative of laws were committed in the issuance and payment of the cedula, imprisonment is allowed. For instance, if a taxpayer was issued a cedula thru misrepresentation or falsification, the taxpayer could be imprisoned for falsification of public document. 7. BILLS TO ORIGINATE EXCUSIVELY FROM THE HOUSE OF REPRESENTATIVES “All appropriation, revenue or tariff bills, bills authorizing the increase of the public debt, bills of local application and private bills, shall originate exclusively in the House of Representatives, but the senate may propose or concur with amendments.” (Art. 3, Sec. 24, of the Constitution) NOTE: It is the BILL and not the LAW that should originate from the lower house. In other words, if the final version is substantially that bill passed by the Senate, for as long as the initiatory bill was commenced by the lower house, it's totally OK. 8. THE VETO PRESIDENT
POWER
OF
THE
“ The president shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill but the veto shall not affect the item or items to which he does not object.” (Art. 6, Sec. 27(2) of the Constitution) 9. PRESIDENT’S DERIVATIVE POWER TO TAX “The Congress may, by law, authorize the President to fix within specified limits and subject to such limitations and restrictions 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
I N
T A X A T I O N
government.”(Art. Constitution)
8,
Sec.28
(2)
of
the
The term “FLEXIBLE TARIFF CLAUSE” refers to the authority given to the President to adjust tariff rates under Section 401 of the Tariff and Customs Code, which is the enabling law that made effective the delegation of the taxing power to the President under the Constitution. 10. TAXATION AND THE FREEDOM OF THE PRESS “No law shall be passed abridging the freedom of speech, of expression or of the press.”(Art.3, Sec. 4 of the Constitution) There is curtailment of press freedom and freedom of thought and expression if a tax is levied in order to suppress this basic right and impose a prior restraint. [Tolentino, et.al vs. secretary of Finance, 235 SCRA 630] 11. TAXATION RELIGION
AND
FREEDOM
OF
“No law shall be made respecting an establishment of religion or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship without discrimination or preference shall forever be allowed. No religious test shall be required for the exercise of civil or political rights.” (Art.3,Sec.5, of the Constitution) The income of such organizations from any activity conducted for profit or from any of their property, real or personal, regardless of the disposition made of such income, is taxable. 12. TAX EXEMPTION OF PROPERTIES ACTUALLY, DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND EDUCATIONAL PURPOSES (Art. 6,sec.28(3) of the Constitution) REASON FOR THE RULE: Cemeteries are exempt from the payment of taxes because of the difficulty of collecting a tax thereon and the obvious impropriety of selling
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 13 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
the graves of the dead to defray the expenses of carrying on the government of the living. Churches and parsonages or convents appurtenant thereto, etc. are exempt from taxation because such institutions perform work which would otherwise have to be carried on by the public at the expense of the taxpayers and that the expenses of such institutions from taxation lessens rather than increases the burden upon other taxpayers. CONTROLLING DOCTRINE ON EXEMPTION FROM TAXATION OF REAL PROPERTY OF RELIGIOUS, CHARITABLE AND EDUCATIONAL INSTITYUTIONS In the recent case of Lung Center of the Philippines vs. Q.C and Constantino p. Roxas, City Assessor of Q.C., G.R. no. 144104, June 29, 2004, 433 SCRA 119, the prevailing rule on the application of tax exemption to properties incidentally used for religious, charitable and educational purposes, as enunciated in the case of Herrera vs. QC-BAA, 3 SCRA 187, has now been ABANDONED. In resolving the issue of whether or not the portions of the real property of Lung Center that are leased to private entities are exempt from real property taxes, the SC reexamined the intent of the Constitutional provision granting tax exemption of properties ACTUALLY, DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND EDUCATIONAL PURPOSES. Thus, the records of the Constitutional Commission reveal that what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. What is meant by actual, direct and exclusive use of property for charitable, religious and educational institutions is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. [St. Louis Men’s Christian association vs. Genher, 47 S.W.2d776]
I N
T A X A T I O N
NOTE: The rule remains that it is the USE and not ownership that determines the exempt character of the property. What is meant by "use" remain a litigious issue, but should always be measured under the constitutional prescription of Actually-Directly-Exclusively purposes. 13. TAX EXEMPTIONS GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS All revenues and assets of non-stock, non-profit educational institution used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution and cessation of the corporate existence of such institution, their assets shall be disposed of in the manner provided by law. (Art. 14, Sec.4 (3) of the Constitution) Subject to the conditions prescribed by law, all grants, endowments, donation or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax. (Art. 14, Sec.4 (4) of the Constitution) ART. 14 and ART. 6 OF THE 1987 CONSTITUTION DISTINGUINSHED
GRANTEE
TAXES COVERED
ART 14, SEC. 4(3) Non-stock, non-profit educational institution Income tax Custom duties Property tax ( DECS Order No. 137-87)
ART 6, SEC. 28(3) Religious, educational, charitable institutions Property tax
14. NO PUBLIC MONEY OR PROPERTY USED FOR A PARTICULAR SECT, PRIEST, RELIGIOUS MINISTER, ETC. (Art. 6,Sec.29(1)Constitution) GEN. RULE: No public money or property shall be appropriated, applied, paid or employed directly or indirectly for the use, benefit or support of any sect, church, denomination, sectarian institution, or system
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 14 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
of religious or of any priest, preacher, minister, or other religious teacher, or dignitary. EXCEPT: when such priest, preacher, minister or dignitary is assigned to the armed forces or to any penal institution or government orphanage or leprosarium 15. GRANT OF TAX EXEMPTIONS “No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress.” (Art. 6, Sec.28 (4) of the Constitution) GEN. RULE: NO EXEMPTION EXCEPT: When a statute provides that certain person or property is immune from taxation.
I N
T A X A T I O N
b. The rule does not apply to special taxes relating to special cases and affecting only special classes of persons; c. In case of property owned by the state an express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to public policy of the state, since as to such property” exemption is the rule and taxation the exemption” d. Exemptions to traditional exemptees, such as religious and charitable institution; e. The rule does not apply in the case of exemptions in favor of governmental political subdivision or instrumentality [Maceda vs. Macaraig, jr., 197 SCRA 771] f.
Rule on Construction of Exemption: 1. Exemptions presumed.
from
taxation
are
If the taxpayer falls within the purview of exemption by clear legislative intent. [CIR vs. Arnoldus Carpentry Shop, G.R. no. 71122, March 25, 1988]
not
2. He who claims as exemption must be able to justify his claim by the clearest grant of organic or statute law by words too plain to be mistaken. If ambiguous, there is no exemption. 3. He who claims exemption should prove by convincing proof that he is exempted. 4. Taxation is the rule; tax exemption is the exception. 5. Tax exemption must be strictly construed against the taxpayer and liberally in favor of the taxing authority. 6. Constitutional exemption is self-executing. 7. Tax exemptions are personal. STRICT CONSTRUCTION RULE- It simply means that if, after the application of all rules of interpretation for the purpose of ascertaining the intention of the legislature, a well founded doubt exists, then the ambiguity occurs which may be settled by the rule of strict construction. EXCEPTION to Strict Construction Rule: a. The rule on strict construction rule does not apply where the statute granting the exemption expressly provides for liberal interpretation;
TAX AMNESTY
TAX EXEMPTION
Is an immunity from Is an immunity from all criminal and civil the civil liability only. obligations arising from non-payment of taxes. It is a general pardon given to all taxpayers 16. GRANT OF POWER OF TAXATION TO LOCAL GOVERNMENT UNITS Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local governments. (Art. 10, Sec. 5, Constitution) Congress cannot abolish the local government’s power to tax as it cannot abrogate what is expressly granted by the fundamental law.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 15 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
17. SPECIAL FUND
I N
T A X A T I O N
18. SUPREME COURTS JURISDICTION OVER TAX CASES (Art. VIII, Sec. 5)
“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. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the government.” (Art. 6, Sec.29 (3), Constitution)
Supreme Court may review, revise, reverse, modify or affirm on appeal or certiorari as the law or the Rules of Court may provide all cases involving the legality of any tax, impost, assessment or toll, or any penalty imposed in relation thereto.
KINDS OF TAXES DIFFERENTIATED DIRECT
INDIRECT
Tax for which a taxpayer is directly liable on the Tax primarily paid by persons who can shift transaction or business it engages in the burden upon someone else SPECIFIC
AD VALOREM
Imposed and based on weight or volume Based on selling price or other specified value capacity or any other physical unit of of goods measurement GENERAL
SPECIAL
Imposed solely to raise revenue for the Imposed and collected to achieve a particular government legitimate object of government NATIONAL
LOCAL
Imposed by the national government
Levied and collected by the local government
PERSONAL
PROPERTY
Is of fixed amount imposed on individuals, Imposed on property, real or personal, in whether citizens or not, residing within a proportion to its value. specified territory, without regard to their property or occupation PROGRESSIVE
REGRESSIVE
Tax rate increases as the tax base increases
Tax rate decreases as the tax base increases
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 16 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
DOUBLE TAXATION 4. INTERNATIONAL Double taxation- strictly, taxing twice same object/subject, same taxing jurisdiction, same purpose, same tax, same year.. this is called "direct duplicate"; should one of these is not the same, i.e., say not same year, then it is called "indirect duplicate"... in either case, there is no law which prohibits the same. there is not even a prohibition by the constitution as you say it.
Refers to the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.
However, in case of direct duplicate, if it amounts to confiscation of property for being unjust, oppressive, unfair, etc... then it is unconstitutional not on the ground of double taxation but for being violative of the due process clause.
TREATY AS A MODE OF ELIMINATING DOUBLE TAXATION
Note: there is no constitutional prohibition against double taxation. It is not favored but permissible. [Pepsi Cola Bottling Co. vs. City of Butuan, 24 SCRA 789]
itself
1. EXEMPTION METHOD - the income or capital which is taxable in the state of source or situs is exempted in the state of residence - the focus is on the income or the credit 2. CREDIT METHOD – the tax paid in the state of source is credited against the tax levied in the state of residence.
Kinds of Double Taxation 1. DIRECT
- focuses upon the tax.
-Occurs when the same property is taxed twice when it should be taxed once -objectionable or prohibited sense
2. INDIRECT
3. DOMESTIC
Allowed it the taxes are of different nature or character, imposed by different taxing authority
FORMS OF ESCAPE FROM TAXATION (Key: ESCATE) 1. 2. 3. 4. 5. 6.
Shifting Capitalization Transformation Avoidance Exemption Evasion-unlawful
A. Shifting Process by which tax burden is transferred from statutory taxpayer (impact of taxation) to another (incident of taxation) without violating the law.
-permissible double taxation
Illustration: Value added tax. The seller is required by law to pay the tax, but the burden is actually shifted or passed on to the buyer.
Arises when the taxes are Imposed by the local or national government
Impact of taxation – point on which tax is originally imposed. Incidents of taxation – point on which the tax burden finally rests or settles down.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 17 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
B. Capitalization
I N
T A X A T I O N
As to form:
Reduction in the price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay.
1. Express: Expressly granted by organic or statute law 2. Implied: When particular persons, properties, or excises are deemed exempt as they fall outside the scope of the taxing provision itself.
C. Transformation The manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production, thereby turning out his units at a lower cost. D. Tax Avoidance 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.
As to extent: 1. Total: Connotes absolute immunity. 2. Partial: One where a collection of a part of the tax is dispensed with. As to object: 1. Personal: granted directly in favor of certain persons 2. Impersonal: granted directly in favor of a certain class of property TAX EVASION vs. TAX AVOIDANCE TAX EVASION
E. Tax Evasion Use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of the tax. Indicia of Fraud in Tax Evasion 1. failure to declare for taxation purposes true and actual income derived from business for two consecutive years; or 2. substantial under declaration of income tax returns of the taxpayer for four consecutive years coupled with intentional overstatement of deductions. F. Tax Exemption
TAX AVOIDANCE
Connotes fraud Legal means used by through the use of the taxpayer to pretenses and reduce taxes forbidden devices to lessen or defeat taxes Scheme used outside Tax saving device of those lawful means within the means sanctioned by law Rule of “No Government”
Estoppel
Against
the
General Rule: The Government is not
A grant of immunity, express or implied, to particular persons or corporations from the obligation to pay taxes.
estopped by the mistakes or errors of its agents; erroneous application and enforcement of law by public officers do not block the subsequent correct application of statutes.
Kinds of Tax Exemptions As to basis:
Exception: In the interest of justice and fair
1. Constitutional: Immunities from taxation which originate from the constitution 2. Statutory: Those which emanate from legislation
play, as where injustice will result to the taxpayer.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 18 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
DOCTRINE OF IMPRESCRIPTIBILITY
TAXPAYER’S SUIT
As a rule, taxes are imprescriptibly as they are the lifeblood of the government. However, tax statutes may provide for statute of limitations.
♣ Requires illegal expenditure of public money. NATIONAL TAXATION
The rules that have been adopted are as follows: A. INCOME TAXATION a. National Internal Revenue Code- the statute of limitation for assessment of tax if a return is filed is within three (3 )years from the last day prescribed by law for the filling of the return or if filed after the last day, within three years from date of actual filling. If no return is filled or the return is false or fraudulent, the period to assess is within ten (10) years from discovery of the omission, fraud or falsity. b. Tariff and Customs Code- it does not express any general statute of limitation; it provides, however, that when articles have been entered and passed free of duty of final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of three (3) years from the date of the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to the provisions of this code be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative. c. Local Government Code- Local taxes, fees, or charges shall be assessed within five (5) years from the date they become due. In case of fraud, or intent to evade the payment of taxes, fees, or charges the same may be assessed within ten (10) years from discovery of such. They shall also be collected either by administrative or judicial action within five (5) years from the date of assessment. PRINCIPLE OF PROSPECTIVITY OF TAX LAWS The general rule under the Civil Code that laws shall have prospective application applies to tax laws. Retroactive application of revenue laws may be allowed if it will not amount to denial of due process.
Definitions 1. Income Tax – tax on all yearly profits arising from property, possessions, trade or business, or as a tax on a person’s income, emoluments, profits and the like (61 CJS 1559) – tax on income, whether gross or net. (27 Am. Jur. 308) 2. Income – all wealth which flows into the taxpayer other than as a mere return of capital. 3. Capital – resource of person which can be used in producing goods and services. Income All wealth which flows into the taxpayer other than as a mere return of capital. Flow of Wealth Source of wealth
Capital Fund or property which can be used in producing goods or services Fund or property Wealth
Requisites for Income to be Taxable 1. There must be a gain or profit. 2. The gain must be realized or received. 3. The gain must not be excluded by law or treaty from taxation. Tests on Taxability of Income 1. Flow of Wealth Test – The determining factor for the imposition of income tax is whether any gain was derived from the transaction. 2. Realization Test - unless the income is deemed "realized," there is no taxable income. 3. Economic-Benefit Principle - flow of wealth realized is taxable only to the extent that the taxpayer is economically benefited.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 19 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Classification of Taxpayers a. Individuals 1) citizens 1.1 resident citizens (RC) 1.2 non-resident citizens (NRC) 2) aliens 2.1 resident aliens (RA) 2.2 non-resident aliens (NRA) 2.2.1 engaged in trade or business within the Philippines. (NRAETB) 2.2.2 Not engaged in trade or business within the Philippines (NRANETB) b. Corporations 1) Domestic (DC) 2) Foreign 2.1 resident foreign corporation (RFC) 2.2 non-resident foreign corporation (NRFC) c. Estates d. Trusts e. Partnerships
3. Resident alien - means an individual whose residence is within the Philippines and who is not a citizen thereof. [Sec.22 (F)] 4. Non-resident alien engaged in trade or business within the Philippines. (Key: NRAETB) A non-resident alien means an individual whose residence is not within the Philippines and who is not a citizen thereof. [Sec.22 (G)] The term trade or business includes the performance of the functions of a public office. [Sec. 22 (S)] The term trade, business or profession shall not include performance of services by the taxpayer as an employee. [Sec. 22 (CC)] A non-resident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than 180 days during any calendar year shall be deemed a non-resident alien doing business in the Philippines Section 22(G) notwithstanding [Sec. 25(A)(1)]
INDIVIDUALS Situs of Taxation (Who are taxable?) 1. Resident Citizen 2. Non-resident Citizen A non-resident citizen means, a Filipino citizen: a. who establishes to the satisfaction of the Commissioner the fact of their physical presence abroad with a definite intention to reside therein; b. who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis; c. 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. who is previously considered as a nonresident and who arrives in the Philippines at anytime during the taxable year to reside thereat permanently shall be considered nonresident for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival [Sec.22 (E)]
5. Non-resident aliens not engaged in trade or business within the Philippiness. (Key: NRANETB) Note: ONLY RESIDENT CITIZENS are taxable for income derived from sources within and without the Philippines. All other individual income taxpayers are taxable only for income derived from sources within the Philippines. Note: An overseas contract worker (OCW) is taxable only on income derived from sources within the Philippines. [Sec. 23 (B)(C)] Note: A seaman is considered as an OCW provided the following requirements are met: 1. receives compensation for services rendered abroad as a member of the complement of a vessel; and 2. such vessel is engaged exclusively in international trade.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 20 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
CORPORATIONS Jurisdiction to Taxation (who are taxable?) 1. Domestic Corporation – created or organized in the Philippines. or under its law [Sec. 22(C)] 2. Resident Foreign Corporation – engaged in trade or business within the Philippines [Sec. 22(H)] 3. Non-resident Foreign Corporation – not engaged in trade or business within the Philippines [Sec. 22(I)] Corporation • Includes: 1. Partnerships, no matter how created or organized; 2. Joint-stock companies; 3. Joint accounts (cuentas en participacion) 4. Associations; or 5. Insurance companies [Sec. 22 (B)]. • Excludes: 1. General professional partnerships; 2. Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government; 3. Co-ownership.
I N
T A X A T I O N
1. Those enumerated under Sec. 30. • Exempt corporations are subject to income tax on their income from any of their properties, real or personal, or from any other activities conducted for profit, regardless of the disposition made of such income. 2. With respect to GOCC’s, the general rule is that these corporations are taxable as any other corporation except: a. GSIS b. SSS c. PHIC d. PCSO [Sec. 27 (C)] NOTE: Sec. 27 (c) of the NIRC amended by RA 9337, therefore, PAGCOR is not included in the GOCCC exception and subject to tax. 3. Regional or Area Headquarters under Sec. 22 (DD) NOTE: Regional operating headquarters (ROH) under Sec. 22(EE) shall pay a tax of 10% of their taxable income. Note: ONLY DOMESTIC CORPORATIONS are taxable for income derived from sources within and without the Philippines. All other corporate income taxpayers are taxable only for income derived from sources within the Philippines.
Corporations exempt from income taxation (for income realized as such) under RA 8424
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 21 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 22 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 23 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
ESTATES AND TRUSTS
Where no such distribution to the heirs is made during the taxable year that the income is earned, and such income is subjected to income tax payment by the estate, the subsequent distribution thereof is no longer taxable on the part of the recipient.
Estate – refers to the mass of properties left by a deceased person. Rules on Taxability of Estate: 1. An estate under administration or judicial settlement is a taxable entity. 2. An estate, the settlement of which is not the object of judicial testamentary or intestate proceedings is not a taxable entity. The income there of is taxable directly to the heir or beneficiary. Estates under Judicial Settlement General Rule: An estate under judicial settlement is subject to income tax in the same manner as individuals. Its status is the same as the status of the decedent prior to his death.
Estates NOT under judicial settlement – subject to income tax as coownership. The tax treatment of co-ownership is similar to general professional partnership. Hence, the tax liability on income is levied directly on the co-owners. The co-ownership income and deductions are simply apportioned to the co-owners to the extent of their respective interests therein, regardless of whether such income is distributed or not.
Exceptions: 1. The entitlement to personal exemption is limited only to P20, 000. 2. No additional exemption is allowed. 3. The distribution to the heirs during the taxable year of estate income is deductible from the taxable income of the estate. Such distributed income shall form part of the respective heirs’ taxable income.
Irrevocable Trusts (irrevocable both as to corpus and as to income) – taxed exactly in the same way as estates under judicial settlement and its status as an individual is that of the trustor. It is entitled to the minimum personal exemption (P20, 000) and distribution of trust income during the taxable
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 24 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
tear to the beneficiaries is deductible from the trust’s taxable income.
(6) Minimum Corporate Income Tax (7) Fringe Benefits Tax (8) Optional corporate Income tax
Revocable Trusts – the trustor, not the trust itself, is subject to the payment of income tax on the trust income. PARTNERSHIPS General Rule: Partnerships, no matter how created, are subject to corporate income tax.
(1) NET INCOME TAX Definition: Means gross income less deductions and/or personal and additional exemptions (Sec. 31, RA 8424) Net Income Tax Formula
General co-partnerships (GCP) are partnerships which are by law assimilated to be within the context of, and so legally contemplated as, corporations. The partnership itself is subject to corporate taxation. The individual partners are considered stockholders and, therefore, profits distributed to them by the partnership are taxable as dividends. Exception: General Professional Partnerships (GPPs) as such are not subject to income tax. GPP means: 1. a partnership formed by persons for the sole purpose of exercising their common profession; and 2. no part of the income of which is derived from engaging in any trade or business [Sec. 22(B)]. GPPs, however, are required to file returns of their income for the purpose of furnishing information as to the share in the net income of the partnership which the partners shall include in their individual returns
Entire Income Less: Exclusions and Income subject to Final Tax(e.g. Passive Income) Gross Income Less: Deductions (Personal and/or Additional Exemptions) Net Taxable Income X
Net Income Tax Due Less: Tax Credit, if any Tax Still due, if any/ Tax Payable GROSS INCOME Definition: Means all income derived from whatever source, including but not limited to the following (Sec. 32); (Key: CIG2AR2-P2D) 1. 2.
Compensation; Gross income from profession, trade or business; 3. Gains form dealings in property; 4. Interests; 5. Rents; 6. Royalties; 7. Dividends; 8. Annuities; 9. Prizes and winnings; 10. Pensions; 11. Partner’s share in the net income of the general professional partnership
Members of the GPP are liable for income tax only in their separate and individual capacity. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership. KINDS OF INCOME TAXES UNDER R.A. 8424 (1) (2) (3) (4)
Net Income Tax Gross Income Tax Final Income Tax Preferential Rates or Special Rates of Income Tax (5) Improperly Accumulated Earnings Tax
Tax Rates
“all income derived from whatever source” - embraces all income not expressly exempted within the class of taxable income under the law, irrespective of the voluntary or involuntary action of the taxpayer
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 25 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
in producing the gains, and whether derived from legal or illegal sources, such as: 1. Gains arising from expropriation of property which constitute income from dealings in property; 2. Income derived from illegal sources, such as gambling, theft, embezzlement, and smuggling; 3. Compensation for damages if it represents payment for loss of expected profits; 4. Bad debts previously charged-off but afterwards recovered; 5. Contest awards and prizes for commercial or non-commercial contests; and 6. Taxes previously deducted as an expense and subsequently refunded. Exclusions from Gross Income 1. proceeds of life insurance NOTE: if the proceeds are retained by the insurer, the interest thereon is taxable; 2. Return of insurance premium; 3. Gift, bequest or devise NOTE: income there from is taxable;
I N
T A X A T I O N
3. separation pay because of death, sickness, or other physical disability or for any cause beyond the control of the official or employee (e.g. retrenchment); 4. social security benefits, retirement gratuities, pensions and other similar benefits received by citizens and aliens who come to reside permanently here from foreign sources private or public; 5. benefits due to residents under the laws of the U.S. administered by the U.S. Veterans Administration 6. SSS benefits; and 7. GSIS benefits. Miscellaneous Items 1. Passive income derived by foreign government in the Philippines; 2. Income derived from any public utility or from the exercise of any governmental function; 3. Prizes and awards made primarily in recognition of charitable, civic achievement, literary, artistic, religious, educational, and scientific. (Code: C2LARES) Requisites:
4. Compensation for personal injuries or sickness, whether by suit or agreement NOTE: The phrase “personal injuries” should be given a restrictive meaning to refer only to physical injuries; 5. Income exempt under Treaty; 6. Retirement benefits, pension, gratuities, etc. 7. Miscellaneous items Retirement Gratuities, Etc.
Benefits,
Pension,
1. those derived under R.A. 7641 (pertains to private firms without retirement trust fund); 2. those received by officials and employees of private employers in accordance with a reasonable private benefit plan; Requisites: a) in the service of the same employer for at least 10 years; b) at least 50 years old; c) must be availed of only once d) plan approved by the BIR (R.R.298);
a. recipient selected without any action on his part; and b. recipient not required to render substantial future services. 4. Prizes and awards granted to athletes in sports competitions and sanctioned by their national sports association ; 5. 13th month pay and other benefits up to P30,000.00; 6. GSIS,SSS, Medicare and union dues of individuals; 7. Gains derived from debt securities with a maturity of more than 5 years; 8. Gains from redemption of shares in Mutual Fund. DEDUCTIONS Definition: Items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income. Basic Principles governing Deductions
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 26 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
1. The taxpayer seeking a deduction must point to some specific provisions of the statute authorizing the deduction; and 2. He must be able to prove that he is entitled to the deduction authorized or allowed. (Atlas Consolidated Mining & Dev. Corp. vs. Comm.) 3. Any amount paid or payable which is otherwise deductible from, or taken into account in computing gross income or for which depreciation or amortization may be allowed, shall be allowed as deduction only if it is shown that the tax required to be deducted and withheld there from has been paid to the BIR. (Sec. 34[K])
I N
T A X A T I O N
(j) pension trust contributions of employees; and (k) premium payments on health and/or hospitalization insurance. (This is the only deduction which a compensation income earner may claim as a deduction.) 3. Personal and additional exemptions Available only to individuals (business income and compensation income earners). NRAETB may be entitled to personal exemptions (only) subject to reciprocity, i.e., (a) the country of which he is a subject or citizen has an income tax law; and (b) the income tax law of his country allows personal exemption to citizens of the Philippines not residing therein, but deriving income there from and not to exceed the amount allowed in CTRP.
Note: Deductions for income tax purposes partake of the nature of tax exemptions; hence, if tax exemptions are to be strictly construed, then it follows that deductions must also be strictly construed. Taxpayers who cannot avail deductions from gross income
The personal exemption shall the be equal to that allowed by the income tax law of his country to a citizen of the Philippines not residing therein, or the amount provided in the CTRP, whichever is lower.
of
1. Citizens and resident aliens whose income is purely compensation income (except for premium payments on health and/or hospitalization insurance); 2. Non-resident aliens not engaged in trade or business in the Philippines; and 3. Non-resident foreign corporation Kinds of Deductions 1. Optional standard deductions (OSD) –10% of the gross income. NOTE: The OSD may be availed of only by individuals (except nonresident alien) who are not purely compensation income earners. 2. Itemized deductions (Key: ELIT-BD2CP2R) (a) ordinary AND necessary expenses (b) interests (c) taxes (d) losses (e) bad debts (f) depreciation of property; (g) depletion of oil and gas wells and mines; (h) charitable and other contributions; (i) research and development;
4. Special deductions – applicable only to Insurance companies, whether domestic or foreign. (Sec. 37, CTRP). ITEMIZED DEDUCTIONS a. ORDINARY AND NECESSARY EXPENSE • Necessary Expense - appropriate and helpful in the development of taxpayer's business. • Ordinary Expense - normal or usual in the line of business. Requisites of Business Expense to be deductible 1. ordinary and necessary; 2. paid or incurred w/in the taxable year; 3. paid or incurred in carrying on a trade or business; 4. Substantiated with official receipts or other adequate records. 5. if subject to withholding taxes proof of payment to the BIR must be shown. 6. must be reasonable under the circumstances.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 27 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
• Capital Expenditure - An expenditure that benefits not only the current period but also future periods. It is not deductible but depreciable, EXCEPT, if the taxpayer is a nonprofit proprietary educational institution which may elect either to deduct the capital expense or depreciate it.
Optional Treatment of Interest Expense At the option of the taxpayer, interest incurred to acquire property used in trade or business may be allowed as a deduction or treated as capital expenditure. [Sec 34 (B)(3)]
b. INTEREST Interest – payment for the use of forbearance or detention of money, regardless of the name it is called or denominated.
1. interest paid on indebtedness to finance petroleum explorations; 2. interest on transactions by related parties [Sec. 34 (B)(2)] 3. interest to purchase or carry tax-exempt obligations; 4. dividend payments cannot be deducted as interest; and 5. interest paid in advance thru discount or otherwise, HOWEVER it is deductible in the year indebtedness is paid.
Requisites for deductibility: 1. there must be an indebtedness; 2. an interest expense paid or incurred on such indebtedness; 3. indebtedness that of taxpayer; 4. indebtedness connected with the taxpayer’s trade, business or exercise of profession; 5. interest expense paid or incurred during the taxable year; 6. interest stipulated in writing; 7. interest legally due; 8. interest arrange not between related taxpayers; 9. interest not incurred to finance petroleum operations, and 10. interest incurred to acquire property used in trade, business or exercise of profession, the same was not treated as capital expenditure. Rules on Deductibility of Interest Expense 1. General Rule – the amount of interest expense paid/ incurred within a taxable year of indebtedness in connection with the taxpayer’s trade, business or exercise of profession (TBE) shall be allowed as a deduction from the taxpayer’s gross income.
Interest Payments not Deductible
c. TAXES Requisites to be deductible Must be in connection with taxpayer’s business; tax must be imposed by law on, and payable by, taxpayer (direct tax); and paid or incurred during the taxable year. Taxes not deductible 1. 2. 3. 4. 5.
income tax; estate and donor’s tax; special assessments; excess electric consumption tax; foreign income tax, war profits and excess profits tax, if the taxpayer makes use of tax credit; and 6. final taxes, being in the nature of income tax. TAX BENEFIT RULE
2. Limitation – the amount of interest (in connection with TBE) shall be reduced by an amount equal the following percentages of interest income earned w/c had been subjected to final withholding depending on the year when the interest income earned, viz:
Taxes allowed as deductions, when refunded or credited, shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction.
41% - beginning January 1, 1998 39% - beginning January 1, 1999 38 % - beginning January 1, 2000 and thereafter
For NRAETB and RFC, taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the Philippines.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 28 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
d. LOSSES
shares is held by or on behalf of the same persons; or b. not less than 75% of the paid up capital is held by or on behalf of the same person.
Requisites to be deductible 1. actually sustained during the taxable year; 2. connected with the business, trade or exercise of profession; 3. evidenced by a close and completed transaction; 4. not compensated by insurance or otherwise. 5. not been claimed as deduction for estate tax purposes; and 6. Notice of loss must be filed with the BIR w/in 45 days form the date of discovery of the casualty/robbery/theft/embezzlement. The taxpayer’s failure to record in his books the alleged loss proves that the loss had not been suffered, hence, not deductible. (City Lumber vs. Commissioner) CATEGORY AND TYPES OF LOSSES 1. Ordinary Losses- incurred in trade. Business or exercise/practice of profession 2. Net (NOLCO)
operating
loss
carry-over
• Refers to the excess of allowable deductions over gross income of the business for any taxable year which had not been previously offset as deduction from gross income. • Can be carried over as a deduction from gross income for the next 3 consecutive years immediately following the year of such loss. • For mines, other that oil and gas well, net operating loss incurred in any of the first ten years of operation may be carried over for the next 5 years. Requirements: 1. The taxpayer was not exempt from income tax in the year of such net operating loss; 2. There has been no substantial change in the ownership of the business or enterprise. There is no substantial change in the ownership of the business when: a. not less than 75% in nominal value of the outstanding issued
3. Of property connected with the trade, business or profession, if the loss arises from fires, storms, other casualties. Total Destruction – total book value (cost less accum. depr.) less any amount of insurance or compensation received Partial Destruction – the replacement cost to restore the property to its normal operating condition, but in no case shall the deductible loss be more than the net book value of the property before the casualty. The excess over the net book value immediately before the casualty should be capitalized, subject to depreciation over the remaining useful life of the property. 3. Capital losses – deductible only to the extent of capital gains a. Losses from sale/ exchange of capital assets. b. Losses resulting from securities becoming worthless and which are capital assets. c. Losses from short sale of properties. d. Losses due to failure to exercise privilege or option to buy/ sell property.
Special Kinds of Losses
a. Wagering Losses – deductible only to the extent of gain/ winnings. [Sec. 34(D)(6)] b. Losses on Wash Sales of Stocks – not deductible because these are artificial loss Wash sales – a sale or other disposition of stock or securities where substantially identical securities are acquired or purchased within 61day period, beginning 30 days before the sale and ending 30 days after the sale. [Sec. 38] General rule: Losses from wash sales are not deductible. Exception: When the sale is made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 29 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
business of such dealer, losses from such sale is deductible. Elements of Wash Sales a. The sale or other disposition of stock resulted to a loss; b. There was an acquisition or contract or option for acquisition of stock or securities within 30 days before the sale or 30 days after the sale; and c. The stock or securities sold were substantially the same as those acquired within the 61-day period.
I N
T A X A T I O N
Requisites to be deductible 1. Valid, subsisting and legally demandable (NOTE: the taxpayer is the CREDITOR); 2. Debt must be actually ascertained to be worthless and uncollectible as of the end of the taxable year; 3. Obligation is not between related parties [Sec. 36(B)]; 4. Debt is expensed within the year (actually charged off from the books of accounts of the taxpayer) and 5. Debt is connected with taxpayer’s profession, trade or business. Equitable Doctrine of Tax Benefit
c. Abandonment losses in petroleum operation and producing well. [Sec. 34 (D) (7)] a. In case a contract area where petroleum operations are undertaken is partially or wholly abandoned, all accumulated exploration and development expenditures pertaining thereto shall be allowed as a deduction. b. In case a producing well is abandoned, the unamortized cost thereof, as well as the undepreciated cost of equipment directly used therein, shall be allowed as deduction in the year the well, equipment or facility is abandoned. d. Losses of mines other than oil and gas wells e. Losses due to voluntary removal of building incident to renewal/ replacements – deductible expense from gross income. f. Loss of useful value of capital assets due to changes in business conditions – deductible up to the extent of actual loss sustained (after adjustment for improvement, depreciation and salvage value). g. Losses from sales or exchanges of property between related taxpayers – losses of this nature are not deductible but gains are taxable. h. Losses of farmers – if incurred in the operation of farm business, it is deductible. e. BAD DEBTS
A recovery of bad debts previously deducted from gross income constitutes taxable income if in the year the account was written off, the deduction resulted in a tax benefit. f. DEPRECIATION Includes 1. The gradual diminution in the service or useful value of tangible property due from exhaustion, wear and tear and normal obsolescence. 2. Amortization of the value of intangible assets with definitely limited duration. Requisites to be deductible 1. Must be reasonable; 2. Must be on property used in the conduct of the business; 3. Must be expensed (charged off) during the taxable year; and 4. Schedule of allowance must be attached to the return. g. DEPLETION OF OIL AND GAS WELLS AND MINES -
same requisites as depreciation
Depletion – exhaustion of natural resources as mines, oil and gas wells. The natural resources are called “wasting assets”. As the physical units representing such resources are extracted and sold, such assets move towards exhaustion.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 30 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Known as cost of depletion allowance for mines, oil gas wells and other natural deposits.
-
To whom allowed – only mining entities owning economic interest in mineral deposits.
Deductible in Full
Economic Interest – interest in minerals in place investment therein or secured by operating or contract agreement for which income is derived, and return of capital expected from the extraction of mineral. Mere economic/ pecuniary advantage to be derived when there is no capital investment is involve, does not amount to economic interest. h. CHARITABLE CONTRIBUTIONS
AND
not in excess of 10% of the taxable income in case of an individual
Donations to the following shall be allowed FULL deductibility: 1. Philippine government or to any of its agencies, or political subdivisions, including fully-owned government corporations undertaking priority activities; 2. Foreign institutions or international organizations, pursuant to agreements, treaties or commitments entered into by the Phil. Government or special laws; 3. Donations to certain accredited NGO’s.
OTHER i. RESEARCH (R&D)
Requisites to be deductible 1. The contribution/ gift must be actually paid. 2. Given to the organizations specified in the code. 3. The Net Income of the organization must not inure to the benefit of any private stockholder/ individual.
AND
DEVELOPMENT
Requisites to be deductible 1. if incurred in connection with the trade, business or profession of the taxpayer; and 2. if not charged to capital account Treatment of the R&D Expenditures
Valuation – acquisition cost of property contributed Partial Deduction Donations to the following shall be allowed LIMITED deductibility: 1. Phil. Government or any of its agencies or any political subdivision thereof exclusively for public purposes; 2. accredited domestic corporation or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, 3. social welfare institutions, or 4. non-government organizations (Sec 34[H]) The aforementioned donations shall be deductible only to the extent: -
not in excess of 5% of taxable income in case of a corporation
At the option of the taxpayer, the R&D expenditures may be treated as deferred expenses: 1. if incurred in connection with the trade, business or profession of the taxpayer; 2. if not treated as expense; and 3. if chargeable to capital account not subject to depreciation. If treated as deferred expense, the R&D shall be amortized over a period of not less than 60 months. Expenses not considered as R&D 1. Expenditures for the acquisition or improvement of land, or for the improvement of property to be used in connection with R&D of a character which is subject to depreciation and depletion; and 2. Expenditures paid or incurred for the purpose of ascertaining the existence, location, extent, or quantity of any deposit or ore or other mineral including oil or gas.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 31 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
j. PENSION TRUST CONTRIBUTION A deduction applicable only to the employer on account of its contribution to a private pension plan for the benefits of its employees. This deduction is purely business in character.
I N
T A X A T I O N
c. individual taxpayer earning compensation and business/ practice of profession during the year PERSONAL EXEMPTIONS Amounts of Personal Exemptions [Sec. 35]
Requisites to be deductible 1. The employer must have established a pension or retirement plan to provide for the payment of reasonable pensions to his employees; 2. The pension plan is reasonable and actuarially sound; 3. It must be funded by the employer; 4. The amount contributed must be no longer subject to the control and disposition of the employer; 5. The payment has not yet been allowed as a deduction; and 6. The deduction is apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer or payment is made. k. PREMIUM PAYMENTS ON HEALTH AND/OR HOSPITALIZATION INSURANCE Requisites to be deductible 1. The taxpayer must be an individual; 2. The amount of premiums shall not exceed P2,400 per family; 3. Such family must have a gross income of not more than P250,000 for the taxable year; and 4. In the case of married taxpayers, only the spouse claiming the additional exemption for dependents shall be entitled to this deduction. Who may avail of the deduction a. individual taxpayers earning purely compensation income during the year. b. individual taxpayer earning business income or in the practice of his profession whether availing of itemized or optional standard deductions during the year.
1. Single individual or married individual judicially decreed as legally separated with no qualified dependents: P20,000 2. Head of the family: P25,000 3. Each married person: P32,000 Head of the Family 1. Unmarried or legally separated person with one or both parents, or one or more brothers or sisters, or one or more legitimate, recognized natural or legally adopted children living with and dependent upon the taxpayer for their chief support; and 2. Where such brother / sister or children are not more than 21 years of age, unmarried and not gainfully employed, or where such dependents regardless of age, are incapable of self – support because of mental or physical defect. Additional Exemption for DependentsP8, 000 for each dependent not to exceed four (4). Qualifications of a dependent 1. legitimate, illegitimate or legally adopted child of the taxpayer 2. chiefly dependent upon and living with the taxpayer 3. not more than 21 years old, unmarried AND not gainfully employed or where such dependents regardless of age are incapable of self-support because of mental of physical defect. Note: The P8, 000 additional exemptions is given only for dependent children. It cannot be claimed for dependent parents, brothers, or sisters. The taxpayer must be either married or head of the family. Furthermore, according to the Senior Citizens Law, may include an individual above 60 years old as dependent
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 32 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
provided all the requisites provided by the said law are present. Clarificatory Illustrations: 1. If only 19 years old but married, not qualified as a dependent. 2. Even if 25 years old but physically incapacitated, qualified as a dependent. 3. If there is any change of status at any time during the taxable year, the law expressly favors the taxpayer. NRAETB may deduct personal exemption (not additional exemption), but only to the extent allowed by his country to Filipinos not residing therein, and shall not exceed the aforementioned amounts. ITEMS NOT DEDUCTIBLE FROM GROSS INCOME Reasons for non-deductibility: 1. Personal Expenses 2. Capital Expenditures 3. Items not normally subject to income tax and therefore not deductible 4. Items taken advantage of by the taxpayer to avoid payment of income tax.
I N
T A X A T I O N
Transactions between related parties 1. Between members of the family; ‘Family’ includes only the brothers, sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants of the taxpayer. 2. Except in the case of distributions in liquidation: a. between an individual and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; b. between two corporations more than 50% in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual, if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale of exchange was a personal holding company or a foreign personal holding company; or 3. Between the grantor and a fiduciary of any trust; 4. Between the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust; 5. Between a fiduciary of a trust and a beneficiary of such trust.
The following are NOT deductible from gross income
Consequences
1. Personal, living or family expenses; 2. Amount paid out for new buildings or for permanent improvements, or betterment made to increase the value of any property or estate, EXCEPT that intangible drilling and development cost incurred in petroleum operations are deductible; 3. Amount expended in restoring property or in making good the exhaustion thereof for which an allowance has been made; 4. Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy. [Sec. 36] 5. Losses from sales or exchanges of property between related taxpayers. [Sec. 36]
1. Interest expense is not allowed as a deduction if both the taxpayer and the person to whom the payment was made are persons specified above. [Sec. 34 (B)(2)] 2. Bad debts sustained in a transaction entered into between parties mentioned above are not deductible. [Sec. 34 (E)(1)] 3. Losses from sales or exchanges of property between persons specified above are not deductible. [Sec 36 (B)]
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 33 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
(2) GROSS INCOME TAX
PREFERENTIAL OR SPECIAL RATES Pertains to income derived by a particular individual or corporation belonging to a class of income taxpayer that is subject to either a preferential or special rate. Please refer to Annex A.
Gross Income Tax (GIT) Formula Entire Income Less: Exclusions and Income subject to Final Tax (e.g. Passive Income)
(5) IMPROPERLY ACCUMULATED EARNINGS (IAE) TAX
Gross Income X
Tax Rates
Net Income Tax Due GIT applies to 1. Non-resident alien not engaged in trade or business; and 2. Non-resident foreign corporation.
Definition: “Improperly accumulated earnings (IAE)” are the profits of a corporation that are permitted to accumulate instead of being distributed by a corporation to its shareholders for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of another corporation. Rate: 10% of the Improperly Accumulated Taxable Income (in addition to other taxes).
Tax Rates: Please refer to Annex A.
“Improperly Accumulated Income” means taxable income
(3) FINAL INCOME TAX General Principles 1. It is constituted as a full and final payment of the income tax due from the payee on a particular type of income subject to final withholding tax (FWT).
1. 2. 3. 4.
Taxable
Adjusted by: Income exempt from tax Income excluded from gross income Income subject to final tax The amount of net operating loss carry-over deducted.
The finality of the withholding tax is limited only to the payee’s income tax liability and does not extend to other taxes that may be imposed on said income.
And reduced by the sum of: 1. Dividends actually or constructively paid; and 2. Income tax paid for the taxable year
2. The income subjected to final income tax is no longer subject to the net income tax; otherwise, there would be a violation of prohibited double taxation. 3. The liability for the payment of the tax rests primarily on the payor as withholding agent. 4. The payee is not required to file an income tax return for the particular income subjected to FWT. 5. The rate of the final tax is multiplied to the gross income. Thus, deductions and/or personal and additional exemptions are not allowed.
Exclusions •
•
For corporations using the calendar basis the accumulated earnings tax shall not apply on IAE as of Dec. 31, 1997. For fiscal year basis, the tax shall not apply to the 12-month period of fiscal year 19971998.
IAE as of the end of a calendar or fiscal year period on or after Dec. 31, 1998 shall be subject to the 10% tax on such IAE Who are covered?
Tax Rates: Please refer to Annex A. (4) INCOME SUBJECT TO
General Rule: The IAE tax shall apply to every corporation formed or availed for the T A X A T I O N
ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 34 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. Exception: The said tax shall not apply to: a. Publicly held corporations b. Banks and other non-banks Financial intermediaries c. Insurance companies Evidence of purpose to avoid income tax 1. The fact that any corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members 2. The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the tax upon its shareholders or members unless the corporation, by the clear preponderance of evidence, shall prove the contrary. “Reasonable needs of the business” includes the reasonably anticipated needs of the business; such as: a. For working capital requirement; b. Reserve for future expansion; c. Reserve for employees’ retirement benefit; d. Investment in affiliates’ customers’ business and other related enterprise; and e. Earnings retained for sinking fund.
I N
T A X A T I O N
Limitations a. The MCIT shall apply only to domestic and resident foreign corporations subject to the normal corporate income tax (income tax rates under Sec 27[A] of the CTRP). b. In the case of a domestic corporation whose operations or activities are partly covered by the regular income tax system and partly covered under a special income tax system, the MCIT shall apply on operations covered by the regular corporate income tax system. c. In computing for the MCIT due from a resident foreign corporation, only the gross income from sources within the Philippines shall be considered for such purpose. When does a corporation become liable under the MCIT? MCIT is imposed beginning on the fourth taxable year immediately following the year in which such corporation commenced its business. The taxable year in which the business operations commenced shall be the year when the corporation registers with the BIR. Relief from MCIT The Secretary of Finance is authorized to suspend the imposition of the MCIT on any corporation which suffers losses because of: a. prolonged labor dispute; b. force majeure; or c. legitimate business reverses. Tax Rate: 2% of gross income or taxable base pertinent to a trading/merchandising concern or a service entity Tax Base: GROSS INCOME
(6) MINIMUM CORPORATE INCOME TAX (MCIT) Who are covered? MCIT is imposed on domestic and resident foreign corporations a. Whenever such corporation has zero or negative taxable income; or b. Whenever the amount of MCIT is greater than the normal income tax due from such corporation determined under Section 27[A] of the CTRP.
A. Trading or Merchandising Concern Gross Income Cost of Sales = = gross sales/ Invoice cost of the receipts less sales goods sold, plus import returns, duties, freight in discounts and transporting the goods allowances and to the place where the cost of goods sold goods are actually sold, including insurance while the goods are in transit.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 35 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
B. Manufacturing Cost of Sales = All Gross Income cost of production of (Same) finished goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse. C. Services Gross Income = Gross receipts Cost of Services = All costs and less sales returns, direct expenses necessarily allowances, discounts and incurred to provide the services required by the costs of services customers and clients including: a. Salaries and employee benefits of personnel, consultants and specialists directly rendering the service; b. Cost of facilities directly utilized in providing the service. It shall not include interest expense except for banks and other financial institutions.
I N
T A X A T I O N
•
•
(7) FRINGE BENEFIT TAX (FBT) Definitions: “Fringe Benefit Tax” is a final income tax on the employee which shall be withheld and paid by the employer on a quarterly basis. “Fringe benefit” means any good, service, or other benefit furnished or granted by an employer, in cash or in kind, in addition to basic salaries, to an individual employee (except rank and file employees) such as, but not limited to the following: 1. 2. 3. 4. 5. 6.
7. 8. 9. 10.
• •
The excess can be credited against the normal income tax due in the next 3 immediately succeeding taxable years. Any amount of the excess MCIT which cannot be credited against the normal income tax due in the next 3-year period shall be forfeited.
Gross income excludes passive income subject to final tax. Other income and Extraordinary Income are included since RR 9-98 provides that gross sales include sales contributory to income taxable under the regular corporate tax.
Housing Expense Account Vehicle of any kind Household personnel, such as maid, driver and others Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations Expenses for foreign travel Holiday and vacation expenses Educational assistance to the employee or his dependents; and Life or health insurance and other non-lire insurance premiums or similar amounts on excess of what the law allows.
Persons liable
Carry Forward of the Excess Minimum Tax
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
Any excess of MCIT over the normal income tax can be carried forward on an annual basis.
Tax rate: 32% (from January 1, 2000 onwards) of the Grossed up Monetary Value (GMV) of fringe benefits.
•
•
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 36 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
In the case of aliens, the tax rates to be applied on fringe benefit shall be as follows: 1. NRANEBT 25% 2. Aliens employed by regional HO 15 % 3. Aliens employed by OBU 15% 4. Aliens employed by Petroleum Service 5. Contractors and Subcontractors
3. Benefits given to the Rank and File Employees, whether granted under a collective bargaining agreement or not; and 4. The De minims benefits – benefits which are relatively small in value offered by the employer as a means of promoting goodwill, contentment, efficiency of Employees
“GMV” of the fringe benefit represents
The term “Rank and File Employees” shall mean all employees who are holding neither managerial nor supervisory position as defined in the Labor Code
1. the whole amount of income realized by the employee which includes the net amount of money or net monetary value of property which has been received; plus 2. the amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for and in behalf of the employee. “GMV” of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by the Grossed up divisor. The Grossed up divisor is the difference between 100% and the applicable rates. YEAR 1998 1999 2000 onwards
GROSSED UP DIVISOR 66% 67% 68%
RATE
In the case of rank and file employees, fringe benefits other than those excluded from gross income under the Tax Code and other special laws, are taxable under the individual normal tax rate. Deductibility to the Taxable income of the EMPLOYER General Rule: The amount of taxable fringe benefit and the fringe benefits tax shall constitute allowable deductions from gross income of the employer.
34% FWT 33% FWT 32% FWT
Exception:
Fringe Benefits not subject to FBT A. Fringe benefits not considered as gross income 1. if it is required or necessary to the business of employer 2. if it is for the convenience or advantage of employer B. Fringe Benefit that is not taxable under Sec. 32 (B) – Exclusions from Gross Income C. Fringe benefits not taxable under Sec. 33 Fringe Benefit Tax: 1. Fringe Benefits which are authorized and exempted under special laws, such as the 13th month Pay and Other Benefits with the ceiling of P30, 000. 2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans;
If the basis for computation of the fringe benefits tax is the depreciation value, the zonal value or the fair market value, only the actual fringe benefits tax paid shall constitute a deductible expense for the employer. The value of the fringe benefit shall not be deductible and shall be presumed to have been tacked on or actually claimed as depreciation expense by the employer. Provided, however, that if the aforesaid zonal value or fair market value of the said property is greater than its cost subject to depreciation, the excess amount shall be allowed as a deduction from the employer's gross income as fringe benefit expense. (Sec. 2.33[D], Rev. Reg. No. 3-98)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 37 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
(8) OPTIONAL CORPORATE INCOME TAX Optional Rate: 15% of Gross income Requisites A. Authorized by the President (effective January 1, 2000), upon recommendation of the Secretary of Finance. B. Conditions precedent to grant of President’s authority 1. A tax effort ratio of 20% of GNP; 2. A ratio of 40% of income tax to total tax revenue; 3. A VAT tax effort of 4% of GNP 4. A 0.9% ratio of Consolidated Public Sector Financial Position to GNP. C. Option available only to corporations with the following ratio: Cost of sales Gross sales or receipts from all sources
I N
T A X A T I O N
on the gross selling price or the fair market value at the time of sale, whichever is higher, regardless of gain or loss 2. Shares of stock of Domestic Corporation not traded thru a local exchange taxed at the rate of 5% for net capital gains not over P100T, and 10% in excess of P100T. Capital Gains and Losses 1. Ordinary assets a. Stock in trade of the taxpayer or other properties of a kind which would properly be included in the inventory of the taxpayer; b. Property held by the taxpayer primarily for sale to customers in the ordinary course of business; c. Property used in trade or business and subject to depreciation; and d. Real property used in trade or business. 2. Capital Assets include all property held by the taxpayer whether or not connected in trade or business but not including those enumerated above (#1) as ordinary assets.
=55%
D. Once elected, option is irrevocable for 3 consecutive years INCOME TAX INCIDENCE ON SALES OR EXCHANGES PROPERTY
Capital Gain The gain derived from the sale or exchange of capital assets.
OF
Sale on Exchange of Ordinary Assets General rules of income taxation apply to both as to the gain and as to the loss.
Requisites for recognition of Capital Gain/Loss 1.
Transaction Resulting in Taxable Gains but Non-Recognition of Losses a. Sale or exchange between related parties; b. Wash sales by non-dealers of securities and when not subject to the stock transfer tax; c. Exchanges not solely in kind in merger and consolidation; and d. Sales or exchanges that are not at arms length. Sale or Exchange of Real Property, and Shares of Stocks of Domestic Corporation Held as Capital Assets Subject to Capital Gains Tax
Capital Loss The loss incurred from the sale or exchange of capital assets.
2.
The transaction must involve property classified as capital asset; and The transaction must be a sale or exchange or one considered as equivalent to a sale or exchange.
Net Capital Gain The excess of the gains from sales/exchanges of capital assets over the gains from such sales/exchanges.
Net Capital Loss The excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges.
1. On real property – each independent transaction is subject to the final tax of 6% T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 38 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
Rules on the recognition of capital gains or losses Individual Corporation Non-deductibility of Net Capital losses Capital losses shall be deducted only to the extent of the capital gains; hence, the net capital loss is not deductible. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain or income; Holding Period Capital gains losses are The percentages and of gain or loss to be recognized to the taken into account extent of 100%. shall be the ff.: (There is no a. 100% if the holding period) capital assets has been held for 12 mos. or less; and b. 50% if the capital asset has been held for more than 12 mos. Net Capital Loss Carry-Over The net capital There is a “net capital loss carry loss carry-over is over,” i.e., a net not applicable capital loss sustained in a taxable year in an amount not in excess of the net income (before exemptions) for such year may be deducted as a short-term capital loss (at 100%) from the net capital gains of the next or succeeding taxable year but not beyond such period.
I N
T A X A T I O N
a. Between the corporations which are parties to the merger or consolidation (property for stocks); b. Between a stockholder of a corporation party to a merger or consolidation and the other party corporation (stock for stock); c. Between a security holder of a corporation party to a merger or consolidation and the other party corporation (securities for securities) 2. Exchange of property for stocks resulting in acquisition of corporate control by a person, alone or together with others not exceeding four. “Control” means ownership of stocks in a corporation amounting to at least 51% of the total voting power of all classes of stocks entitled to vote. FILING OF TAX RETURN PAYMENT OF THE TAX
AND
Tax Return – A report prepared by the taxpayer showing to internal revenue officers an enumeration of taxable amounts and description of taxable transactions, allowable deductions, amounts subject to tax and the tax payable by the taxpayer to the government correct (Self-assessment). There is pain of perjury if the return is not. Persons Required to File Income Tax Return A. Individual
Tax Exempt Exchanges Sales or exchanges resulting in nonrecognition of gains or losses: 1. Exchange solely in kind in legitimate mergers and consolidation; includes:
1. Resident citizen; 2. Non-resident citizen on income from within the Phil.; 3. Resident alien on income from within the Phil.; 4. NRAETB on income from within the Phil. 5. An individual (citizens / aliens) engaged in business or practice of a profession within the Phil. regardless of the amount of gross income; 6. Individual deriving compensation income concurrently from two or more employers at any time during the taxable year; 7. Individual whose pure compensation income derived from sources within the Phil. exceeds P60, 000.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 39 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
B. Taxable Estate and Trust C. General Professional Partnership D. Corporation
I N
T A X A T I O N
equal to the tax withheld) resulting to collectible or refundable return. Employees whose monthly gross compensation income does not exceed P5, 000 or the statutory minimum wage, whichever is higher, and opted for nonwithholding of tax on said income. Individuals deriving other non-business, non-profession-related income in addition to compensation income not otherwise subject to final tax. Individuals receiving purely compensation income from a single employer although the income tax of which has been correctly withheld, but whose spouse falls under 1 to 4 above. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income, or compensation income and other nonbusiness, non-profession-related income.
3.
1. Not exempt from income tax; 2. Exempt from income tax under Sec. 30 of NIRC but has not shown proof of exemption.
4.
Individuals Exempt From Filing Income Tax Return 5. 1. Individual whose gross income does not exceed total personal and additional exemptions; 2. Individual with respect to pure compensation income derived from sources within the Philippines, the income tax on which has been correctly withheld; 3. Individual whose sole income has been subjected to final withholding income tax; 4. Individual who is exempt from income tax. Substituted filing of Income tax Returns by Employees Receiving Purely Compensation Income. [Section 4, RR 3-2002] Individuals receiving purely compensation income, regardless of amount, from only one employer, the income tax of which has been withheld correctly by the said employer (tax due equal’s tax withheld), shall not be required to file an income tax return. In lieu of the ITR, the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes filed by their respective employers, duly stamped “received” by the BIR, shall tantamount to the substituted filing of income tax returns by said employees.
6.
Note: Non-filing of ITR, for employees who are qualified for the substituted filing shall be OPTIONAL for the taxable year 2001, the returns for which shall be filed on or before April 15, 2002. Thereafter, substituted filing where applicable shall be MANDATORY. [Sec 5 RR 3-2002 INCOME TAX vs. TRANSFER TAXES TRANSFER TAX INCOME TAX Tax on transfer of Tax on income property. Rates are lower Rates are higher --5% to 20% -- 5% to 32% estate tax -- 2% to 15 % donor’s tax Lesser exemptions More exemptions
Individuals not qualified for substituted filing (still required to file) 1. 2.
Individuals deriving compensation from 2 or more employers concurrently or successively during the taxable year. Employees deriving compensation income, regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 40 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
TRANSFER TAXES ESTATE TAX:
4. it is an excise tax and its object is to the shifting of economic benefits and enjoyment of property from the dead to the living.
Tax which the state exacts where the property left by the decedent, considered as a unit, departs from the dead on its way to the living
Reasons justifying the imposition of estate tax
It is also the tax on the right to transmit property at death and on certain transfers which are made by law equivalent of testamentary disposition.
Accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. The statute in force at the time of death governs the estate taxation. ESTATE TAX FORMULA Gross Estate (Sec. 85) Less: Deductions (Sec. 86) Net share of the surviving spouse Net taxable Estate X Tax rate (Sec.84) Estate Tax Due Less: Tax credit, if any (Sec.86 [E] or 110 [B] Estate Tax Due
1. Benefit-Received Theory -considers the service rendered by the government in the distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these services and other benefits that accrue to the estate and the heirs, the State collects the tax. 2. Privilege Theory/State Partnership Theory – inheritance is not a right but a privilege granted by the state, and large estate have been acquired only with the protection of the State. Consequently, the State as a passive and silent partner in the accumulation of property has the right to collect the share which is properly due to it. 3. Ability to Pay Theory – receipt of inheritance which is in the nature of an unearned wealth or windfall, place assets into the hands of the heirs and beneficiaries hereby creating an ability to pay the tax and thus contributes to government income.
Rate: first 200,000 pesos – exempt Over 200,000 – graduated rate of 5%20% THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX: The statute in force at the time of death of the decedent shall govern estate taxation Nature of Estate Tax: 1. tax on the right to transfer property at death and on certain transfers which are made by law equivalent to testamentary dispositions and is measured by the value of the property; 2. it is imposed on the basis of the net estate considered as a unit. The first Php200,000 of the net estate is exempt 3. estate tax is not a property tax but rather an excise tax.
4. Redistribution of Wealth Theory - the receipt of inheritance is a contributing factor to the inequalities in wealth and incomes. The imposition of death tax reduces the property received by the successor, thus helping bring about a more equitable distribution of wealth in society. The tax base is the value of the property and the progressive scheme of taxation is precisely motivated by the desire to mitigate the evils of inheritance in the present form. I. GROSS ESTATE (GE): A. Resident alien and Filipino decedent: All properties, real or personal, tangible or intangible, wherever situated. B. Non-resident alien shall: Only properties situated Philippines
in
the
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 41 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
With respect to intangible personal property, its inclusion is subject to the rule of reciprocity No tax shall be collected in respect of intangible personal property: a. if the decedent at the time of his death was a citizen and resident of a foreign country which at the time of his death did not impose a transfer tax in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, OR b. if the laws of the foreign country of which the decedent was a citizen and resident at the time of is death allows a similar exemption from transfer taxes in respect of intangible personal property owned by Filipino citizens not residing in that foreign country. Intangible personal property situs in the Philippines:
I N
T A X A T I O N
4. Transfer under General Power Appointment 5. Proceeds of life insurance 6. Transfer for Insufficient Consideration 7. Prior Interests
1. DECEDENT’S INTEREST To the extent of the interest in property of the decedent at the time of his death. 2.TRANSFER IN CONTEMPALTION OF DEATH it is the thought of death as the controlling motive which induces the disposition of the property for the purpose of avoiding the tax. Includes: 1. transfer by trust or otherwise, in contemplation of, or intended to take effect in possession or enjoyment at or after his death; or
having
2. transfer by trust or otherwise, with retention or reservation of a. the possession or enjoyment of or the right to the income from the property, or b. the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income there from.
a. Franchise which must be exercised in the Philippines; b.
Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws;
c. Shares, obligations, or bonds issued by any foreign corporation, 85% of the business is located in the Philippines; d.
Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired business situs (i.e., they are used in furtherance of its business in the Philippines. by any foreign corporation) in the Philippines.
e. Shares or rights in any partnership, business or industry established within the Philippines. INCLUSIONS IN THE GROSS ESTATE 1. Decedent’s Interests 2. Transfer in Contemplation of Death 3. Revocable Transfer
of
Exception: in case of bona fide sale for an adequate and full consideration in money or money's worth Amount included in the GE: interest therein Circumstances taken into account 1. Age and state of health of the decedent at the time of gift, especially where he was aware of a serious illness; 2. Length of time between the gift and the date of death; 3. Concurrent making of a will or making a will within a short time after the transfer.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 42 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Exception: in case of bona fide sale for an adequate and full consideration in money and money’s worth
3. REVOCABLE TRANSFER 1. with reserved power to alter, amend, revoke or terminate - transfer, by trust or otherwise, where the enjoyment thereof was subject to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke or terminate; 2. or where any such power is relinquished in contemplation of the decedent's death. Except: in case of bona fide sale for an adequate and full consideration in money or money’s worth Amount included in the GE: interest therein 4.TARNSFER UNDER GENERAL POWER OF APPOINMENT A power of appointment is the right to designate the person or persons who will succeed to the property of the prior decedent. It may be exercised by the decedent: (a) by will; or (b) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death; (c) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death: (1) the possession or enjoyment of, or the right to the income from, the property; or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income there from; except in case of a bona fide sale for an adequate and full consideration in money or money's worth.
Amount included in the GE: interest therein Kinds: 1. General power of appointment – when it authorizes the donee to appoint any person he pleases, including himself, his spouse, his estate, his executor or administrator, and his creditor thus having full dominion over the property as though he owned it. 2. Special power of appointment – when the donee can appoint only among a restricted or designated class or persons other than himself. 5.PROCEEDS OF LIFE INSURANCE Beneficiary is the estate of the deceased, his executor or administrator, irrespective of whether or not the insured retained the power of revocation; or Beneficiary is other than the decedent’s estate, executor or administration, when designation of beneficiary is revocable, that is, when the designation of the beneficiary is not expressly made irrevocable. The proceeds of life insurance are NOT taxable in the following cases: 1. Proceeds of a group insurance policy taken out by the company for its employees; 2. Accident insurance proceeds; 3. Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insured; 4. Proceeds of insurance policies issued by the GSIS to the government official and employees; 5. Benefits accruing under the SSS law; 6. Proceeds of life insurance payable to heirs of deceased members of military personnel
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 43 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
6. TRANSFER FOR INSUFFICIENT CONSIDERATION When the decedent’s property is transferred a. in contemplation of death, b. revocable transfers, or c. passed under a general power of appointment for a consideration in money or money's worth Exception: bona fide sale Amount to be included in the GE: the excess of the fair market value (FMV), at the time of death, of the property otherwise to be included on account of such transaction, over the value of the consideration received therefore by the decedent. FMV(time of death) less value received 7.PRIOR INTEREST
I N
T A X A T I O N
II. DEDUCTIONS: A. For resident aliens and citizens: 1. expenses, losses, indebtedness, taxes, etc. (E-L-I-T) a. funeral expenses; b. judicial expenses; c. claims against estate; d. claims against insolvent person; e. unpaid mortgages; f. taxes; g. losses 2. transfers for public use; 3. vanishing deduction; 4. family home; 5. standard deduction of P1 million; 6. medical expenses; 7. amounts received by heirs under RA 4917 (Retirement Benefits) 8. Share of surviving spouse in conjugal or community property.
All transfers, trusts, estates, interests, rights, powers and relinquishment of powers made, created, arising, existing, exercised or relinquished before or after the effectivity of the Tax Code.
B. For non-resident alien-decedent: 1. expenses, losses, indebtedness, taxes, etc. (E-L-I-T) 2. transfers for public use (T.P.U); 3. vanishing deduction; 4. Share of surviving spouse in conjugal or community property.
EXEMPT Acquisition and transmission: (Sec. 87)
Funeral Expenses:
1. the merger of usufruct of the owner of the naked title;
Actual funeral expenses or 5% of the gross estate; or P200, 000, WHICHEVER IS LOWEST
2. the transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary;
Must be duly supported by receipts or other evidence to show that they were actually incurred.
3. the transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the will of the predecessor;
Not confined to its ordinary or usual meaning. They include:
4. all bequests, devises, legacies, or transfers to social welfare, cultural and charitable institutions no part of the net income of which inures to the benefit of any individual; provided that not more that 30% of said bequests, legacies or transfers shall be used by such institutions for administration purposes.
a. mourning apparel of the surviving spouse and unmarried minor children of the deceases bought and used on the occasion of the burial; b. expenses for the deceased’s wake, including food and drinks; c. publication charges for death notices; d. telecommunication expenses incurred in informing relatives of the deceased; e. cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 44 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
the deceased own a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; f. interment and/or cremation fees and charges; and g. all other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. Judicial Expenses: Those incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return (6 months after death) Those incurred in the: a. inventory taking of assets comprising the GROSS ESTATE, b. their administration, c. the payment of debts of the estate d. the distribution of the estate among the heirs. Any unpaid amount should be supported by a sworn statement of account issued and signed by the creditor.
I N
T A X A T I O N
deceased in his lifetime and could have been reduced to simple money judgments. Requisites for deductibility: 1. the liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death; 2. it was contracted in good faith and for adequate and full consideration in money or money’s worth; 3. the claim must be valid in law and enforceable in court; 4. the indebtedness must not have been condoned by the creditor or the action to collect must not have been prescribed. 5. the debt instrument must be notarized; 6. if the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement under oath showing the disposition of the proceeds of the loan. Claims against insolvent persons: The amount of said claims has been initially included as part of the GE; The incapacity of the debtors to pay their obligations is proven, not merely alleged. Unpaid mortgages:
It may include the following 1. 2. 3. 4. 5. 6.
Fees of executor or administrator Attorney’s fees Court Fees Appraiser’s fee Clerk hire Costs of preserving and distributing the estate 7. Costs of storing or maintaining property of the estate; and 8. Brokerage fees for selling property of the estate. Claims against the estate: Debts or demands of a pecuniary nature which could have been enforced against the
1. The value of the property mortgaged to the extent of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the GE; 2. The indebtedness must have been contracted bona fide and for an adequate and full consideration in money or money’s worth; 3. Verification must be made as to who was the beneficiary of the loan proceeds. 4. If found to be merely an accommodation loan, the value of the unpaid loan must be included as a receivable of the estate.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 45 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
5. If there is a legal impediment to recognize the same as receivable, said unpaid mortgage shall not be allowed as a deduction.
I N
T A X A T I O N
4. Identity of the property - the property must be identified as the one received from the prior decedent, or something acquired in exchange therefore; and
Taxes: 5. No previous vanishing deduction on the property was allowed to the estate of the prior decedent.
Accrued as of the death of the decedent Unpaid as of the time of death
Limitations as to amount of deduction allowable:
The following are not deductible: 1. income tax on income received after the death of the decedent; 2. property taxes not accrued after death; 3. estate tax. Losses: Requisites for deductibility: 1. arising from fire, storm, shipwreck or other casualty, robbery, theft or embezzlement; 2. not compensated by insurance or otherwise; 3. not claimed as deduction in an income tax return of the taxable estate; 4. incurred during the settlement of the estate 5. incurred before the last day for the payment of the estate tax (6 months after the decedent’s death) Vanishing deductions/Property Previously taxed: (VD/PPT) Operates to ease the harshness of successive taxation of the same property within a relatively short period of time (up to 5 years) occasioned by the untimely death of the transferee
a. Value of property – limited by the value of the property previously taxed as finally determined for the purpose of the prior transfer tax or the value of the property in the present decedent’s GE, WHICHEVER IS LOWER. b. Deduction for mortgage or other lien – the initial value in #1 above shall be reduced by the total amount paid, if any, by the present decedent on any mortgage or other lien on the property c. Deduction for E-L-I-T and T.P.U – the value as reduced in #2 above shall be further reduced by an amount which bears the ratio to the amounts allowed as deductions for E-L-I-T and T.P.U as the amount otherwise deductible for property previously taxed bears to the value of the decedent’s GE. d. Percentage of deductions – the vanishing deduction shall be the value in #3 multiplied by the following percentage of deduction: 100% - if the 1st transfer is within 1 year prior to the death of the present decedent; 80% - more than 1 year but not more than 2 years; 60% - more than 2 years but not more than 3 years; 40% - more than 3 years but not more than 4 years; 20% - more than 4 years but not more than 5 years.
REQUISITES (D-I-P-I-N) 1. Death - the present decedent died within five years from transfer of the property from a prior decedent; 2. Inclusion of the property - the property formed part of the GE located in the Philippines of the prior decedent, or of the taxable gift of the donor within 5 years prior to the present decedent’s death; 3. Previous taxation of the property - the estate tax or donor’s tax on the gift must have been finally determined and paid;
In outline form, the vanishing deduction is:
computation
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 46 of 107
of
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
1. Value taken (value of property at the time of the first transfer or at the time of the present decedent’s death, whichever is lower) Less: Mortgage debt paid, if any Equals: Initial Basis
I N
T A X A T I O N
2. said fact must be certified to by the barangay captain of the locality where it is located; 3. the total value of the family home must be included as part of the GE of the decedent; and
2. Initial basis x (ELIT+TPU) = 2nd deduction 4. the amount deductible is the current FMV but not to exceed 1 million pesos.
Gross Estate 3. Initial Basis
Standard Deduction:
Less: 2nd deduction Final Basis X Percentage Vanishing deduction
1 million pesos Without need of substantiation Medical Expenses:
Transfer for Public Use (TPU): Requisites Requisites 1. the disposition is in a last will and testament; 2. to take effect after death; 3. in favor of the government of the Philippines or any political subdivision thereof; and 4. for exclusive public purpose. This should also include bequests, devices, or transfers to social welfare, cultural and charitable institutions. Family Home: The dwelling house including the land on which it is situated, where the husband and wife, or head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality.
1. incurred within one year prior to his death; 2. substantiated with receipts; and 3. maximum of Php500,000 Approval of the court where a probate/intestate proceeding is pending is not a mandatory requirement in the collection of estate taxes. On the contrary, the probate/intestate court is prohibited from delivering any distributive share to any party unless there is certification from the Commissioner that the estate taxes are already paid. AMOUNT RECEIVED BY HEIRS UNDER REPUBLIC ACT NO. 4917
Characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return (Domicile). One person may constitute only one family home Requisites 1. said family home must be the actual residential home of the decedent and his family at the time of his death;
Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent employee in accordance with R.A. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent.
NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL PARTNERSHIP OR COMMUNITY PROPERTY. After deducting the allowable appertaining to the conjugal or properties included in the gross share of the surviving spouse must
deductions community estate, the be removed
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 47 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
to ensure that only the decedent’s interest in the estate is taxed.
I N
T A X A T I O N
SETTLEMENT OF THE ESTATE TAX
2. The itemized deductions from the gross estate; 3. the amount of tax due, whether paid or still due and outstanding.
NOTICE OF DEATH
Where to file: a. resident decedent: accredited agent bank, or Revenue District Officer, Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office of the Commissioner.
filed in all cases where the gross value of the estate exceeds twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner.
b. non-resident decedent: the Revenue District Office (RDO) where the executor or administrator is registered
ESTATE TAX RETURN filed within six (6) months from the decedent's death.
if not registered, with the RDO having jurisdiction over the executor or administrator’s legal residence
Extension of time to file: The Commissioner or any Revenue Officer shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return. An estate tax return is required to be filed: 1. When the estate is subject to estate tax; 2. When the estate is not subject to estate tax but the gross estate exceeds P200,000; or 3. regardless of the amount of the gross estate, where the gross estate consists of registered or registrable property such as motor vehicle or shares of stock or other similar property for which clearance from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee. When the gross estate exceeds P2, 000, 000 the estate tax return shall be accompanied by a statement which is CERTIFIED by an INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT stating: 1. The itemized assets of the decedent with its corresponding gross value at the time of his death, or in the case of a non-resident, not citizen of the Philippines, that part of his gross estate situated in the Philippines;
if there is no executor or administrator, with the Office of the Commissioner PAYMENT OF THE ESTATE TAX GEN RULE: at the time the return is filed. EXCEPT: When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. Note: The CIR shall deny the application for extension where the request for extension is by reason of: negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer,
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 48 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Liability for payment DONOR’S TAX 1. Primarily liable: executor or administrator before distributing the net estate to the heirs
Not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos
2. Subsidiary liable: the heir or beneficiary to the extent of his share in the inheritance
Does not apply unless and until there is a completed gift
3. The liability of 2 or more executors of administrators shall be severally.
The transfer is perfected from the moment the donor knows of the acceptance of the donee
Tax credit for estate taxes paid to a foreign country:
It is completed by the delivery of the donated property, either actual or constructive
General: the estate tax shall be credited with the amounts of any estate tax imposed by the foreign country
Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage is subject to donor’s tax
Limitations a. For estate taxes paid to one foreign country The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent’s net estate situated within such country taxable under the NIRC bears his entire net estate.
General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate is not subject to tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.
Net estate, =Tax Foreign country x Philippine. credit Entire net estate state tax limit
DONATION An act of liberality whereby a person disposed gratuitously of a thing or right in favor of another who accepts it.
b. For estate taxes paid to two or more foreign countries
Requisites (C-I-D-A) 1. capacity of the donor to make donation; 2. donative intent or intent to make a gift on the part of the donor; 3. delivery, whether actual or constructive; and 4. acceptance of the gift by the donee
The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent’s net estate situated outside the Philippines taxable under the NIRC bears to his entire net estate. Net estate outside the Philippines x Phil. =Tax credit Entire net estate estate tax limit
TAX RATE: General: 2-15%; Php100,000 is exempt Special rate: 30% - in case of donation to a stranger
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 49 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
STRANGER
the consideration received shall be deemed a gift.
A person who is not a: 1. brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant; or 2. a relative by consanguinity in the collateral within the 4th civil degree A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger.
Exemptions: 1. Gifts made by a resident: a. dowries gifts on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate, illegitimate or adopted children to the extent of the first Php10,000 b. gifts made for the use of the national government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of said government;
Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger.
c. gifts in favor of educational, charitable, religious, cultural or social welfare corporation, institution, foundations, trust or philanthropic organization, research institutions or organizations, accredited NGO, provided that not more than 30% of said gift shall be used by such donee for administrative purposes.
VALUATION OF GIFTS OF PROPERTY The fair market value of the property given at the time of the gift shall be the value of the gift. INTANGIBLE PERSONAL PROPERTIES WITH SITUS IN THE PHIL.
2. Gifts made by a non-resident alien only gifts mentioned in letters (b) and (c) are exempt
Same in estate tax subject to the reciprocity rule. Transfers subject to donor’s tax:
Tax Credit:
1. Upon the transfer by any person, resident or nonresident, of the property by gift. Whether the transfer is in trust or otherwise,
General: the donor’s tax imposed by the Tax Code upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor’s taxes imposed by the foreign country
Limitations
Whether the gift is direct or indirect,
Whether the property is real personal, tangible or intangible.
or
2. Transfer for insufficient consideration Where property is transferred for less than an adequate and full consideration Exception: transfer of real property classified as capital assets subjected to the capital gains tax Amount included in the net gifts: the excess of the FMV of the property over
a. For donor’s tax paid to one foreign country The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated within such country taxable under the NIRC bears his entire net gift.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 50 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
Net gifts in a foreign country x Phil. =Tax credit Entire net gifts Donor’s tax limit b. For donor’s taxes paid to two or more foreign countries The total amount to the credit shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated outside the Philippines taxable under the NIRC bears to this entire net gifts.
I N
T A X A T I O N
The name of the donee; Relationship of the donor to the donee; and Such further information as may be required by rules and regulations made pursuant to law. The tax is paid at the time the return is filed within said period. Filed and paid:
Net gifts outside the Philippines x Phil. =Tax credit Entire net gifts Donor’s tax limit Donor’s Tax Return: To be filed within thirty (30) days after the gift is made. The return shall be under oath in duplicate setting forth: Each gift made during the calendar year which is to be included in computing net gifts; The deductions claimed and allowable; Any previous net gifts made during the same calendar year;
a. Resident Donor To an accredited agent bank, RDO, revenue Collection Officer or duly authorized treasurer of the city or municipality where the donor is domiciled at the time the transfer, or if there can be no legal residence in the Philippines, with the Commissioner. b. Non-resident donor Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or Directly with the Office of the Commissioner.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 51 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 52 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 53 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
A percentage tax imposed at every stage of the distribution process on the sale, barter, exchange (including transactions deemed by law as a sale), or lease of goods, properties, or services in the course of trade or business, or on the importation of goods.
gross receipts realized from the sale of services d) An ad valorem tax because it is based on the gross selling price or gross value in money, or gross receipts derived from the transaction e) A tax on the value added by every seller as the goods, properties or services pass along the distribution chain, unless the seller is exempt.
Nature of VAT
Purposes of VAT system:
a) An indirect tax; hence, amount of the tax may be shifted or passed on to the buyer b) A privilege tax; hence, the tax is imposed not on the goods, properties or services as such but on the sale, barter, exchange or lease of goods or properties, or the sale or performance of services for a fee, remuneration, etc c) A uniform tax computed at the rate of 0% or 12% of the gross selling price of goods or of
a. realizing the system of taxing goods and
BUSINESS TAXES VALUE ADDED TAX (VAT)
services; b. simplifying tax administration; and c. making the tax system more equitable, to
enable the country to attain economic recovery.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 54 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Transactions subject to 10% VAT: (SITS)
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.
every sale, barter or exchange, leases, goods or properties made in the course of business or trade;
Businesses where the aggregate sales or receipts do not exceed Php1, 500, 000 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business, and shall be exempt from VAT. They shall, however, be subject to percentage tax equivalent to 3% of their gross quarterly sales or receipts, provided that the business is not VATregistered.
importation of goods, whether or not in the ordinary course of business; and transactions deemed sale for VAT purposes: Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business; (2) Distribution or transfer to: (a) Shareholders or investors as share in the profit of the VATregistered persons; or (b) Creditors in payment of debt;
Transactions subject to 0% VAT: Zero-rated sales: a. EXPORT SALES
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and (4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation every sale of service made in the course of trade or business other than services rendered by persons subject to other percentage taxes. 1. “in the ordinary course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
1. Direct importation - the sale and actual shipment of goods from the Philippines to a foreign country, paid for in acceptable foreign currency or its equivalent in goods or services and accounted for in accordance with BSP rules; 2. Indirect importation - the sale of raw materials to a non-resident buyer for delivery to a resident local exportoriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods, paid for in acceptable foreign currency and duly accounted for in accordance with BSP rules; 3. Sale of raw materials or packaging materials (RM/PM) to an exportoriented enterprise whose export sales exceed 70% of the total annual production; 4. Sale of gold to the BSP; 5. Those considered export sales under the Investment Code; 6. The sale of goods, supplies, equipment and fuel (GSEF) to persons engaged in international
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 55 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
rules
shipping or international transport operations.
c. Services rendered to exempt entities under special laws and international agreements to which the Philippines is a signatory;
Note: Importations of GSEF by such persons are VAT-exempt. b. FOREIGN CURRENCY DENOMINATED SALES: Sales to whom: non-resident
d. Services rendered to persons engaged exclusively in international shipping/ international air transport operations;
Of what: goods assembled manufactured in the Philippines.
e. Those performed for an enterprise whose export sales exceed 70% of the annual production, by subcontractors and/or contractors duly accredited by the Board of Investments or the Export Development Council in processing, converting or manufacturing goods;
or
Except: automobiles and non-essential goods (jewelries, perfumes, yachts, etc.) To whom delivered: resident of the Philippines.
f.
Paid for in acceptable foreign currency
g. Sale of power or fuel generated through renewable sources of energy.
Duly accounted for in accordance with the BSP rules c. EFFECTIVELY TRANSACTIONS:
ZERO-RATED 1. all VAT is removed from the goods, activity or transaction 2. the taxpayer can claim the refund or input taxes passed on to him by the supplier, etc. or credit such input taxes on his nonzero-rated transactions 3. generally, taxable sales are taken into account in determining turnover sales or sale for VAT registration purposes
ZERO-RATED
Sales to whom: persons or entities exempted under special laws or international agreements to which the Philippines is a signatory 2.) Zero-rated services: a. Processing, manufacturing or repacking of goods For: persons doing business outside the Philippines When: the goods are subsequently exported Paid for in acceptable foreign currency Duly accounted for in accordance with the BSP rules; b. Services other than those provided in #2a rendered to: 1. Persons engaged in business outside the Philippines or; 2. Non-resident persons not engaged in business 3.when the services were rendered 4.Paid for in acceptable foreign currency duly accounted for in accordance with BSP
Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
EXEMPT 1. removes the VAT only at the exempt stage 2. the taxpayer is not entitled to credit or refund of the input tax passed on to him by the supplier, etc.
3. it is not taken into account in determining turnover or VAT registration purposes
Rules in lease of residential units for VAT purposes: 1. Lease of property situated in the Philippine
shall be subject to VAT irrespective of the place where the contract of lease or
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 56 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
licensing agreement was executed if the property leased or used in the Philippines.
the effects are exempt under Tariff and Customs Code
Residential units shall refer to apartments, houses, and/or lands on which another’s dwelling is located, used for residential purposes and shall include not only buildings, but also the parts or units thereof used solely as dwelling places (e.g. dormitories, rooms and bed spaces) except motels, motel rooms, hotel and hotel rooms.
4. Importation of professional instruments and implements, wearing apparel, domestic animals except vehicle, vessel, aircraft and machinery used to manufacture any merchandise in commercial quantity, provided: 1. 2.
2. It likewise includes apartment, houses,
buildings, parts or units thereof used fro home industries, retail stores or other business purposes if the tenant thereof and his family actually live therein and used them principally for dwelling purposes. The term unit shall mean an apartment unit in the case of apartments, house in case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of room for rent.
3.
the effects belong to persons coming to settle in the Philippiness. the effects are for their own use and not for sale evidence should be produced before the Commissioner that the change or Residence is bona fide
5. Services subject to percentage tax; 6. Services by agricultural contract growers and milling for others of RiCo Su (rice, corn grits, sugar cane); 7. Medical, dental, hospital and veterinary services except those rendered by professionals;
Exempt Transactions: 1. Sale/ importation of agricultural and marine food products in their original state; livestock and poultry generally used for human consumption; Note: a. products are considered in their original state even if they have undergone simple processes of preparation or preservation for the market freezing, drying, salting, broiling, roasting, smoking, and stripping (Code:FreDSBRoSS) b. rice, corn grits, sugar cane, molasses are always considered in their original state (Code: RiCo SuMo) 2. S/I of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds; 3. Importation of personal and household effects provided: the effects belong to residents returning to/or non-residents coming to resettle in the Philippines.
8. Educational services rendered by government educational institutions and private educational institutions accredited by DepEd, CHED, TESDA; 9. Services rendered pursuant to an employeremployee relationship; 10. Services rendered by regional or area headquarters established by Multinational Corporations; 11. Transactions exempt under special laws and international agreements to which the Philippines is a signatory except those under P.D. 529; 12. Sales by agricultural cooperatives registered with CDA; 13. Gross receipts from lending activities by credit of multi-purpose cooperatives registered with the CDA;
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 57 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
14. Sales by non-agricultural, non-electric and non-credit cooperatives registered with the CDA;
tariff and customs duties, excise taxes and other charges or; 12% of the landed cost plus excise taxes where the customs duties are determined on the basis of the quantity or volume of the goods such tax shall be paid by the importer prior to the release of the goods from Custom’s custody
15. Export sales by persons who are not VATregistered; 16. Sale of real property utilized for low-cost and socialized housing; 17. Lease of residential unit with a monthly rental less than P10, 000; 18. S/I, printing, publication of books and any newspaper, magazine, review or bulletin, which appear at regular intervals with fixed price for subscription and which are not devoted principally for paid advertisements; 19. S/I or lease of passenger or cargo vessels and aircraft including engine, equipment and spare parts thereof; 20. Importation of (GSEF) goods, supplies, equipment and fuel by persons engaged in international shipping and air transport operations; 21. Services of banks, non-bank financial intermediaries performing quasi-banking activities;
3. for the Sale of Services and Use or Lease of Properties 12% of the gross receipts derived from the sale or exchange of services gross receipts means the total amount in money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding VAT Deductions or Exclusions from the gross sales/receipts: 1. Discounts Must be determined and granted at the time of sale Expressly indicated in the invoice The amount thereof forms part of the gross sales duly recorded in the books of the seller The grant of which does not depend upon the happening of a future event
22. Sale or lease of goods, properties or services where the gross annual sales and/or receipts do not exceed P1, 500,000.00; Computation of the VAT: 1. for the Sale of Goods or Properties 12% of the gross selling price or gross value in money (effective February 1, 2006) gross selling price means the total amount in money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the transaction, excluding the VAT such tax shall be paid by the seller or the transferor
2. Sales returns and allowances A proper credit or refund was made The sales previously recorded as taxable sales When may property dividends be subject to VAT?
2. for the Importation of Goods 12% of the total value used by the Bureau of Customs in determining
Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared as retained earnings on or after January 1, 1996 and distributed by the company to its shareholders shall be subject to VAT
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 58 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
based on the zonal value or fair market value at the time of distribution whichever is applicable.
I N
T A X A T I O N
Rule on Input Tax on Capital Goods: a. if the aggregate acquisition cost of the capital goods, excluding VAT, exceeds P1, 000,000.00; and
Tax Credits: Output tax the value-added tax due on the sale or lease of taxable goods or properties by any person required to register Input tax the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person.
b. where such goods are purchased or imported in a calendar month for use in trade or business for deduction for depreciation is allowed; c. then, the input tax shall be spread evenly over a period of 60 months, commencing from the month the acquisition was made d. provided, however, that if the estimated useful life of such goods is less than 5 years, then the input VAT shall be spread over such shorter period. A VAT-Registered person also engaged in non-vatable transactions shall be allowed tax credit as follows:
Creditable input tax: any input tax evidenced by VAT invoice or official receipt on the following transactions: a. Purchase/Importation 1. for sale 2. for conversion into or intended to form part of a finished product for sale including packaging materials 3. for use as supplies in the course of business 4. for use as materials supplied in the sale of services 5. for use in trade or business for which deduction for depreciation or amortization is allowed
a. total input tax directly attributable to vatable transactions; b. A ratable portion of any input tax which cannot be directly attributed to either activity; Excess Output or Input Tax a. if, O > I ; then, the excess shall be paid by the VAT-registered person
b. Purchase of services on which a VAT Has actually been paid Creditable to: a. the purchaser upon consummation of the sale and on importation of goods and properties b. the importer upon payment of the VAT prior to the release of the goods from Custom’s custody c. to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee, in case of purchase of services or lease or use of properties
b. if, I > O; then, the excess shall be carried over to the succeeding quarters or quarters, provided: the input tax carried over from the previous quarter shall not exceed 70% of the output VAT the input tax attributable to zerorated sales may, at the option of the taxpayer, be refunded or credited against other internal revenue taxes The excess input tax to be carried over from the preceding month or quarter shall be reduced by: a. amount of claim for refund or tax credit for VAT b. other adjustments, such as purchase
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 59 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
returns or allowances c. input tax attributable to exempt sales Transitional input tax credits – is the input tax allowed to be credited against the output tax of a person who becomes liable to value-added tax or any person who elects to be a VATregistered person, on his beginning inventory of goods, materials and supplies, equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher. Presumptive Input tax credits – is the input tax credit allowed to persons liable for VAT where their purchases are not subject to input tax. The following persons are entitled to presumptive input tax credits: a. Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant meals, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.
I N
T A X A T I O N
f. in other appropriate cases, the Commissioner shall grant refund or issue the tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents in support of the application Rule where the taxpayer is engaged in zero-rated or effectively zero-rated transactions and also in taxable or exempt sales: a. the amount of the creditable input tax due or paid which cannot be directly and entirely attributed any one of the transactions shall be allocated proportionately on the basis of the volume of sales b. in case of a person making zero-rated and non zero-rated sales, the input tax shall be allocated ratably between his zero-rated and non zero-rated sales Withholding of VAT:
the Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs shall, before making payment on account of purchase of goods and services deduct and withhold a final VAT at the rate of 5% of the gross payment thereof
the payment for lease or use of properties or property rights to nonresident owners shall be subject to 10% withholding tax at the time of payment
b. Public works contractors, equivalent to one and one-half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input taxes there from. Refunds or Tax Credits for Zero-Rated or Effectively Zero-Rated Sales: a. taxpayer must be VAT-registered; otherwise, the transaction is exempt which does not entitle him to any refund or tax credit; b. application for a tax credit certificate or refund must be made within 2 years after the close of the taxable quarter when the sales were made; c. to the extent that the input tax has not been applied against output tax. d. the transactions are paid for in an acceptable foreign currency and duly accounted for in accordance with BSP rules. e. in the case of a person whose registration is cancelled due to retirement from or cessation of business, or due to changes in or cessation of status, the application may be made within 2 years from the date of cancellation, etc…
PERCENTAGE TAX, EXCISE TAX AND DOCUMENTARY STAMP TAX EXCISE TAX Applies to articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported. In case of importation, excise tax shall be in addition to the value added tax imposed by R.A. No. 8424.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 60 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
a. Specific Tax - imposed on weight or volume capacity or any other physical unit of measurement b. Ad valorem Tax - an excise tax imposed and based on selling price or other specified value of the article PERCENTAGE TAX Based on a given ratio between the gross receipt and the burden imposed upon the taxpayer. If the taxpayer’s sale of services is already subject to VAT, he is no longer subject to other percentage taxes, or vice versa. Includes the following: 1. Tax on persons exempt from VAT 3% of gross sales/receipts one whose sales/receipts does not exceed 550,000, and who is not VAT-registered cooperatives are exempt 2. Tax on domestic carriers and keepers of garage 3% of gross receipts for the transport of passengers except on owners of bancas and animal-drawn 2-wheeled vehicle
radio and TV broadcasting companies shall have an option to be registered as a VAT taxpayer, provided that once the option is exercised,, it shall not be revoked
5. Tax on overseas dispatch, message and conversation 10% of gross receipts transmitted from the Philippines payable by the person paying for the services rendered paid to the person rendering the services who is required to collect and pay the tax within 20 days after the end of each quarter does not apply to: a. the government b. diplomatic services c. public international organizations enjoying privileges and immunities d. news services 6. Tax on banks and non-bank financial intermediaries and finance companies a. on interest, commissions and discounts from lending activities as well as income from financial leasing, based on the remaining maturities of instruments from which the receipts are derived: 5 years or less – 5% more than 5 years – 1%
3. Tax on international carriers 3% of gross receipts from outbound revenues only applies to both international air and shipping carriers doing business in the Philippines
b. on dividends and equity shares in net income of subsidiaries – 0% c. on royalties, rentals of property and other items treated as frosts income – 5%
4. Tax on franchises a. franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year does not exceed 10 million pesos – 3%
d. on net trading gains on foreign currency, debt securities, derivatives and other similar instruments – 5%
b. franchises on electric, gas and water utilities – 2%
7. Amusement taxes imposed on the proprietor, lessee or operator of: a. cockpits, cabarets, night or day clubs – 18%;
the gross receipts must be derived from the business covered by the law granting the franchise
b. boxing exhibitions – 10%; exempt if the World or Oriental Championships in
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 61 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
any division is at stake, provided at least 1 of the contenders is a Filipino citizen and said exhibition is promoted by a citizen or corporation at least 60% of the capital of which is owned by such citizens; c. professional basketball games – 15%
I N
T A X A T I O N
DOCUMENTARY STAMP TAX DOCUMENTARY STAMP TAX It is a tax on documents, instruments & paper evidencing the acceptance, assignment, sale or transfer of an obligation, right, or property incident thereto.
d. jai-alai and racetracks – 30% Nature of Documentary Stamp Tax 8. Tax on winnings from horse races – 10% tax is based on the actual amount paid to him after deducting the cost of the ticket from double, forecast/quiella and trifecta bets– 4% on owners of winning race horses – 10% of the prizes 9. Tax on sale of shares of stock listed and traded through the local stock exchange or through initial public offering (IPO)
It is an excise tax because it is really imposed on the transaction than on the document. It is paid only once. The liability to the tax and the amount thereof are determined from the face of the document itself. Persons Liable: THE ONES 1. Making 2. Issuing 3. Signing 4. Accepting 5. Transferring the document, instrument or paper DOCUMENTS SUBJECT TO TAX
sale made through the local stock exchange, other than the sale by a dealer in securities – ½ of 1% of the gross selling price through the IPO of shares of stock in closely held corporations, based on the gross selling price sold in accordance with the proportion of shares of stock sold to the total outstanding shares after the listing in the local stock exchange: -up to 25% -over 25% but -not over 33-1/3% -over 33-1/3 1%
1. 2. 3. 4. 5. 6. 7. 8.
Corporate documents Commercial documents Insurance policies Deeds of sale Special contracts Maritime documents Certificates Luxuries Other assignments and renewals
A. CORPORATE DOCUMENTS 1) Original issue of shares of stock (sec. 175)
4% (a) Cost of imposition is borne by the corporation originally issuing the stock certificate
2%
the tax is paid by the issuing corporation in primary offering or by the seller in secondary offering
(b) Revenue Memorandum Circular #47-97 The documentary stamp tax on original issues of certificates of stock as provided under Section 175 of the Tax Code attaches upon acceptance of the stockholder’s subscription in the capital stock of a corporation regardless of the physical issuance and delivery to the stockholder of the certificate of stock evidencing
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 62 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
his stockholding. Therefore, taxes accrue at the time the shares are issued.
5) All bonds, loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, deposit substitute debt instruments, certificates of deposits bearing interest and others not payable on sight or demand (sec. 180)
Meaning of the term “original issue” is point at which the stockholder acquires and may exercise attributes of ownership over the stocks. Certificates of stock temporarily subject to suspensive conditions shall only be liable for DST only when released from said conditions. For then and only then shall they truly acquire any practical value for their owners.
Basis: face value of document Exemptions: a.) bank notes issued for circulation b.) loan agreements and promissory notes that aggregate of which does not exceed P250.00 executed by an individual for his purchase, on installment, of a house, lot, motor, vehicle, appliance or furniture, for his personal use or that of his family
2) On proxies (sec. 192) Basis: each proxy document Exemption: proxies issued at affecting the affairs of association, or corporation organized for religious, charitable or literary purposes. B. COMMERCIAL DOCUMENTS 1) Debentures and Certificates indebtedness (sec. 174)
Note: Renewal is also subject to documentary stamp tax.
of
Note: “renewal” postponement of the maturity of the obligation dealt with; an extension of the time in which that obligation may be discharged.
Basis: face value of document 2) Bonds, debentures, certificates of stock or indebtedness issued in foreign countries (sec. 177)
Note: Tax on renewal shall be at the same rate as the tax on the original document.
Basis: fixed tax as required by law on similar instruments when issued sold or transferred in the Philippines.
6) Upon acceptance of bills of exchange and others (sec. 181)
Issued in any foreign country but sold or transferred in the Philippines 3) Certificates of profits or interest in property or accumulations (sec. 178)
Basis: Face value Document taxable: any bill or exchange or order for the payment of money purporting to be drawn in the foreign country but payable in the Philippines. 7) Foreign bills of exchange and letters of credit (sec. 182)
Basis: face value of document 4) Bank Checks, drafts, certificates of deposit not bearing interest, and other instruments (sec. 179)
Basis: face value Document taxable: all foreign bills of exchange and letters of credit drawn in but made payable outside the Philippines.
Basis: fixed on each instrument the tax applies only to inland bank checks, drafts, or certificates of deposit not drawing interest
8) Warehouse Receipts (sec. 189)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 63 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
Basis: each warehouse receipt Exemption: warehouse receipt issued to any one person in any one calendar month covering property the value of which does not exceed P200. 9) Bills of lading or receipts (sec. 191) Basis: Value of the goods Exemptions: charter party, freight tickets covering goods, merchandise or effects carried as accompanied baggage of passengers on land and water carriers primarily engaged in the transportation of passengers.
I N
T A X A T I O N
Certificate of damage or otherwise issued by any public official in public capacity for the purpose of giving info or establishing proof of fact. Basis: each document D. DEEDS OF SALES 1) Sales, agreements to sell, memoranda of sales, deliveries or transfer of due-bills, certificates of obligation, or shares or certificates of stock (sec. 176). Basis: Par value of due-bill, certificate of obligation or stock 2) Deeds of sale and conveyances of real property (sec. 196)
C. INSURANCE POLICIES 1) Life insurance policies (sec.183)
Basis: Tax rate based on amount Basis: Amount insured by an such policy The tax is collectible not only on the original policy but also upon renewals. No DST is due on insurance policies issued by a Phil. company to persons in other countries. The tax is imposed upon issuance of the policy even if at that time premium had not yet been paid. If the policy is cancelled, no refund of the tax shall be made. 2) Property insurance policies (sec.184)
Property must be located in the Philippines and deeds of partition & deeds of redemption, taxable E. SPECIAL CONTRACTS 1) Powers of attorney (sec. 193) Basis: Fixed tax rate Exemption: Collection of claims due from or accruing to the government of the Philippines or the government of any province, city or municipality.
Basis: Premium charged 3) Fidelity bonds and other insurance policies (sec.185)
2) Leases and other hiring agreement (sec.194)
Basis: Premium charged Basis: Fixed tax rate 4) Policies of annuities and pre-need plans (sec.186) Annuity - Basis: Capital of the annuity Pre-need plans - Basis: Value or amount of the plan 5) Indemnity Bonds (sec. 187) Basis: Premium charged
3) Mortgages, pledges and deeds of trust (sec. 195) a. Basis: Tax rate based on amount b. transactions must be effected and consummated within the Philippines c. tax is based on the amount secured and not on the value of property mortgaged d. there must be an existing debt
Exemption: such as may be required in legal proceedings.
4) Jai-alai, horse race tickets, lotto or other authorized numbers games (sec. 190)
6) Certificates (sec.188)
Basis: each ticket
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 64 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
F. MARITIME DOCUMENTS Charter parties and similar instrument (sec. 197)
by any government official in his official capacity. g. Compulsory Information for Statistical Purposes-Statements and other compulsory information required of persons or corporations by the rules and regulations of the national, provincial city or municipality government exclusively for statistical purposes and which are wholly for the use of the bureau in which they are filed, and not at the instance or for the use or benefit of the person filing them
EXEMPTIONS: a. Written AppearancesWritten appearances in any court by any government official in his official capacity b. Fraternal or Beneficiary Organization Insurance Policies of Annuities- Policies of insurance of annuities made by a fraternal or beneficiary society, order, association or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit c. Government and Indigent Documents filed in Court- Papers and documents filed in courts by or for the national, provincial, city or municipal governments, affidavits of poor persons for the purpose of proving poverty
h. Certificates of the Administration of Oaths for Paper AuthenticityCertificates of the administration of oaths to a person as to the authenticity of a paper required to be filed in court by any person, whether the proceedings be civil or criminal DOCUMENTARY STAMP TAX PAYMENT
d. Certificates of the Assessed Value of Lands NOT EXCEEDING P200Certificates of the assessed value of lands not exceeding P200 in value assessed, furnished by the provincial, city or municipal treasure to applicants for registration of the title to land. e. Solo use- Certified copies and other certificates placed upon documents, instruments, and papers by the national, provincial, city or municipal governments made in the instance and for the sole use of some other branch of the national, provincial, city or municipal governments. f.
WHEN to file RETURN 1) within 10 days after close of month when taxable document was within 5 days after close of each week for Revenue Collection Officers 2) each time documentary stamp are purchased for reloading, for documentary stamp tax metering machine authorized persons WHERE to FILE/PAY 1) authorized agent bank within the jurisdiction of the revenue district office having jurisdiction over the residence or principal place of business of the taxpayer 2) revenue district officer, collection agent or his duly authorized treasurer of the city or municipality in which the taxpayer has his legal residence or principal place of business
Certificate of Oaths administered to any government official in his official capacity- Certificates of oaths administered to any government official in his official capacity or of acknowledgment by any government official in the performance of his official duties, written appearance in any court
WHO are required to accomplish and file a documentary stamp tax DECLARATION under BIR Form 2000 1) Any person liable to pay documentary stamp tax on a taxable document/transaction when tax due is >P200.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 65 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
2) Any Revenue Collection Officer, duly authorized to sell loose debt’s Any person authorized to use DST Metering Machine WHEN to PAY 1) general rule: simultaneous with filing of return 2) exception: purchase and actual affixture Actual Stamping System: loose documentary stamps Constructive Stamping System: constructive affixture printing through a DS metering machine AFFIXTURE 1) In general: DS is affixed on the original copy of the document 2) Exception: duplicate copy when the same has been substituted and used in place of the original FAILURE TO STAMP TAXABLE DOCUMENT 1) will not render the document void 2) but document cannot be: 3) recorded in government offices 4) cannot be accepted in evidence in court PENALTY • 25% surcharge plus 20% interest per annum
I N
T A X A T I O N
Powers and Duties of the BIR (Sec. 2, CTRP) (Key: AGEE) 1. Assessment and collection of all national internal revenue taxes, fees, and charges 2. Give effect to and administer the supervisory and police power conferred to it by the Tax Code or other laws 3. Enforcement of all forfeitures, penalties and fines in connection therewith Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts I. TAX REMEDIES UNDER THE NIRC General Rule: Tax collection cannot be enjoined by court injunction. Tax Code provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code. (Sec. 18, NIRC) Exception: An injunction that may be issued by the CTA in aid of its appellate jurisdiction under RA 1125 A. POWER TO ASSESS: Starts with the self-assessment by the taxpayer of his tax liability, filing of the tax return, and payment of the entire tax due shown on his return Means Employed in the Assessment of Taxes (Sec. 6, CTRP) (Key: BETI-PPEA) 1. Examination of tax returns 2. Use of the best evidence obtainable 3. Inventory taking, surveillance and use of presumptive gross sales and receipts 4. Termination of taxable period 5. Prescription of real property values 6. Examination of bank deposits to determine the correct amount of the gross estate 7. Accreditation and registration of tax agents. 8. Prescription of additional procedural or documentary requirements.
DUTY OF NOTARY PUBLIC • Not to add his jurat or acknowledgment to any document subject to documentary stamp tax unless the proper documentary stamps are affixed thereto and cancelled.
TAX REMEDIES
Agencies Involved in Tax Administration 1. BIR 2. Bureau of Customs 3. Provincial, city, and municipal assessors and treasurers
The role of the government in assessment process includes the following: 1. Examination of books of accounts and other accounting records of taxpayers by revenue officer to
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 66 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
determine his correct tax liability (Letter of Authority- LOA) Period: Letter of Authority must be served to the concerned taxpayer within thirty (30) days from its date of issuance otherwise it hall be null and void. Revenue officer is allowed only 120 days from the date of receipt of a letter of authority by the taxpayer to conduct the audit and submit the required report of investigation. Who may issue letter of authority? After a return has been filed, the commissioner or his duly authorized representative may authorize the examination of the books of any taxpayer and the assessment of the correct amount tax. (Sec. 6, NIRC) The revenue Regional Director shall approve and sign all LA’s for all audit cases within his regional jurisdiction, EXCEPT a. cases involving civil or criminal tax fraud under the jurisdiction of the tax fraud division of the enforcement service; b. policy cases under audit by Special Teams in the National Office. (RAMO 36-99)
I N
T A X A T I O N
and from such information as he can obtain through testimony or otherwise) when: 1. a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations; or 2. there is reason to believe that any such report is i. false ii. incomplete iii. erroneous. The return made by the Commissioner, in this instance, shall be prima facie correct and sufficient for all legal purposes. 2. Preparation of tentative findings and holding of informal conference ( Notice of Informal Conference-NIC)
If the taxpayer do not submit the documents or information requested by the BIR, the person may be required to testify or the document may be summoned and required to be presented to the BIR Q. Can the BIR issue LOA more than once within a taxable year? A. No. BIR officer are allowed to issue LOA only once. EXCEPT: 1. when BIR determines that there is fraud or irregularities was committed by taxpayer 2. taxpayer itself request for an examination of his accounts 3. when there is a need to verify the withholding taxes required by the BIR. 4. when capital gains tax must be verified. Power of the Commissioner to assess deficiency tax based on best evidence obtainable – Sec. 6B of R.A. 8424 empowers the Commissioner to assess the proper tax and make or amend the return based on the best evidence obtainable (from his own knowledge
Soon after the completion of the tax audit, the revenue officer will render a written report stating: a. the factual and legal basis of his findings b. whether the taxpayer agrees with his findings If the taxpayer is not amenable, the taxpayer shall be informed in writing by the Revenue District Officer of by the Chief of the Division of the discrepancies in the taxpayer’s liability for the purpose of informal conference, in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within 15 days from date of receipt of the notice for informal conference, he shall be considered in default In such a case, the Revenue District Officer of the Chief of the Division shall endorse the case to the Assessment Division for review and issuance of deficiency tax assessment, if warranted. 3. Issuance of Preliminary Assessment Notice (PAN)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 67 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
It is a communication issued by the Regional assessment Division, or any other concerned BIR office, informing a taxpayer who has been audited of the findings of the BIR officer following the review of these findings. must show in detail the facts and law on which the proposed assessment is based, otherwise it’s fatal to BIR. If the taxpayer disagrees with the findings stated in the PAN, he shall then have 15 days from his receipt of the PAN to file a written reply contesting the proposed assessment.
I N
T A X A T I O N
shall be sent personally or through registered mail TAX ASSESSMENT- It is the official action of an officer authorized by law in ascertaining the amount of tax due under the law from a taxpayer. This action necessarily involves: 1. the computation of the sum due; 2. giving notice to that effect to the taxpayer; and the making, simultaneously with or sometime after the giving of notice, of a demand upon him for the payment of the tax deficiency stated. Assessment contains not only computation of tax liabilities but also a demand for payment within a prescribed period. [CIR vs. PASCOR, 309 SCRA 402]
Instances wherein PAN is NO longer required: 1. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; 2. when a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; 3. when a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; 4. when an excise tax due on excisable articles has not been paid; or 5. when an article locally purchased of imported by an exempt person, such as, but not limited to vehicles, capital equipment, machineries, and spare parts, has been sold, treated or transferred to non-exempt persons. 4.Issuance of Formal Assessment Notice (FAN) and letter of demand if the taxpayer fails to respond within 15 days from date of receipt, he shall be considered in default in such a case, a formal letter of demand and FAN shall be issued, calling for payment of the deficiency tax liabilities, inclusive of penalties.
Notice of assessment is presumed valid. If the taxpayer contested such a determination, the burden of proving the determination wrong, together with the corresponding burden of first going forward with evidence, is on the taxpayer. [ Cyanamid Philippines, Inc. vs. CA, 322 SCRA 639] Q. When is an assessment deemed made? An assessment is deemed made only when the collector of internal revenue releases, mails, or sends such notice to the taxpayer regardless whether the taxpayer received the notice within the prescriptive period. [Basilan Estates, Inc. vs. CIR, 21 SCRA 17] B. POWER TO COLLECT: Delinquent Taxpayer When the self-assessed tax per return filed on the prescribed date was not paid at all or was only partially paid, or
The deficiency tax assessed by the BIR became final and executory.
Deficiency tax The amount by which the income tax as determined by the BIR exceeds the amount shown as tax per return, or
If no amount is shown or if no return is made, then the amount by which the tax as
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 68 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
determined by the BIR exceeds the amounts previously assessed (or collected without assessment) as a deficiency DELINQUENCY Failure to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand
DEFICIENCY The amount still due and collectible from a taxpayer upon audit or investigation.
1. Filing of administrative protest by the taxpayer against the assessment Within 30 days from receipt of the FAN Failure to make such protest would render the assessment final, executory and demandable The prescriptive period for assessment or collection shall be suspended.
I N
T A X A T I O N
Distinctions between remedies in the collection of deficiency tax and delinquency tax: DEFICIENCY TAX 1. Can immediately be collected administratively through the issuance of the warrant of distraint and levy, and by judicial action
DELINQUENCY TAX 1. Can be collected also through administrative and judicial remedies but has to go through the process of filing the protest against the assessment by the taxpayer and denial of such protest.
2. The filing of a civil action for its collection in the ordinary court is a proper remedy
2. The filing of a civil action at the ordinary court for collection may be the subject of a motion to dismiss. In addition, a petition for review must be filed with the CTA within the 30 days to toll the running of the prescriptive period.
2. Submission of documentary evidence and argument Within 60 days from date of filing of protest Failure to submit would render the assessment final, executory and demandable 3. Denial of protest The taxpayer may appeal to the Court of Tax Appeals (CTA) within 30 days from date of receipt of the decision Otherwise, the assessment shall become final, executory and demandable
REMEDIES OF THE GOVERNEMNT FOR NON-PAYMENT OF TAXES 1. Administrative remedies
a. tax lien b. distraint (actual and constructive) c. levy d. sale of property of a delinquent taxpayer e. forfeiture of property f. compromise and abatement g. penalties and fines h. suspension of business operations.
2. Inaction of the CIR Failure to act on the protest within 180 days from date of submission of the required documents would give rise to the right of the taxpayer to appeal The appeal should be made within 20 days from the lapse of the said 180-day period Otherwise, the assessment shall become final, executory and demandable.
2. Judicial Remedies
a. civil action b. criminal action Note: One or all of the remedies may be
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 69 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
pursued simultaneously in the discretion of revenue authorities. Note: Distraint or levy NOT availed of where the amount of tax involved is NOT MORE than P100 3. Enforcement of administrative fine
Tax lien A legal claim or charge on property of the taxpayer as security for the payment of some debt or obligation.
I N
T A X A T I O N
Requisites of distraint: 1. the taxpayer must be delinquent (except in constructive distraint) in the payment of tax; 2. there must be a subsequent demand for its payment (assessment); 3. the taxpayer fails to pay the tax at the time required; and 4. the period within which to assess or collect the tax has not yet prescribed. Kinds: 1. Actual distaint 2. Constructive distarint
Accrues when the taxpayer neglects or refuses to pay his tax liability after demand with interests, penalties and costs that may accrue in addition thereto.
1. Actual Distraint there is taking of possession of the property from the taxpayer by the government resorted to when at the time required for payment, a person fails to pay his delinquent tax obligation.
Extent-upon all property and rights to property belonging to the taxpayer attaches not only from the time the warrant was served BUT from the time tax was due and demandable. The lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall have been filed in the register of deeds of the province or city where the property is located. But effectivity against third persons-only when notice of such lien is filed by the Commissioner in the Register of Deeds in the province/city where the property is situated (Sec. 219) Note: Superior to judgment claim of private property. Distraint The collection of taxes is enforced on the goods, chattels or effects and other personal property, including stocks and other securities, debts, credits and interest and rights to personal property.
Effected by: a. leaving a list of the distrained property, or b. by service of a warrant of distraint or garnishment Procedure (a) Goods, effects, chattels and other personal property 1. a copy of an account of the property distrained, signed by the officer, shall be left either from the owner or the person from whom the property was taken or at the dwelling or place of business of such person and with someone of suitable age and discretion 2. statement of the sum demanded 3. time and place of sale
WHO may effect distraint? a. Commissioner or his duly authorized representative if the amount involved is more than P1,000,000.00 b. Revenue District Officer if the amount involved is P1,000,000.00 or less than
(b) Stocks and other Securities 1. serving a copy of the warrant upon the taxpayer AND upon the president, manager, treasurer or other responsible officer of the issuing corporation, company, association (c) Debts and Credits 1. leaving a copy of the warrant with the person owing the debts or having
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 70 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
in his possession such credits or his agent 2. warrant shall be sufficient authority to pay the Commissioner the amount of such debts or credits (d) Bank accounts (garnishment) 1. serve a warrant of garnishment upon the taxpayer AND upon the president, manger, treasurer or other responsible officer of the bank 2. bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient (Sec. 208 NIRC)
refuses to sign: 1. distraining officer shall prepare a list of the property distrained 2. in the presence of 2 witnesses, leave a copy in the premises where the property is located (Sec. 206 NIRC) ACTUAL DISTRAINT Made only on the property of a delinquent taxpayer There is taking of possession
Note: Report on the Distraint by the distraining officer must be submitted within 10 days from receipt of the warrant to the Revenue District Officer and to the Revenue Regional Director. The order of Distraint may be lifted by the Commissioner or his representative (Sec. 207 A NIRC)
Effected by leaving a list of distrained property or by service of a warrant of distraint or garnishment An immediate step for collection of taxes
2. Constructive Distraint the owner is merely prohibited from disposing of this property issued even when there is no actual tax delinquency availed of when taxpayer is: a. retiring from any subject to tax;
business
b. intending to – b.1. leave the Philippines; or b.2. remove his property therefrom; or b.3. hide or conceal his property; or c. he performs any act tending to obstruct the proceedings for collecting the tax due Procedure (a) Require the taxpayer or any person having control of the property to 1. sign a receipt covering property distrained 2. obligate himself to preserve the same intact and unaltered 3. not to dispose of the property in any manner, without the authority of the Commissioner (b) Where taxpayer or person in possession
CONSTRUCTIVE DISTRAINT Made on the property of any taxpayer whether delinquent or not The taxpayer is merely prohibited from disposing of his property Effected by requiring the taxpayer to sign a receipt of the property or by the revenue officer preparing and leaving a list of such property Not necessarily so.
LIEN Directed against the property subject to the tax
Regardless of the owner of the property
DISTRAINT Need not be directed against the property subject to the tax Property seized must be owned by the taxpayer
Levy It refers to the act of seizure of real property in order to enforce the payment of taxes.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 71 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
The requisites for the exercise of the remedy of levy: same as in the remedy of distraint
sufficient to satisfy the tax due, levy on real property shall proceed within 30 days after distraint (e) Report on levy 1. by levying officer i. submitted within 10 days from receipt of warrant ii. submitted to the Commissioner or his representative 2. by the Revenue Regional Director-consolidated report, as may be required by the Commissioner (f) The warrant may be lifted by the Commissioner or his representative
When: before, simultaneously or after the distraint of personal property belonging to the taxpayer Effected by: a. writing upon an authenticated certificate showing: 1. the name of the taxpayer, 2. amounts of the tax and penalty due 3. description of the property upon which levy is made.
1. 2. 3.
4.
b. written notice of the levy shall be mailed to or served upon: the Register of Deeds of the province or city where the property is located, and the delinquent taxpayer if he is absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose if there be none, to the occupant of the property in question.
Sale of property
In case of distrained property: c. notification specifying the time and place of sale and the articles distrained shall be exhibited in not less than 2 public places (one place shall be at the office of the Mayor) in the municipality or city where the distraint is made
Real property may be levied upon before, simultaneously, or after the distraint of personal property belonging to the delinquent.
b. The time of sale shall not be less than 20 days after notice to the owner or possessor of the property and the publication or posting of such notice
The remedy by distraint and levy may be repeated if necessary until the full amount, including all expenses, is collected.
c. Sale of the property at public auction to the highest bidder for cash, or through duly licensed commodity or stock exchanges, with the approval of the CIR
Procedure: (a) internal revenue officer shall prepare a duly authenticated certificate showing the name of taxpayer, amounts of tax and penalty due. Enforceable throughout the Philippines (b) officer shall write upon the certificate a description of the property upon which levy is made (c) written notice of levy shall be mailed or served upon 1. the Register of Deeds where the property is located and 2. the taxpayer or agent/manager of the business in respect to the tax liability or to the occupant of the property (d) If personal property of taxpayer is not
In case of levied Property: a. advertisement of the time and place of sale of the taxpayer’s property or so much thereof as may be necessary to satisfy the claim within 20 days after the levy, and it shall cover a period of at least 30 days posting a notice at the main entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which the real estate lies and
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 72 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
by publication once a week for 3 weeks in a newspaper of general circulation in the municipality or city where the property is located.
I N
T A X A T I O N
Enforced by: 1. in case of personal property • seizure and • sale or destruction of the property
b. sale at public auction to the highest bidder at the main entrance of the municipal building or city hall, or on the premises to be sols, as the officer conducting the proceedings shall determine and as the notice shall specify c. disposition of proceeds of sale In case the proceeds of the sale exceed the claim (taxes, penalties, and interest) and cost of the sale, the excess shall be turned over to the owner of the property. Redemption by the taxpayer Within 1 year from the date of sale, that is, from the registration of the registration of the deed of sale. By the taxpayer or anyone for him by paying the full amount of: • Taxes • Penalties • Interests, and • Costs of sale Pending redemption of the property sold, the owner shall: 1. not be deprived of the possession of the property 2. be entitled to the rents and other income thereof
2. in case of real property • judgment of condemnation and • sale in a legal action or proceeding, civil or criminal, as the case may require Redemption by the taxpayer Same as that of redemption in case of sale The 1 year period starts from the date of registration of the declaration of forfeiture Compromise and Abatement A. Compromise – a contract whereby the parties by reciprocal concessions, avoid litigation or put an end to one already commenced. Requisites: 1. the taxpayer must have a tax liability; 2. there must be acceptance (by the Commissioner or taxpayer as the case may be) of the offer in the settlement of the original claim; 3. there must be an offer (by the taxpayer of an amount to be paid him) Officers authorized to compromise:
Forfeiture Effected when: 1. there is no bidder for the real property in the public sale, or 2. if the amount of the highest bid is insufficient to pay the taxes, penalties and costs
1. Commissioner of Internal Revenue is the only official vested with such power and discretion; 2. Subordinate officials may preliminarily enter into compromise. The effects are: a. acceptance of an offer of compromise: not final and may be reviewed by the Commissioner;
The Register of Deeds concerned shall: 1. Upon registration of the declaration for forfeiture, transfer the title of the property to the government 2. Without the necessity of an order from a competent court
b. rejection of an offer of compromise: final and binding unless revoked or set aside by the Commissioner.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 73 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
A. Compromise of civil cases:
Grounds (civil cases) a. When a reasonable doubt as to the validity of the claim against the taxpayer exists; b. When the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
Limitation as to amount of: 1. In case of financial incapacity: 10% of the basic assessed tax 2. Other cases: 40% of the basic assessed tax The approval of the Evaluation Board (composed of the CIR and the Deputy Commissioners) is required when: 1. The basic tax involved exceeds Php1,000,000; or 2. The settlement offered is less than the MCR Note: The MCR may be less than the prescribed rates of 10% or 40%, as the case may be, provided it is approved by the Evaluation Board
I N
T A X A T I O N
3. after the information is filed with the court: the Commissioner is no longer permitted to compromise with or without the consent of the prosecutor. Remedies when taxpayer refuses or fails to abide by a tax compromise: 1. enforce the compromise a. judicial compromise can be enforced by mere execution b. extrajudicial can only be enforced by court action 2. regard it as rescinded and insists upon original demand (Art. 2041, NCC) Compromise Penalty An amount which the taxpayer pays to compromise a tax violation Paid in lieu of criminal prosecution A taxpayer cannot be compelled to pay a compromise penalty If he does not want to pay, the CIR must institute a criminal action. B. Abatement – cancellation of the tax liability
Limitation as to coverage:
Grounds:
1. With respect to the liability of the taxpayer for surcharges as their imposition is mandatory 2. In cases finally decided by the courts
1. When the tax assessed or any portion thereof appears to be unjustly or excessively demanded, or 2. When the administration and collection costs involved do not justify the collection of the amount due
B. Compromise in criminal violations:
GEN RULE: the power to compromise and abate cannot be delegated by the CIR
All, except: a. those already filed in court b. those involving fraud.
EXCEPT: Extent of discretion: 1. before the complaint is filed with the prosecutor’s office: the Commissioner has full discretion to compromise except those involving fraud;
a. assessments issued by regional offices involving basic taxes of Php500,000 or less; and b. minor criminal violations. Penalties and fines
2. after the complaint is filed with the prosecutor’s office but before the information is filed with the court: the Commissioner can still compromise provided the prosecutor consented;
Refer to: 1. surcharges 2. deficiency and delinquency interest 3. compromise penalty
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 74 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
A. Surcharges: Not really a penalty as used in criminal law but a civil administrative sanction designed primarily to: a. protect the State revenue, and b. reimburse the government for the expenses in investigating and the loss resulting from the taxpayer’s fraud. Penalty of 25% of the amount due for: 1. Failure to file any return and pay the tax due thereon; 2. Filing a return with the wrong agent of the BIR, unless otherwise authorized by the CIR 3. failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; 4. Failure to pay the full or part of the tax as shown on the return on or before the due date B. Interest: a. Deficiency interest 20% per annum from the date prescribed for its payment until the full payment thereof b. Delinquency interest
Interest of 20% or the Manila Reference rate, whichever is higher, required to be paid in case of failure to pay: a. the amount of the tax due on any return required to be filed; b. amount of the tax due for which return is required; c. the deficiency tax or any surcharge or interest thereon, on the date appearing in the notice and demand of the CIR. C. Compromise: Similarities of compromise and compromise penalty: 1. They both imply mutual agreement. A compromise penalty cannot be imposed in the absence of a showing that the taxpayer consented thereto.
I N
T A X A T I O N
2. The CIR has no power to impose and collect the compromise penalties in the absence of a compromise agreement validly entered into between the taxpayer and the CIR COMPROMISE Definition: An amount of money paid by the taxpayer to settle his civil liability for tax assessed
COMPROMISE PENALTY An amount of money paid to compromise a tax violation that he has committed, which may be the subject of criminal prosecution
Basis of amount paid: Gross sales or receipts Basic tax assessed during the year of the tax due Minimum amount The limitation Depends on the nature depends on the legal of the tax violation grounds used by the and the minimum taxpayer amount is generally not less than Php1,000 Civil Actions – actions instituted by the government to collect internal revenue taxes. It includes filing by the government with the probate court claims against the deceased taxpayer. Enforced by: 1. filing a civil case for the collection of a sum of money with the proper regular court (i.e. MTC or RTC); or 2. filing an answer to the petition for review filed by the taxpayer with the CTA A. Civil action filed with the ordinary court. Resorted to only when tax becomes: 1. delinquent 2. collectible Collectibility arises when: a. Self-assessed tax shown in the return was not paid within the date prescribe by law; b. Final assessment is not protested administratively within 30 days from date of receipt; c. Non-compliance with the condition laid in the approval of protest;
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 75 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
d. Failure to file a timely appeal to the CTA on the final decision of the CIR or his authorized representative on the disputed assessment.
f.
Defenses precluded by final and executory assessments: 1. Invalidity or illegality of the assessment; and 2. Prescription of the government’s right to assess.
Prima facie evidence of a false or fraudulent return 1. substantial under-declaration of taxable sales, receipts or income or a substantial overstatement of deduction, as determined by the Commissioner pursuant to the rules an regulations promulgated by the Secretary of Finance;
B. Civil action filed with CTA The fact that no civil action was filed before the ordinary courts to collect the tax liability is no ground for claiming that the right to collect had already prescribed.
The answer filed by the government in the CTA is tantamount to the filing of a civil action for collection the regular court and has the effect of tolling the prescriptive period. (Hermanos, Inc. vs. CIR, 29 SCRA 552)
Criminal Action 2 Common crimes punishable under the Tax Code: 1. Attempt to evade or defeat a tax Any person who willfully attempts in any manner to evade or defeat any tax or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished.
refund excess taxes withheld on compensation, who willfully violates these duties at the time or times required by law shall be punished upon conviction in addition to other penalties
2. failure to report sales, receipts or income in an amount exceeding 30% of actual deductions constitutes substantial overstatement of deductions. Note: No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner. The approval of the Commissioner required for the judicial enforcement of tax liability is not jurisdictional; lack of such approval merely affects the cause of action or capacity to sue.
The conviction or acquittal shall not be a bar to the filing of a civil suit for the collection of taxes. 2. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation Any person required under the Tax Code a. to pay any tax b. make a return c. keep any record d. supply correct and accurate information e. withhold or remit taxes withheld
When the civil action arising out of a tax delinquency is extinguished by prescription, it is still possible for such tax to be collected by criminal action inasmuch as actions of this kind prescribe only after the lapse of 5 years counted from the discovery of the crime. An assessment is not necessary before a criminal charge can be filed provided there is a prima facie showing of a willful attempt to evade taxes. REMEDIES OF TAXPAYER 1. administrative – a. before payment – I. protest II. entering into a compromise. b. after payment – filing of claim for refund or tax credit within
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 76 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
two years from date of payment regardless of any supervening cause. 2. judicial – a. civil action I. appeal to CTA – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner; II. action to contest forfeiture of chattel; and III. action for damages b. criminal action – I. Filing of criminal complaint against erring BIR official and employees; and II. Injunction – when the CTA in its opinion the collection by the BIR may jeopardize taxpayer.
I N
T A X A T I O N
a) within 30 days from receipt of decision denying the protest or b) 30 days from the lapse of 180 day period Effect of failure to appeal: the decision shall be final, executory and demandable Taxpayer’s suit. Requisites: 1. the tax money is being extracted and spent in violation of specific Constitutional protections against abuses of legislative power 2. that public money is being deflected to any improper purpose 3. that the petitioner seeks to restrain the respondents from wasting public funds through enforcement of invalid or unconstitutional law
Protest of Assessment: 1. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment request for reinvestigation-a plea for re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. Involves a question of fact or law or both. request for reconsideration-a plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. Involves a question of fact or law or both. (Revenue Regulation No. 12-85) 2. Within 60 days from filing of protest, all relevant supporting documents should have been submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228 NIRC) Appeal of Protest to the CTA (Sec. 228 NIRC) 1. Grounds: a) if the protest is denied in whole or in part or b) is not acted upon within 180 days from submission of documents 2. Appellate Court: Court of Tax Appeals 3. Period to appeal:
However, the Supreme Court has discretion whether or not to entertain a taxpayer’s suit and could brush aside the lack of locus standi where the issues are transcendental importance in keeping with the court’s duty to determine that public officers have not abused the discretion given to them.
TAX REFUND OR TAX CREDIT Grounds: 1. tax is collected erroneously or illegally; 2. penalty is collected without authority; 3. sum collected is excessive Requisites: 1. claim must be in writing; 2. it must be filed with the Commissioner within two years (2) after the payment of the tax or penalty; and 3. Show proof of payment. Tax credit - a claim for issuance of a tax credit certificate, showing an amount owing from the government to the taxpayer which the latter is legally authorized to credit or offset against national internal taxes payable by him, except withholding taxes. Starting date for counting the 2-year period: GEN. RULE: from the date of payment, regardless of any supervening cause that may arise after payment:
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 77 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
EXCEPTIONS: 1. Corporate Income tax Where a corporation paid quarterly income taxes in any of the first 3 quarters during the taxable year but incurs a net loss during the taxable year, the 2-year period for the filing of the claim for refund or credit shall be counted from the date of the filing of the annual corporate ITR. 2. Income tax paid in installments Where the tax paid had been paid in installment, the taxes are deemed paid, for purposes of determining the commencement of the 2-year period for filing a written claim for the refund or credit therefore on the date the last installment was paid. Note: A return filed showing an overpayment shall be considered as a written claim for credit or refund. REFUND CREDIT There is actual The reimbursable reimbursement of mount is applied the tax against the sum that may be due of collectible from the taxpayer
I N
T A X A T I O N
4. provisions on prescriptions, being remedial in nature should be liberally interpreted to carry out its intent. Prescriptive period for the ASSESSMENT of taxes: GENERAL RULE: three years after the date the return is due or filed, whichever is later. EXCEPTIONS: 1. failure to file a return: ten (10) years from the date of the discovery of the omission to file the return; 2. false or fraudulent return with intent to evade the tax: ten (10) years from the date of the discovery of the falsity or fraud; 3. agreement in writing: to the extension (not reduction) of the period to assess between the Commissioner and the taxpayer before the expiration of the three year period. NB: the extended period agreed upon can further be extended by a subsequent written agreement made before the expiration of the extended period previously agreed upon. 4. waiver or renunciation of the original three (3) year limitation, signed by the taxpayer. FALSE RETURN it merely implies a decision from the truth or fact whether intentional or not
PRESCRIPTION:
Purpose:
Prescription periods are designed to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are also beneficial to the government because tax officers will be obliged to act promptly.
FRAUDULENT RETURN - It is intentional and deceitful with the aim of evading the correct tax due.
Prescriptive period for the COLLECTION of taxes:
General Rules: 1. when the tax law itself is silent on prescription, tax is imprescriptible; 2. when no return is required, tax is imprescriptible; 3. defense of prescription is waivable; and
Five (5) years - from assessment or within period for collection agreed upon in writing before expiration of the five-year period. Ten (10) years - without assessment in case of false or fraudulent return with intern to evade or failure to file return.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 78 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
Grounds for suspension of the running of prescriptive period for assessment and collection: 1. when the Commissioner is prohibited from making the assessment or beginning the distraint or levy or proceeding in court, and for sixty days thereafter; 2. when the taxpayer requests for a reconsideration which is granted by the Commissioner; 3. when the taxpayer cannot be located in the address given by him in the return, unless he informs the Commissioner of any change in his address; 4. when the warrant of distraint or levy is duly served, and no property is located; and 5. when the taxpayer is out of the Philippines. Requisites of a tax return for purposes of starting the running of the period of limitation: the return is valid - it has complied substantially with the requirements of the law; and the return is appropriate – it is a return for the particular tax is required by law.
I N
T A X A T I O N
The prescriptive period starts to run from the filing of the original return, if the same is sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to be assessed. However, where the amended return is substantially different from the original, the right to assess is counted from the filing of the amended return. Prescriptive period for the filing of CRIMINAL ACTION: five (5) years – from the day of the commission of the violation, and if not known, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment. Grounds for interruption of the period: 1. When proceedings are instituted against the guilty persons Begin to run again if the proceedings are dismissed for reasons not constituting jeopardy 2. offender is absent from the Philippines
Note: A defective tax return is the same as if no return was filed at all.
Retroactivity of BIR Rulings
Amended return
General Rule: Prospective.
Allowed when:
Exceptions:
1. the amendment is made within 3 years from the date of filing the original return; and
1. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR; 2. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; and 3. Where the taxpayer acted in bad faith.
2. no notice of audit or investigation of such return has, in the meantime, been actually served upon the taxpayer. Effect on prescription:
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 79 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 80 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 81 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 82 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
BUREAU OF CUSTOMS (BOC)
TARIFF AND CUSTOMS CODE TARIFF – custom duties, toll of tribute payable upon merchandise to the government. CUSTOM DUTIES –which are assessed at the at the prescribed tariff rates which are likely imposed for both revenue raising and for regulatory purposes. It is the name given to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign country.[ Garcia vs. Executive Sec., G.R. no. 101273, July 3, 1992] N.B: Customs duties and tariffs are synonymous with one another. They both refer to the taxes imposed on imported or exported wares, articles, or merchandise. Purposes of tariffs: 1. Revenue tariffs – those whose rates are relatively low so that goods may be readily imported and duties may be easily collected. 2. Protective tariffs – those whose rates are relatively high to keep certain imports out of the domestic market or to raise domestic price on certain imports so that they may be manufactured profitably at domestically; 3. Bargaining tariffs – those whose schedules include rates designed primarily for bargaining purposes or which contain some general provision for the imposition of higher duties upon products of countries whose tariff policies are considered unsatisfactory or unfair. Scope of Tariff and Custom Laws Include not only the provisions of the Tariff and Custom Code (TCC) and regulations pursuant thereto, but all other laws and regulations that are subject to the Bureau of Customs (BOC) or otherwise within its jurisdiction. As to the scope, Tariff and Custom laws extend not only to the provisions of the TCC but to all other laws as well the enforcement of which is entrusted to the BOC.
DUTIES, POWERS AND JURISDICTION OF THE BOC 1. The assessment and collection of the lawful revenues from imported articles and all other dues, fees, charges, fines, and penalties accruing under the tariff and customs laws. 2. The prevention and the suspension of smuggling and other frauds upon the customs 3. The supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce. 4. The enforcement of tariff and custom laws and all other laws, rules and regulations relating to tariff and custom administration. 5. The supervision and control over the handling of foreign mails arriving in the Philippines, for the purpose of the collection of the lawful duty on the dutiable articles thus impoprted and the prevention of smuggling through the medium of such mails. 6. Supervision and control over all import and export cargoes, landed or stored in piers, airport, terminal facilities, including container yards and freight stations, for the protection of government revenue. 7. Exclusive original jurisdiction over seizure and forfeiture cases under the tariff and custom laws. ARTICLES SUBJECT TO CUSTOM DUTIES Articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, EXCEPT as otherwise specifically provided for in this Code or in other laws. [SEC. 100, TOC] MERCHANDISE- the Revised Administrative Code defines merchandise, when used with reference to importation or exportation, to include goods, wares and in, general anything that nay be the subject or exportation. Checks, money orders and dollar bills properly within the concept of merchandise as used in Revised Administrative Code, are merchandise. [Bastida vs. CIR]
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 83 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Kinds of Goods/Merchandise
7.
1. Articles subject to duty ( Dutiable Goods) 2. Prohibited importation 3. Conditionally-free importations
8.
DUTIABLE GOODS [Code: NPA-VMH-FAT-WE-MAMO]
AFP-CPP9.
1. Animals and animals product 2. Animal or vegetable Fats; oil and their cleavage products 3. Prepared foodstuffs; beverarages, spirits and vinegar; tobacco and manufactured tobacco 4. Products of Chemical or allied industries 5. Plastic and rubber articles 6. Pulp or wood; 7. Natural or cultural stones 8. Plaster, cements and other related articles 9. Arms and ammunitions 10. Vegetable products 11. Mineral products 12. Hides ( skin, fur, leather) 13. Footwear, headgear, etc. 14. Aircraft, vessels, vehicles and all other mode of transportation 15. Textile and textile products 16. Wood and related articles 17. Electrical and mechanical machineries 18. Metals 19. Artworks, antique 20. Manufactured/miscellaneous articles 21. Optical products, medical and surgical products [SEC. 104, Title 1, TCC] PROHIBITED IMPORATTIONS HOT-DOG-TAMAD] 1.
2. 3. 4. 5. 6.
[Code:
Heroine, marijuana and other dangerous drugs, narcotics and pharmaceutical products EXCEPT when made by the government designed for medical purpose. Opium pipes and other drugs paraphernalia Written or printed materials containing any matter advocating of inciting Treason, sedition, rebellion materials. Dynamite, ammunition and other explosive weapons EXCEPT when authorized by law Written or printed articles involving Obscene or immoral character Gambling Devices
10. 11.
Lottery and sweepstakes Tickets EXCEPT those authorized by the Philippine Government Articles, instruments, drugs and substances designed and intended to produce unlawful Abortion and printed materials promoting unlawful abortion Articles made of precious Metal but actual fineness of quality not indicated other Articles (P.D. 34) Any Adulterated or misbranded drug in violation of the Food and Drugs Act.(SEC. 102,TCC)
Note: All the above merchandise/goods cannot be brought in or out of the Philippines. CONDITIONALLY-FREE IMPORTATION [Code: PSST-BAR-FEW-PERA-SAM-CPPVICE] 1. Professional instruments and implements 2. Sea store supplies to the vessel or aircraft 3. Salvage articles recovered from an abandoned vessel 4. Trailer chassis by a shipping company 5. Books 6. Aquatic products 7. Relief organization and articles used for relief operations 8. Film production by foreign media or movie outfit 9. Equipment used in salvaging vessels 10. Wearing apparels 11. Personal and household effects 12. importation for the use of foreign Embassies 13. Receptacles, containers holders and other similar boxes 14. Animals, EXCEPT race horse 15. Samples of any kind 16. Articles for repair, re-conditioning for export 17. Mining equipment and tools 18. Cost of repair made abroad upon a vessel registered in the Philippines 19. articles which are previously exported but returned in the Philippines 20. Prizes, medals, trophies, badges and other thing bestowed as an award 21. Vessels spare part of foreign vessel and aircraft 22. articles which are Imported subsequently in the Philippines 23. Ccoffin, caskets
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 84 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
24. Exhibition, competition articles for display
2. legal weight 3. net weight
Note: These articles which are exempt from import duties upon compliance with the formalities prescribed in or with regulations promulgated by the Commissioner of Customs with the approval of the Sec. of Finance.
KINDS OF SPECIAL CUSTOM DUTIES 1. Dumping Duty – imposed upon foreign products with value lower than their fair market value to the detriment of local products.
Classification of Custom Duties 1. Ordinary or Regular Custom duty- imposed and collected merely as a source of revenue . a. Ad Valorem- the duty is based on the market value or price of the imported article. b. Specific- the duty is based on the weight or volume of the imported article. 2. Special Custom duties- imposed and collected in addition to ordinary customs duties usually to protect local industries against foreign competition.
Rate: difference between the actual price and the normal value of the article. Imposing authority: Special Committee on Anti-Dumping composed of the Sec. of Finance as chairman; members: Sec. of DTI, and either the Sec. of Agriculture if the article in question is agricultural product or the Sec. of Labor if non-agricultural product.
Basis of Dutiable Value
2. Countervailing Duty – imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated.
The dutiable value of the imported article subject to an ad valorem of duty shall be transaction value.
Rate: equivalent to the bounty, subsidy or subvention Imposing authority: Sec. Of Finance
TRANSACTION VALUE- is the price actually paid or payable for the goods when sold for export to the Philippines.
3. Marking Duty- imposed upon those not properly marked as to place of origin of the goods.
It is adjusted by adding certain expenses to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, the value of the materials, components, parts and items incorporated in the imported goods; amount of royalties and license fees; cost of transport; loading, unloading and handling charges; and the cost of the insurance.
Rate: 5% ad valorem of articles Imposing authority: Commissioner Custom
Sequence in Determination of Value 1. 2. 3. 4. 5. 6.
transaction value transaction value of identical goods transaction value of similar goods deductive value computed value other reasonable means or fallback value
of
4. Discriminatory Duty- imposed upon goods coming from countries that discriminate against Philippine products. Rate: any amount not exceeding 100% ad valorem of the subject articles Imposing authority: president of the Philippines DRAWBACK
Basis for dutiable weight for specific custom duties
It is a device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it not been taxed at all. It may be full or partial.
1. gross weight T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 85 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
OTHER CUSTOMS FEES, DUES, OR CHARGES PAYABLE 1. Harbor Fees- are imposed on vessels entering into or departing from a port of entry of the Philippines. 2. Wharfage dues- are assessed against the cargo of a vessel engaged in foreign or coastwise trade, based on the quantity weight or measure received and/or discharged by such vessel. 3. Berthing dues- are assessed against a vessel for mooring or berthing at a pier, wharf, or river at any port in the Philippines. 4. Storage dues- are assessed on articles for storage in customs premises, cargo shed. 5. Arrastre dues- are imposed on all imported and exported articles and baggage of passenger for their handling, receiving, and custody. 6. Tonnage dues- are paid by the owner, agent, operator or master of a vessel engaged in foreign trade based on the net tonnage of the vessel or weight of the articles discharged or laden. 7. Other fees- charged and collected for services rendered and documents issued by the BOC. IMPORTATION UNDER TCC Who are authorized to make import entry? 1. The importer being holder of the bill of lading; 2. A customs broker acting under authority of the holder of the bill; or A person duly empowered to act as agent or attorney-in-fact. Liability for Custom Duties GEN. RULE: All importations exportations of goods are subject to custom duties. (Sec. 105, TCC)
I N
T A X A T I O N
agreements, or obligations with foreign countries. 3. International organization pursuant to agreement and special law 4. Exemption granted by the President of the Philippines upon recommendation of NEDA. Liability of importers for duties The Code provides that all articles imported into the Philippines shall be held to be the property of the person to whom the same are consigned: and the holder of the bill of lading duly endorse by the consignee thereof therein named, or if consigned to order by the consignor, shall be deemed the consignee thereof. The under writers of abandoned articles and the salvors of articles saved from a wreck at sea, along a coast, or in any area of the Philippines, maybe regarded as the consignees [ Section 1203, Tariff and Custom Code] Unless otherwise relieved by laws or regulation, the liability for duties, taxes, fees, and other charges attaching on importation constitutes a personal debt due to the importer of the government which can be discharged only by payment of said duties and charge. It also constitutes a lien upon the articles imported which maybe enforced while such articles are in custody or subject to the control of the government. Government importations All importations by the government for its own use or that of its own subordinates branches or instrumentalities or corporations, agencies or instrumentalities owned or controlled by the government shall be subject to the duties, taxes , fees and charges provided in the Tariff and Customs Code.[Section 1205, Tariff and Customs Code] When importation begins and deemed terminated
EXCEPTIONS:
Importation begins when carrying vessel or aircraft enters the jurisdiction of the Philippines with an intent to unload.
1. Exemption under the TCC 2. Exemptions granted government agencies or GOCCs with existing contracts, commitments,
Importation terminates upon payment of the duties and other charges due upon the articles, or secured to be paid, at the port of
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 86 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
entry ant the legal permit for withdrawal shall have been granted.
for a period of at least one (1) year; or 3. Filipino overseas worker; or 4. former Filipino citizen and his family who had been naturalized in a foreign country and comes or returns to the Philippines
In the case of articles that are free of duties, taxes and other charges, importation is deemed terminated from the time they havelegally left the jurisdiction of the customs. Import Entry A declaration to the BOC showing the description, value, tariff classification and other particulars of the imported article to enable the customs authorities to determine the correct customs duties and internal revenue taxes due on the importation. Abandonment It is the renunciation by an importer of all his interest in the property rights in the imported article. It may be express or implied.
The term family shall mean the spouse and children of the balikbayan who are not balikbayan in their own right traveling with the latter to the Philippines. FLEXIBLE TARIFF CLAUSE Authority of the President to adjust the tariff rates prescribed under the Tariff and Customs Code, which is the enabling law that made effective the delegation of the taxing power to the President under the Constitution.
Smuggling or Unlawful Importation Any person who shall fraudulently import or bring into the Philippines, or assist In doing so, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such article after importations, knowing the same to have been imported contrary to law, shall be guilty of smuggling. (sec. 3601 TCC) Fraudulent Practices (Criminal Offense) against Custom Revenues under Sec. 3602 3. Entry of imported articles by means of any false or fraudulent invoice. 4. Entry of goods at less than the true weight or measure. 5. Filling of any false or fraudulent entry for the payment of drawbacks or refund of duties. Returning residents For the purpose of conditionally free importation of personal and household effects, they are nationals who have stayed in a foreign country for a period of at least six (6) months. BALIKBAYAN for the purpose of tax-free purchase at Philippine Duty-free shops, he must be: 2. Filipino citizen who has been continuously out of the Philippines
1. The Congress may, by law, authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose: a. tariff rates, import and export quotas, tonnage and wharfage dues; and b. other duties or imports within the framework of the national development program of the government (Art. VI, Sec. 28(2), Constitution) Sec. 401, TCC: In the interest of national economy, general welfare and/or national security, the President upon recommendation of the NEDA, is empowered: 1. to increase, reduce, or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem; 2. to establish import quota or to ban imports of any commodity; and 3. to impose additional duty on all imports not exceeding 10% ad valorem. LIMITATIONS TO FLEXIBLE TARIFF CLAUSE 1. Conduct by the Tariff Commission of an investigation in a public hearing.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 87 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
The commission shall also hear the views and recommendations of any government office, agency or instrumentality concerned. The commission shall submit their findings and recommendations to the NEDA within 30 days after the termination of the public hearing. The NEDA thereafter submits the recommendation to the President. 2. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. In such case the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases. (Sec. 401, TCC) THE TARIFF COMMISIONS (TC) FUNCTIONS COMMISSION
OF
THE
TARIFF
A. The Commission shall investigate: 1. the administration of and the fiscal and industrial effects of the country’s tariff and customs laws; 2. the relations between the rates of duty on raw materials and finished or partly finished goods; 3. the effects of ad valorem and specific duties and of compound specific and ad valorem duties; 4. all questions relative to the arrangement of schedules and classifications of articles under the tariff laws; 5. the tariff relations between the Philippines and foreign countries, commercial treaties, etc.; 6. the volume of importation compared with domestic production and consumption; 7. conditions, causes, and effects relating to competition of foreign industries with those of the Philippines; 8. in general, to investigate the operation of customs and tariff laws and to submit report of its investigation; and
I N
T A X A T I O N
9. the nature, composition, and classification of articles for customs revenue and other related purposes which shall be furnished to NEDA, Board of Investments, Central Bank, and Sec. of Finance. B. Administrative assistance to the President and Congress (Sec. 506, TCC) TAX REMEDIES UNDER THE TARIFF AND CUSTOMS CODE (TCC) TAX REMEDIES OF THE GOVERNMENT A. ADMINISTRATIVE 1. Tax Lien (sec. 1204 TCC) attaches on the goods, regardless of ownership, while still in the custody or control of the Government Availed of when the importation is neither prohibited nor improperly made. 2. Administrative Fines and Forfeitures applied when the importation is unlawful and it may be exercised even where the articles are not or no longer in custom’s custody .UNLESS the importation is merely attempted in which case it may be effected only while the goods are still within the Customs jurisdiction or in the hands of a person who is aware thereof. (sec. 2531 and 2530 TCC) Under Sec. 2530 (a), TCC in order to warrant forfeiture, it is not necessary that the vessel or aircraft must itself carry the contraband. The complementary if collateral use of there Cessna plane for smuggling operation is sufficient for it to be deemed to have been used in smuggling. [Llamado vs. Commissioner of Customs, G.R. no. L28809, may 16, 1983] 3. Reduction of Custom Duties/ Compromise Subject to approval of Sec. of Finance (sec. 709, 2316 TCC) 4. Seizure, search, arrest (sec. 2205, 2210, 2211 TCC) B. JUDICIAL
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 88 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
The CTA empowers to issue injunction, it would appear that an importer may appeal without first paying the duties, such as in seizure, but not in protest cases.
This remedy is normally availed of when the tax lien is lost by the release of the goods. Civil action (se. 1204 TCC) Criminal Action TAX REMEDIES OF THE TAXPAYER A. ADMINISTRATIVE 1. Protest Any importer or interested party if dissatisfied with published value within 15 days from date of publication or within 5 days from the date of importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. Taxpayer within 15 days from assessment. (sec. 2308,2210 TCC) Note: Payment under protest is necessary. 2. Refund A written claim for refund may be submitted by the importer in abatement cases on missing packages, deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines, articles, lost or destroyed after such arrival, dead or injured animals, and for manifest clerical errors; and Drawback cases where the goods are reexported (sec. 1701-1708 TCC) 3. Settlement of any seizure by payment of fine or redemption But this shall not be allowed in any case where importation is absolutely prohibited or the release would contrary to law, or when there is an actual and intentional fraud (sec. 2307 TCC).
2. Action to question the legality of seizure 3. Abandonment failure to file an import entry within 30 days from the discharge of goods or having filed an entry fails to claim within 15 days but it shall not be so effective until so declared by the collector. (sec. 1801 as amended by RA 7651) REMEDIES IN THE BUREAU OF CUSTOMS (BOC) A. CUSTOM PROTEST CASES These are cases which deal solely with liability for custom duties, fees, and other charges. Note: Before filing a protest, there must first be a payment under protest. Requirements for making a Protest 1. must be in writing 2. must point out the particular decision or ruling of the Collector of Customs to which exception is taken or objection made 3. must state the grounds relied upon for relief 4. must be limited to the subject matter of a single adjustment 5. must be filed when the amount claimed is paid or within 15 days after the payment 6. protest must furnish samples of goods under protest when required.
4. Appeal Within 15 days to the Commissioner after notification by Collector of his decision (sec. 2313 TCC). B. JUDICIAL 1. Appeal Within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA (sec. 2403 TCC, sec. 7 RA 1125, as amended by sec. 9 RA 9282)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 89 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
PROCEDURES in CUSTOMS PROTEST The collector acting within his jurisdiction shall cause the imported goods to be entered at the custom house.
The collector shall assess, liquidate, and collect the duties thereon, OR detain the said goods if the party; liable does not pay the same.
The party adversely affected may file a written protest on his foregoing liability with the Collector within 15 days after paying the liquidated amount.
Hearing within 15 days from receipt of the duty presented protest. Upon termination of the hearing, the Collector shall decide on the same within 30 days.
Decision is adverse to the PROTESTANT
Decision is adverse to the GOVERNMENT
Appeal with the Commissioner within 15 days from notice
Automatic review by the commissioner
Appeal with the CTA division within 30 days from notice
Automatic review by the Sec. of Finance. Note: if within 30 days from receipt of the record of the case by the Com. Or the Sec. of Finance And no decision is rendered by either of them the decision under review shall become final and executory.
Appeal with the CTA En Banc
If the decision of the Commissioner or Sec. of Finance adverse to the protestant he may appeal to the CTA and SC under the same procedure on the other side.
Appeal by certiorari with the Supreme Court within 15 days from notice.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 90 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
B. SEIZURE AND FORFEITURE CASES These refer to the matters involving smuggling. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of importation. Note: These are action in rem. Smuggling or Unlawful Importation Any person who shall fraudulently import or bring into the Philippines, or assist In doing so, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such article after importations, knowing the same to have been imported contrary to law, shall be guilty of smuggling (sec. 3601 TCC). Note: anything that was used for smuggling is subject to confiscation. [Lladoc vs. Com of Custom, R.R. L-28809, May 16, 1983] EXCEPT Common carriers that are not privately chartered cannot be confiscated. Note: Mere possession of the article in question is liable UNLESS defendant could explain that his possession is lawful to the satisfaction of the court (sec. 3601,TCC) Note: Payment of the tax due after apprehension is not a valid defences. [Rodriguez vs. CA, G.R. no. 115218, September 18, 1995] Port of Entry A domestic port open to both foreign and coastwise trade including airport of entry (sec. 3514, TCC).
All articles imported into the Philippines whether subject to duty or not shall be entered through a customhouse at a port of entry.
Three meanings of term “ENTRY” 1. documents filed at the custom house 2. submission and acceptance of the documents 3. procedure of passing the goods through the custom house. [ Rodriguez vs. CA, G.R. no. 115218, September 18, 1995]
I N
T A X A T I O N
Right of Custom Seizure and Arrest
Officers
to
Effect
1. May seize any vessel, aircraft, cargo, article, animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under TCC, rules and regulation. 2. May exercise only in conformity with the laws and TCC.(sec. 2205 TCC) Articles subject to Seizures and Forfeitures [Code: FEU-UE-UM-UP-BIR] 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Fraudulent removal of cargoes Excessive sea store Undeclared cargoes Unlawful use of aircraft or vessel EXCEPT if there is Certificate of Public Convenience and Necessity Excessive cargoes Unlawful transfer of cargoes Money used to bribe Unauthorized removal of goods Prohibited articles Beast, actually used for the consequence that is subject of forfeiture Instruments used in the loading or unloading of goods subject of forfeiture Receptacles, boxes used to conceal good subject of forfeiture (sec. 2530,TCC)
Article NOT subject to Forfeiture or Seizure The forfeiture of vessel or aircraft or seizure of articles shall not be effected if it is established that the owner thereof or his agent in charge of the means of conveyance used as aforesaid has no knowledge of a participation in the unlawful act. In other words, no forfeiture or seizure in the absence of prima facie evidence. HOWEVER, that a prima facie presumption shall exist against the vessel, vehicle or aircraft under any of the following circumstances: 1. if the conveyance has been used for smuggling at least twice before; 2. if the owner is not in the business for which the conveyance is generally used; and 3. if the owner is financially not in a position to own such conveyance.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 91 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
DOCTRINE OF PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES The prevailing doctrine is that the exclusive jurisdiction in seizure and forfeiture cases vested in the collector of customs precludes a regular court from assuming cognizance of such matter. It is the settled rule that the BOC acquires exclusive jurisdiction over imported goods, for the purpose of enforcement of the customs laws, form the moment the goods actually in its possession or control, even if no warrant of seizure or detention had previously been issued by the Collector of Custom in connection with seizure and forfeiture proceedings. Thus, the RTC do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC. Even if a Custom seizure is illegal, exclusive jurisdiction still belongs to the BOC. [Jao vs. CA, G.R. no. 104604,October 6, 1995] DOCTRINE OF HOT PURSUIT Requisites: 1. Over Vessels a. an act is done in Philippine water which constitutes a violation of the TCC b. a pursuit of such vessel began within the jurisdictional waters which may continue beyond the maritime zone and the vessel may be seized on the high seas.
I N
T A X A T I O N
2. a. b. c.
Over Imported Articles there is a violation of TCC they may be pursued in the Philippines with the jurisdiction over them at any place therein for the enforcement of the law. (2nd par. Sec. 603,TCC).
Jurisdiction of the BOC The BOC has the right of supervision and police authority over all seas within the jurisdiction of the Philippines and over all coasts, ports, harbours, bays, rivers and inland waters whether navigable from the sea or not. (sec. 603,TCC). Note: In Assali vs. Commissioner, 27SCRA312, the SC held as a valid the interception and seizure of a vessel on the high seas, saying that the authority of a nation within its territory is absolute and exclusive. The power to secure itself from injury may certainly be exercised beyond the limits of its territory. Places where searches and seizures may be conducted 1. Right of police officer to entered enclosure WITHOUT a warrant, EXCEPT a dwelling house 2. Search with dwelling house must be with proper warrant 3. right to search vehicles or aircrafts and person or articles conveyed therein 4. Right to search vehicles, beast and person 5. Search of person arriving from foreign countries.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 92 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
PROCEDURE IN SEIZURE AND FORFEITURE CASES
Warrant for detention of property shall be issued by the collector.
Report of seizure to Commissioner and Chairman, Commission on Audit
Notification to owner or importer or to unknown owner.
Note: If the owner or importer desires to secure to release of the property for legitimate use, the collector may surrender it upon the filling of a sufficient BOND, in an amount fixed by him, conditioned for the payment of the appraised value of the article and or any fine, expenses and cost which may be adjudged in the case. PROVIDED, articles which are prohibited by law shall NOT be released under bond.
Formal Hearing
District collector renders his decisions
If against the importer he may appeal
If against the government it may appeal
SETTLEMENT OF FORFEITURE CASES GEN. RULE: Settlement of cases by payment of fine or redemption of forfeited property is allowed.
Since criminal proceeding are actions in personam while the latter is action in rem. Note: Burden of proof in seizure or forfeiture case is on the claimant. (sec. 2535, TCC)
EXCEPTIONS:
MANIFEST
1. the importation is absolutely prohibited or 2. the surrender of the property to the person offering to redeem would be contrary to law or 3. when there is fraud. (sec. 2307,TCC)
Manifest in coastwise trade for cargo and passengers transported from one place to another are required when one or both of such places are a port of entry (sec.906,TCC).
Note: Acquittal in criminal charged is not a res judicata in seizure or forfeiture proceedings.
Manifest is not only required to imported goods. It is also required for articles found on vessels or aircraft engaged in coastwise trade.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 93 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
Whether the act of smuggling is established or not under the principle of res ipsa loquitur. It is enough that the cargo was unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. Thus, unmanifested cargo is subject to forfeiture. B. SURCHARGE To overcharge or to charge again as in an accounting between parties. Articles Subject to Surcharge [Code: DEMI] 1. Failure to pay Duties (sec. 2501,TCC) 2. Failure or refusal of a party to submit evidence (sec. 2504,TCC) 3. Misclassification, misdeclaration or under evaluation of article 4. Failure to submit or supply invoice (sec.2502,TCC) D. FINES Subject to Fines [Code: BRUCE] 1. Breach of a 2. Failure to supply or manifest requirements provided by law (sec. 2521, TCC) 3. Unlawful loading and unloading of cargoes (Secs. 2524, 2517,TCC) 4. Failure to produce all the crew members 5. Failure to exhibit the documents related to the vessel (Secs. 2519,2507,2508-2514, TCC)
I N
T A X A T I O N
FUNDAMENTAL PRINCIPLES (SEC. 130, LGC) The fundamental principles governing the exercise of the taxing and other revenue-raising powers of LGUs are: 1. Taxation shall be Uniform in each local government unit; 2. Taxes, fees, charges and other impositions shall a. be equitable and based as far as practicable on the taxpayer's ability to pay; b. be levied and collected only for public purposes; c. not be unjust, excessive, oppressive, or confiscatory; d. not be contrary to Law, public policy, national economic policy, or in the restraint of trade; 3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; 4. The revenue collected shall inure solely to the benefit of the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, 5. Each local government unit shall, as far as practicable, evolve a progressive system of taxation. LOCAL TAXING AUTHORITY The power to tax is exercised by the Sanggunian of the LGU concerned through an appropriate ordinance. (Sec. 132, LGC) POWER TO ADJUST LOCAL TAX RATE (SEC. 191, LGC)
LOCAL TAXATION
Adjustment of the tax rates as prescribed herein should not be oftener than once every five (5) years, and in no case shall such adjustment exceed 10% of the rates fixed under the LGC.
Power to Create Sources of Revenue Each local government unit has the power to: 1. create its own sources of revenue and 2. levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. (Sec. 129)
POWER TO GRANT TAX EXEMPTIONS (SEC. 192, LGC)
Such taxes, fees, and charges shall accrue exclusively to the local government units.
LGU may, through ordinances duly approved, grant tax exemptions, incentives or relief’s under such terms and conditions, as they may deem necessary.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 94 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
National Government, its agencies and Instrumentalities, and local government units.
RESIDUAL TAXING POWERS OF THE LGU (SEC. 186, LGC) To levy taxes, fees, or charges on any base or subject NOT: a. specifically enumerated in LGC b. taxed under the provisions of the NIRC c. other applicable laws. Limitations of the Residual Power: a. constitutional limitations on taxing power b. common limitation prescribed in Sec. 133, LGC c. fundamental principles governing the exercise of the taxing power of the LGU’s prescribed under Sec. 130 LGC d. the ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and e. the principle of preemption. PRINCIPLE OF PREEMPTION EXCLUSIONARY DOCTRINE
OR
Where the National Government elects to tax a particular area, it impliedly withholds from the local government the delegated power to tax the same field. This doctrine rest on the intention of the Congress.
3. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. 6810 and R.A. 6938 (Cooperative Code of the Philippines); 4. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided; 5. Taxes on premiums paid by way or reinsurance or retrocession; 6. 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; 7. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues, except wharfage on wharves constructed and maintained by the local government unit concerned; 8. Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
Excluded imposition: 9. Documentary stamp tax; a. taxes which are levied under the NIRC, unless otherwise provided by LGC; b. taxes which are imposed under the Tariff and Customs code c. taxes imposition of which contravenes existing governmental policies or which violates the fundamental principles of taxation d. taxes and other charges imposed under special law. LIMITATION ON LOCAL POWER (SEC. 133,LGC)
10. Estate Tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided; 11. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise,
TAXING
1. 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; 2. Taxes, fees or charges of any kind on the
12. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided; 13. Income tax, except on banks and other financial institutions; 14. Taxes on business enterprises certified to by
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 95 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
the Board of Investments as pioneer or nonpioneer for a period of 6 and 4 years, respectively from the date of registration;
printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature.
15. Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products.
Rate: Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year
OTHER IMPOSITIONS THAT THE LGU MAY LEVY a. b. c. d.
provinces municipalities cities barangays
Exceptions: Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment. School texts or references, prescribed by the DECS shall be exempt from the tax. 3. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise.
PROVINCES 1. tax on transfer of real property 2. tax on business of printing and publication 3. franchise tax 4. tax on sand gravel and other quarry resources extracted from public land 5. professional tax 6. amusement tax 7. annual fixed tax for delivery truck or van manufacturers or producers, wholesalers of, dealer, or retailers in, certain products. 1. Tax on Transfer of Real Property Ownership. The province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property. Rate: Not more than 50% of the 1% of the total consideration or of the fair market value, whichever is higher Exception: Sale, transfer or other disposition of real property pursuant to R.A. No. 6657 (CARL). Note: It shall be the duty of the seller, donor, transferor or administrator to pay the tax imposed within 60 days from the date of the execution of the deed or from the date of the decedent's death 2. Tax on Business of Printing and Publication. The province may impose a tax on the business of persons engaged in the
Rate: Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year, within its territorial jurisdiction. Exceptions: Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment. 4. Tax on Sand, Gravel and Other Quarry Resources. The province may levy and collect taxes on ordinary stones, sand, gravel, earth, and other quarry resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. Rate: Not more than 10% of fair market value in the locality Note: The permit to extract resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan. Proceeds distributed as follows: Province -30% Component City or Municipality where the quarry resources are extracted - 30% Barangay where the quarry resources are extracted - 40%. 5. Professional Tax. The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination. To be paid on or before the 31st day of January. Any person first beginning to practice a profession after the month of January must, however, pay the full tax before engaging therein.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 96 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
Rate: At such amount and reasonable classification as the sangguniang panlalawigan may determine but shall in no case exceed P300.00.
outlets, or consumers, whether directly or indirectly, within the province.
Exception: Professionals exclusively employed in the government shall be exempt from the payment of this tax.
MUNICIPALITIES (SEC. 143 LGC)
Note: To be paid to the province where he/she practices his/her profession or where he/she maintains principal office in case the practice is in several places provided, after payment he/she shall be entitled to practice his/her profession in any part of the Philippines. W/out being subjected to any other national or local tax, license, or fee for the practice of the profession. 6. Amusement Tax. The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadium, and other places of amusement Rate: Not more than 30% of the gross receipts from admission fees. Exception: The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt. Note: Sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of fraud or failure to pay, the sangguniang panlalawigan may impose surcharges, interest and penalties. The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located. 7. Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. The province may levy an annual fixed tax for every truck or any vehicle used by manufacturers, producers, wholesalers, dealers or retailers in the delivery of distilled spirits, soft drinks, cigars and cigarettes, and other products as may be determined by the sanggunian, to sales
Rate: Amount not exceeding P500.00.
The municipality may impose taxes on the following business: a. On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature. b. On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature. c. On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of the essential commodities d. On retailers e. On contractors and other independent contractors f. On banks and other financial institutions, g. On peddlers engaged in the sale of any merchandise or article of commerce h. On any business, which the sanggunian concerned may deem proper to tax. For businesses subject to the excise, valueadded or percentage tax, the tax rate shall not exceed 2% of gross sales of the preceding calendar year. Note: Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed for a-h. (Sec. 144 LGC) The tax is payable for every separate or distinct establishment or place where business is conducted. (Sec. 146 LGC) Municipal non-revenue fees and chargesThe municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. (Sec 147 LGC) Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters. The sanggunian may: a. Grant fishery privileges to erect fish corrals, oysters, or other aquatic beds or bangus fry
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 97 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
areas 1. Duly registered organizations and cooperatives of marginal fishermen shall have the preferential right; 2. The sanggunian may require a public bidding pursuant to an ordinance for the grant of such privilege; 3. Absent of such orgs. and coops or their failure to exercise their preferential right, other parties may participate in the public bidding b. Grant the privilege to gather, take or catch bangus fry, prawn fry or fry of other species and fish from the municipal waters by nets or other fishing gears to marginal fishermen free of rental or fee c. Issue licenses for the operation of fishing vessels of three (3) tons or less. (Sec. 149)
I N
T A X A T I O N
In case there is no branch or sales outlet in the city or municipality where the sale made, the sale shall be recorded in the principal office and the taxes due shall accrue and be paid to such city or municipality. The following sales allocation for sales recorded in the principal office of businesses with factories, project offices, plants, and plantations: a. 30% of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and b. 70% of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located.
CITIES (SEC. 151,LGC) The city may levy the taxes and other charges which the province or municipalities may impose. The tax rates that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of professional and amusement taxes.
Where the plantation located at a place other than the place where the factory is located, the above mentioned 70% shall be divided as follows: 60% to the city or municipality where the factory is located; and 40% to the city or municipality where the plantation is located.
BARANGAYS (SEC. 152, LGC) The barangay may levy the following taxes: a. taxes on stores or retailers with fixed business establishments with the gross sales for the preceding calendar year of P50,000 or less ( for barangay in the cities) and P30,000 or less (barangays in municipalities) b. services or charges c. barangay clearance d. other fees and charges. SITUS OF 150,LGC)
LOCAL
TAXATION
Where there are 2 or more factories, project offices, plants, or plantations located in different localities, the above mentioned 70% shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. COMMUNITY TAX Cities or municipalities may levy a community tax (Sec. 156)
(SEC. A. Individuals Liable to Community Tax:
For purposes of collection of the taxes under Section 143 (tax on business), businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located.
1. Inhabitant of the Philippines 2. Eighteen years of age or over 3. Regularly employed on a wage or salary basis for at least 30 consecutive working days during any calendar year, 4. or who is engaged in business or occupation, 5. or who owns real property with an aggregate assessed value of P1, 000.00
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 98 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
or more, 6. or who is required by law to file an income tax return Tax rate: P5.00 and an annual additional tax of P1.00 for every P1, 000.00 of income regardless of whether from business, exercise of profession or from property which in no case shall exceed P5, 000.00.
I N
T A X A T I O N
A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of P1.00. (Sec. 162,LGC) Sec. 163, LGC Presentation of Community Tax Certificate On Certain Occasions Individual a. When an individual subject to the community tax acknowledges any document before a notary public, b. takes the oath of office upon election or appointment to any position in the government service; c. receives any license, certificate or permit from any public authority; pays any tax or fee; d. receives any money from any public fund; e. transacts other official business; or f. receives any salary or wage from any person or corporation.
In the case of husband and wife, the tax imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. (Sec. 157) B. Juridical Personalities (Sec. 158, LGC) Every corporation, no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines is also liable to pay an annual community tax. Tax rate: P500.00 and an annual additional tax, which shall exceed P10, 000.00 in accordance with the following schedule: a. For every P5,000.00 worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax - P2.00; and b. For every P5, 000.00 of gross receipts derived by it from its business in the Philippines during the preceding year P2.00. EXEMPT FROM COMMUNITY TAX 1. Diplomatic and consular representatives; and 2. Transient visitors when their stay does not exceed 3 months. Place of Payment - place of residence of the individual, or in the place where the principal office of the juridical entity is located. (Sec. 160) Time for Payment - accrues on the 1st day of Jan. of each year which shall be paid not later than the last day of Feb. of each year Penalties for Delinquency. - An interest of 24% per annum from the due date until it is paid shall be added on the amount due.
The community tax certificate shall not be required in the registration of a voter. Corporation a. receives any license, certificate, or permit from any public authority, b. pays any tax or fee, c. receives money from public funds, or d. transacts other official business. The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions. The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. Proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: (Sec. 164) 50% accrues to the general fund of the city or municipality concerned; and 50% accrues to the barangay where the tax is collected.
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 99 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
II. TAX REMEDIES UNDER THE LOCAL GOVERNMENT CODE A. Tax Remedies of Local Government Units 1. Impose penalties (surcharges and penalty interest) in case of delinquency; 2. Avail local government’s liens; 3. Administrative action through distraint of goods, chattels and other personal property; and 4. By judicial action. Civil remedies for collection 2. 3. 4. 5. 6.
tax lien; distraint; levy; civil action; purchase of property by LGUs for want of bidder; property distrained not disposed within 120 days from date of distraint – considered sold to the LGU.
Note: Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local government unit concerned. Tax lien- Local taxes constitute a lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative of judicial action, not only upon any property or rights therein which may be the subject of the lien but also upon property used in business, occupation, practice of profession or calling, or exercise of privilege with respect to which the lien is imposed
I N
T A X A T I O N
Prescriptive Periods under the LGC: 1. Assessment of Local Taxes General rule – five years (5) from the date they became due. Exception: When there is fraud or intent to evade the payment of taxes, fees, or charges – ten (10) years from discovery of the fraud or intent to evade the payment. 2. Collection of Local taxes: Five (5) years from the date of assessment by administrative or judicial action.
Interruption of the period of prescription: 1. The treasurer is legally prevented from making the assessment or collection of the tax; 2. The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect; and 3. The taxpayer is out of the country or otherwise cannot be located.
B. Remedies of the Taxpayer under the LGC A. ADMINISTRATIVE Prior to assessment: 1. Administrative appeal to the Secretary of Justice; and 2. Action for declaratory relief
Judicial action civil action only; it precludes a criminal case as a proper remedy for collection of delinquent local taxes. The treasurer of the concerned Local Government Unit shall file the collection case. The CTA has co jurisdiction over the tax collection cases of the LGU
After an assessment: 1. Protest of the assessment within 60 days from receipt of assessment. Payment under protest is not necessary.; or 2. Action for refund within 2 years from payment of tax to local revenue taxes the supervening cause applies in local taxation because the period for the filling of claims for refund is counted not necessarily from the date of payment but from the date the taxpayer is entitled to a refund or credit. 3. Right of redemption- 1 year from the date of sale or forfeiture. (SEC. 179, LGC)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 100 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
B.JUDICIAL appeal within 60 days from assessment of provincial, city or municipal assessor to Local Board of Assessment Appeals; within 30 days from receipt of decision of LBAA to Central Board of Assessment Appeals; a.
in case of denial of refund or credit, appeal to the Board of Assessment Appeals as in a protest case
I N
T A X A T I O N
Payment and subsequent refund or tax credit – within two (2) years from payment of tax to local treasurer. Right of redemption – one (1) year from the date of sale or from the date of forfeiture. Action for declaratory relief injunction – if irreparable damage would be caused to the taxpayer and no adequate remedy is available. REAL PROPERTY TAXATION CHARACTERISTIC OF REAL PROPERTY TAX
b. court action – appeal of CBAAs
decision to the Supreme Court by certiorari; c.
suit assailing validity of tax, recovery or refund of taxes paid;
1. Direct tax on the ownership of real property 2. Ad Valorem tax. The value is based on the tax base 3. Proportion - the tax is calculated on the basis of a certain percentage of the value assessed 4. Indivisible single obligation 5. Local Tax
d. suit to declare invalidity of tax
in
PROPERTIES LIABLE UNDER REAL PROPERTY TAX
suit assailing the validity of tax sale
According to the Local Government Code, Real Property liable for Real Prop tax is: 1. Land, 2. Buildings 3. Machinery and 4. Other improvements not otherwise exempted under said code (Sec 232, LGC)
due to irregularity assessment and collection; e.
Appeal to the Secretary of Justice: Any question on the constitutionality or
legality of tax ordinances may be raised on appeal within 30 days from the effectivity thereof To the Secretary of Justice Who shall render a decision within 60
days from date of receipt of appeal Such
appeal shall not suspend the effectivity of the ordinance, as well as the accrual and payment of the tax
In case of adverse decision or inaction by
Note: Although the term real property has not been expressly defined in the LGC, early decisions of the Supreme Court in Mindanao Bus Co. v City Assessor of Cagayan de Oro, 6 SCRA `97; Board of Assessment Appeals v Meralco, 119 PHIL 328; Manila Electric Co. v Board of Assessment Appeals, 10 SCRA 68 seem to suggest that Art 415 of the Civil Code could also be controlling. CLASSIFICATION OF LAND purposes of assessment Sec 218 (a)
the Secretary of Justice, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. Protest – within 60 days from receipt of assessment. Payment under protest not necessary.
1. 2. 3. 4. 5. 6. 7.
for
Commercial Agricultural Residential Mineral Industrial Timberland Special
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 101 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
SPECIAL CLASSES OF REAL PROPERTY (sec 216, LGC) 1. Hospitals 2. Cultural and scientific purposes 3. owned and used by local water districts 4. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. PROPERTIES EXEMPT FROM TAXES (Sec. 234) 1. owned by the Republic of the Philippines or its political subdivisions Except: when beneficial use has been granted to a taxable person 2. Charitable institutions, churches, parsonages, and convents thereto, mosques, non-profit or religious cemeteries, 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 districts 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 under RA 6938 5. Machinery & equipment for pollution control and Environment protection Exemptions previously granted, (not falling within the above enumeration) are withdrawn. FUNDAMENTAL PRINCIPLES IN Assessment REAL PROP TAXES (Art 198) 1. Current and fair market value is the basis of appraisal 2. Uniformity in classification in each local gov’t unit should be observed 3. Actual use of the property should be the basis of classification 4. appraisal, assessment, levy and collection should not be let to any private person. 5. equitable appraisal and assessment PROCEDURE: STEP 1 - DECLARATION PROPERTY
OF
I N
T A X A T I O N
1. Declared by Owner or Administrator (Sec 202-203) If newly acquired property files with assessor within 60 DAYS from date of transfer a SWORN statement containing FMV and description of property If improvement on real property file w/in 60 DAYS upon completion or occupation (whichever is earlier) SWORN statement containing FMV and description of property 2. Declared by Provincial / City / Municipal Assessor (Sec 204) only when the person under Sec 202 refuses or fails to make the declaration within the prescribed time No oath is required IF FILING FOR EXEMPTION (Sec 206) person claiming exemptions must file with assessor sufficient documentary evidence to support claim within 30 days from the date of DECLARATION of property If required evidence is not submitted within 30 days, the property will be listed as taxable in the roll. If proven to be tax-exempt, property will be dropped from the roll Note: IF PROPERTY DECLARED FOR THE FIRST TIME (Sec. 222) If declared for 1st time, real property shall be assessed for back taxes for not more than 10 yrs prior to the date of initial assessment taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENTROLLS (Sec 205, 207) All declaration shall be kept and filed under a uniform classification system to be established by the provincial, city or municipal assessor.
REAL
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 102 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
STEP 3: APPRAISAL AND VALUATION OF REAL PROPERY (Sec 212-214, 224-225) Determining Fair Market Value A. Land 1. Assessor of the province, city, and municipalities gives summons to owners of affected properties 2. Assessor prepares a schedule of FMV for different classes of properties 3. Sanggunian enacts an ordinance 4. the schedule of FMV is published or posted B. Machinery 1. For Brand New machinery: FMV is acquisition cost 2. In all other cases: FMV = Remaining eco. life X Replacement Estimated Eco. Life Cost STEP 4: DETERMINE ASSESSED VALUE (Sec 218) Procedure 1. take the schedule of FMV 2. Assessed value = FMV X Assessment level 3. Tax = Assessed value X Tax rate STEP 5: PAYMENT AND COLLECTION OF TAX Period: January 1 of every year (Sec 246) tax shall constitute as superior lien (Sec 246) HOW? a. basic real prop tax in 4 equal installments (Mar 31, June 30,Sept. 30, Dec. 31) b. special levy - governed by ordinance Note: INTEREST for LATE PAYMENT - two percent (2%) each month on unpaid amt. until the delinquent amt is paid. - provided in no case shall the total interest exceed thirty-six (36) months Note: FOR ADVANCE and PROMPT PAYMENT a) advance payment -discount not exceeding 20% of annual tax (Sec 251, LGC) b) prompt payment -discount not exceeding 10% of annual tax due (Art 342 IRR)
I N
T A X A T I O N
WHO COLLECTS? The provincial, city, municipal or barangay treasurer within which to collect. (Sec 270). PERIOD: a. within five (5) yrs from the date they become due b. within ten (10) yrs. from discovery of fraud, in case there is fraud or intent to evade PRESCRIPTION SHALL BE SUSPENDED when: (Sec 270, LGC) 1. local treasurer is legally prevented to collect tax 2. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect 3. the owner of the prop is out of the country or cannot be located REMEDIES TAXATION
IN
REAL
PROPERTY
A. REMEDIES OF TAXPAYER 1. PAYMENT UNDER PROTEST (Sec 252) - file protest with prov, city, or mun. treasurer concerned - indicate amount contested - annotate on tax receipt “paid under protest” - Within 30 days, confirm protest in writing stating grounds therefor - treasurer shall decide protest within 60 days Note: No protest shall be entertained unless THE TAX IS FIRST PAID. IF PROTEST DECIDED IN FAVOR of taxpayer, amount may either be a. refunded or b. applied as tax credit IF DENIED or NOT DECIDED WITHIN 60 DAYS BY TREASURER, a. taxpayer may appeal to board of assessment appeal or b. avail of remedies under Ch 3 title 2 Book II (Local Board of Assessment Appeals and Central Board of Assessment Appeals) 2. REFUND IN CASE OF EXCESSIVE COLLECTION (Sec 253)
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 103 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
File a written claim for refund within two (2) years from date taxpayer is entitled thereto B. REMEDIES OF GOVERNMENT Remedies may be enforced either through administrative or judicial action or both, alternative or simultaneously. Use or non-use of one remedy shall not be a bar against the other (Sec 258) 1. ADMINISTRATIVE A. Levy on Real property (Sec 258 and 259) B. Sale of Real Property (Sec 260) C. Local Government’s Lien (Sec 256) D. Further Distraint or Levy (Sec 265) 2. JUDICIAL (Sec 266)-civil action filed by the local treasurer within 5 yrs. from due date C. CONDONATION and REMISSION The PRESIDENT may remit or reduce real prop tax in any province, city, municipalities if he deems that PUBLIC INTEREST so requires (Sec 277) THE SANGGUNIAN concerned may CONDONE or REDUCE the tax in cases where a. there is a general failure of crops b. substantial decrease in the price of products c. calamity (Sec 276)
I N
T A X A T I O N
Within 30 days CTA EN BANC Within 15 days SUPREME COURT
COURT OF TAX APPEALS (R.A. 9282approved March 30, 2004) COMPOSITION Presiding Justice and 5 Associate Justices May sit en banc or in two divisions, each division consisting of 3 justices. He presiding justice and the most senior associate justice shall serve as chairmen of the two divisions. POWERS of the Court of Tax Appeal 1. 2. 3. 4. 5. 6. 7.
by an ordinance - passed before Jan 1 of any year and upon recommendation of the Local Disaster Coordinating Council APPEALS TAXATION
IN
REAL
PROPERTY
8. 9. 10.
OWNER OR PERSON WITH INTEREST Files within 60 days 1. Written Petition under Oath 2. With Supporting Documents
LEGAL
DISTRAINT OF PERSONAL PROPERTY AND LEVY OF REAL PROPERTY
Within 60 days LOCAL BOARD OF ASSESSMENT APPEALS (LBAA should decide win 120 DAYS from receipt of petition) Within 30 days CENTRAL BOARD APPEALS
OF
to administer oaths; to receive evidence; to summon witness by subpoena; to inquire production of papers or documents by subpoena duces tecum; to punish contempt; to promulgate rules and regulations for the conduct of its business; to assess damage against appellant if appeal to CTA is found to be frivolous or dilatory; to suspend the collection of tax pending appeal; and to render decisions on case brought before it. to issue order authorizing distrait of personal property and levy of real personal property.
ASSESSMENT
Upon the issuance of any ruling, order or decision by the CTA favorable to the national government, the CTA shall issue an order authorizing the BIR, through the commissioner: 1. to seize and distrait any goods, chattels, or effects and personal property, including stocks and other securities, debts, credits,
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 104 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
bank accounts, and interest in and rights to personal property and/or 2. levy the real property of such persons in sufficient quantity to satisfy the tax or charge together with any increment thereto incident to delinquency. The remedy shall no be exclusive and shall not preclude the court from availing of other means under the Rules of Court.
him automatically for review from decisions of the Commissioner of Customs which are adverse to the government; 7. decisions of the Secretary of Trade and Industry, in the case of nonagricultural products, and the Secretary of Agriculture in the case of agricultural products, involving dumping ad countervailing duties
JURISDICTION OF THE CTA A. EXCLUSIVE APPELATE JURISDICTION TO REVIEW BY APPEAL
B. JURISDICTION OVER CRIMINAL CASES 1. Exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC or tariff and Customs Code and other laws administered by the BIR and BOC.HOWEVER, offenses a) where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than 1 million pesos, or
1. decision or inaction of the CIR in2. a) disputed assessment; refunds of internal revenue taxes, fees and other charges; penalties imposed in relation thereto; and b) other matters arising under the NIRC; or other law or part of law administered by BIR. 3. Decisions, order or resolution of the RTCs in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction.
b) where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate.
4. decisions of Commissioner of Customs in a. cases involving liability from customs duties, fees and other money charges; seizures, detention or release of property affected; fines, forfeitures and other penalties imposed in relation thereto; and
The criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action,
b. other matters arising under the
Customs Law or other laws or part of laws administered by the BOC. 5. decisions of the CBAA in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the LBAA; 6. decisions of the Secretary of Finance on customs cases elevated to
and no right to reserve the filing of such civil action separately from the criminal action shall be recognized. 2. Exclusive appellate jurisdiction in criminal offenses: a) over appeals from the judgments, resolutions or orders of the RTC in tax cases originally decided by them;
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 105 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
A I D
I N
T A X A T I O N
b) over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the MTC.
for under Rule 42 of Rules on Civil Procedure Decision, ruling or inaction of the CIR, Commissioner of Customs, Sec. of Finance, Sec. of Trade and Industry or Sec. of Agriculture or the RTC this appeal shall be heard by a DIVISION of the CTA. Within 30 days from the receipt of the decision or ruling from the expiration of the period fixed by law for the official concerned to act, in case of inaction. A party adversely affected by a ruling, order of a division of the CTA may file a motion for reconsideration or new trial before the same Division. 2. By filling a petition for review under a procedure analogous to that provided for under Rule 43 of Rules on Civil Procedure Decision, ruling or inaction of the Central Board of Assessment and the RTC in the exercise of its appellate jurisdiction this appeal shall be heard by a CTA EN BANC. 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. 3. Petition for Review on Certiorari may be filled by a party adverse affected by a decision or ruling of the CTA En Banc, through a verified petition before the Supreme Court, pursuant to Rule 45 of the Rules on Civil Procedure.
C. JURISDICTION OVER TAX COLLECTION CASES 1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties. Collection where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than 1 million pesos shall be tried by the proper MTC and RTC; 2. Exclusive appellate jurisdiction in tax collection cases -a) over appeals from the judgments, resolutions or orders of the RTC in tax collection cases originally decided by them; b) over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax collection cases originally decided by the MTC. APPEAL WHO MAY APPEAL? Any party adversely affected by a decision, ruling or inaction of the CIR, Commissioner of Customs, Sec. of Finance, Sec. of Trade and Industry or Sec. of Agriculture or the RTC, may file an appeal with the CTA: 1. within 30 days after receipt of such decisions or 2. After the expiration of the period fixed by law for action referred to in Section 7(a) R.A. 9282, in which case the inaction shall be deemed a denial.
GEN. RULE: New issues cannot be raised for the first time on appeal. EXCEPTIONS: 1. defense of prescription REASON: this is a statutory right (Visayan Land Transport vs. Collector)
MODES OF APPEAL 1. By filling a petition for review under a procedure analogous to that provided
2. errors of administrative officials REASON: State can never be in estoppel and Lifeblood Theory (CIR vs. Procter
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 106 of 107
I C U
n s t i E N T R A n i t e d
t L P
u t e B A R u r s u i
O t
o P
f L a w E R A T I O N S o f E x c e l l e
n
2 0 0 c e
6
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS: Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y
and Gamble Manufacturing Corp.)
A I D
I N
T A X A T I O N
Philippines,
NOTE: However, this was reversed by the SC in the case of Commissioner vs. Procter and Gamble, G.R. no. 66838, Dec. 2, 1991 Resolution, held that “in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure which bind private parties.” Collection of taxes may be SUSPENDED pending appeal to the CTA GEN. RULE: No appeal taken to the CTA shall suspend the payment, levy or distrait, and/or sale of any property of the taxpayer. EXCEPTIONS: 1. there must be a showing that collection of the tax may jeopardize the interest of the government and/or taxpayer; 2. deposit of the amount claimed or file a surety bond for not more that double the amount of tax with the Court when required; and 3. showing by taxpayer that appeal is not frivolous or dilatory. CAN THE CTA ENJOIN COLLECTION OF TAXES? Sec. 11 of R.A. 1125 as amended by Sec. 9 of R.A. 9282 grants CTA power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or government. HOWEVER, Sec. 218 of NIRC provides no court any grant injunction to restrain collection of any tax, fee, charge imposed by the Tax code. Note: The provision in Tax Code refers to courts OTHER THAN the CTA. [Blaquera vs. Rodriguez, G.R. no. L-11295, March 29, 1958] Note: Appeal to the CTA does not automatically suspend collection UNLESS CTA issues suspension order at any stage of proceedings. —oOo—
T A X A T I O N ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 107 of 107
View more...
Comments
