98254326 taxation law reviewer

8/15/2019 98254326 Taxation Law Reviewer

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TAXATION LAW Reviewer (Sources:2012 Bar Examinaion S!""a#us$ %eLeon 2011$ A#an 200&$ %ean'ui#o Lecure Noes$ )a""anaNoes$ *ST +o"en Noes 2011,

I- +ENERAL .RIN)I.LES O/ TAXATION

A. Defnition and concept o taxation

Taxation is the inherent power o the sovereign, exercised through the legislature, to

impose burdens upon the subjects and objects within its jurisdiction, or the purpose

o raising revenues to carry out the legitimate objects o the government.

It is the power o the sovereign to impose burdens or charges upon persons,

property or property rights or the use and support o the government to be able to

discharge its unctions.

It is one o the inherent powers o the state.

. !ature o taxation

" Inherent in sovereignty # There is no need to enact a law to exercise thatpower as this power springs rom the moment a state comes into existence.

2 Legislative in character - $ven in the absence o any constitutional provision,the power alls to the legislature as part o the more general power o law#ma%ing.

& It is subject to constitutional and inherent limitations ' To a certain extent,(ongress will abuse that power. To a certain extent, you have that principlealso that the power to tax involves the power to destroy. (ongress may abusethat power given to it by the people through the electoral process.

(. (haracteristics o taxation

") An enforced contribution, or its imposition is in no way dependent uponthe will or assent o the person taxed*

+) It is generally payable in the form of money , although the law may providepayment in %ind*

&) It is laid by some rule of apportionment , which, in case o income taxes, isusually based on ability to pay*

) Levied upon persons, property or business, acts, transactions, right or privileges, In each case, however it is only a person who pays the tax*

-) It is levied by the State which has jurisdiction over the object taxed It isnecessary that the tate has jurisdiction or control over the objects to betaxed in order that the tax can be enorced*

/) Levied by the lawma!ing body of the State The power to tax is a legislativepower that only the legislature can exercise. $xcept0

a) Delegated power o the 123s pursuant to Art. 4, ec. - o the(onsitution*

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b) The 5resident pursuant to Art. 6I ection +7 8+) on tari9 rates, importan export :uotas, tonnage and wharage dues, and other duties andimposts*

c) c)Delegation to administrative agencies o the executive branch suchas the I;, ureau o (ustoms and the Department o s authority in enacting tax

laws.

=) Levied for public purpose A tax levied or private purpose isunconstitutional and, thereore, void* it constitutes ta%ing o propertywithout due process o law.

D. 5ower o taxation compared with other powers

A. TAXATION vs. POLICE POWER vs. EMINENT DOMAIN

" As to purpose0"axation ' or the support o the government

#minent $omain ?# or public use

%olice %ower ' to promote general welare, public health, public morals, and

public saety.

2 As to compensation&"axation ' 5rotection and benefts received rom the government.

#minent $omain ' just compensation, not to exceed the mar%et value declaredby the owner or administrator or anyone having legal interest in the property,

or as determined by the assessor, whichever is lower.

%olice %ower ' The maintenance o a healthy economic standard o society.

' As to persons a(ected&"axation and %olice %ower ' operate upon a community or a class o

individuals

#minent $omain ' operates on the individual property owner.

As to authority which exercises the power0"axation and %olice %ower ' $xercised only by the government or its political

subdivisions.

#minent $omain ' may be exercised by public services corporation or public

utilities i granted by law.

- As to amount of imposition0"axation ' 2enerally no limit to the amount o tax that may be imposed.

%olice %ower ' 1imited to the cost o regulation

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#minent $omain ' There is no imposition* rather, it is the owner o the

property ta%en who is just paid compensation.

/ As to the relationship to the )onstitution0"axation and #minent $omain ' ubject to certain constitutional limitations,

including the prohibition against impairment o the obligation o contracts.

%olice %ower * ;elatively ree rom constitutional limitations and superior to

the non#impairment provisions thereo.

B. TAX vs. LICENSE FEE:") As to purpose& Tax imposed or revenue @I1$ license ee or regulation. Tax

or general purposes @I1$ license ee or regulatory purposes only.

+) As to basis0 Tax imposed under power o taxation @I1$ license ee underpolice power.

&) As to amount 0 In taxation, no limit as to amount @I1$ license ee limited tocost o the license and expenses o police surveillance and regulation.

) As to the time of payment& Taxes normally paid ater commencement o business @I1$ license ee beore.

-) As to the e(ect of payment 0


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& special assessment ' levied only on land based wholly on the beneft accruingthereon as a result o improvements o public wor%s underta%en bygovernment within the vicinity.

license ee ' regulatory imposition in the exercise o the police power o thetate*

- margin ee ' exaction designed to stabiliBe the currency

/ custom duties and ees ' duties charged upon commodities on their beingimported into or exported rom a country*

= debt ' a tax is not a debt but is an obligation imposed by law.

E. SPECIAL ASSESSMENT vs. TAX

" A special assessment tax is an enorced proportional contribution romowners o lands especially benefted by public improvements.

+ A special assessment is levied only on land.

& A special assessment is not a personal liability o the person assessed* it islimited to the land.

A special assessment is based wholly on benefts, not necessity.

- A special assessment is exceptional both as to time and place* a tax hasgeneral application.

+epublic v acolod, . S)+A /'2

• A special assessment is a levy on property which derives some special beneftrom the improvement. Its purpose is to fnance such improvement. It is not atax measure intended to raise revenues or the government. The proceedsthereo may be devoted to the specifc purpose or which the assessment wasauthoriBed, thus accruing only to the owners thereo who, ater all, pay theassessment.

ome ;ules0

• An exemption rom taxation does not include exemption rom a specialtreatment.

• The power to tax carries with it a power to levy a special assessment.

F. TOLL vs. TAX

" Toll is a sum o money or the use o something. It is the consideration which ispaid or the use o a road, bridge, or the li%e, o a public nature. Taxes, on theother hand, are enorced proportional contributions rom persons and property

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levied by the tate by virtue o its sovereignty or the support o thegovernment and all public needs.

+ Toll is a demand o proprietorship* tax is a demand o sovereignty.

& Toll is paid or the used o another>s property* tax is paid or the support o government.

The amount paid as toll depends upon the cost o construction or maintenanceo the public improvements used* while there is no limit on the amountcollected as tax as long as it is not excessive, unreasonable, or confscatory.

- Toll may be imposed by the government or by private individuals or entities*tax may be imposed only by the government.

G. TAX vs. PENALTY

" %enalty is any sanction imposed as a punishment or violation o law or oracts deemed injurious* taxes are enorced proportional contributions rompersons and property levied by the tate by virtue o its sovereignty orthe support o the government and all public needs.

+ %enalty is designed to regulate conduct* taxes are generally intended togenerate revenue.

& %enalty may be imposed by the government or by private individuals orentities0 taxes only by the government.

H. OBLIGATION TO PAY DEBT vs. OBLIGATION TO PAY TAX

" A debt is generally based on contract, express or implied, while a tax is basedon laws.

+ A debt is assignable, while a tax cannot generally be assigned.

& A debt may be paid in %ind, while a tax is generally paid in money.

A debt may be the subject o set o9 or compensation, a tax cannot.

- A person cannot be imprisoned or non#payment o tax, except poll tax.

/ A debt is governed by the ordinary periods o prescription, while a tax isgoverned by the special prescriptive periods provided or in the !I;(.

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= A debt draws interest when it is so stipulated or where there is deault, while atax does not draw interest except only when delin:uent.

;ules re0 set o9 or compensation o debts

• 2eneral rule0 A tax delin:uency cannot be extinguished by legal

compensation. This is so because the government and the tax delin:uent arenot mutually creditors and debtors. !either is a tax obligation an ordinary act.Coreover, the collection o a tax cannot await the results o a lawsuit againstthe government.


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)AL"#< vs )I+

• Taxation is no longer a measure merely to raise revenue to support theexistence o the government. Taxes may be levied with a regulatory purposeto provide means or rehabilitation and stabiliBation o a threatened industrywhich is a9ected with public interest as to be within the police power o thetate.


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• Taxes are the lieblood o the nation through which the agencies o thegovernment continue to operate and with which the state e9ects its unctionsor the beneft o its constituents

Illustrations of the lifeblood theory

• (ollection o the taxes may not be enjoined by injunction

• Taxes could not be the subject o compensation or set o9 • A valid tax may result in destruction o the taxpayer>s property

• Taxation is an unlimited and plenary power

+. N$-$ss", *$'+,

• $xistence o a government is a necessity and cannot continue without anymeans to pay or expenses

&. B$$/s0+'$-"' *$'+, S,3%"'"- +$&4"'s*")

• ;eciprocal duties o protection and support between tate and inhabitants.Inhabitants pay taxes and in return receive benefts and protection rom thetate

. Doctrines in taxation

Imrescrii#i"i! o axes

2$!$;A1 ;31$0 Taxes are imprescriptible

$4($5TIH!0 They are prescriptible i the tax laws provide or statute o limitations

5;$(;I5TI6$ 5$;IHD0

") 5rescriptive periods or the assessment and collection o taxes

• "J years i return is tainted with alsity or raud

• & years i there is no raud

+) TA;I


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• A regressive system of taxation exists when there are more indirect taxesimposed than direct taxes.

• !o regressive taxes in the 5hilippine jurisdiction

I. (lassifcation o Taxes

As ' s7%8$- 34$+ '+ '%8$-

• 5ersonal, poll or capitation taxo Tax o a fxed amount imposed on persons residing within a specifed

territory, whether citiBens or not, without regard to their property or theoccupation or business in which they may be engaged, i.e. communitytax.

• 5roperty taxo Tax imposed on property, real or personal, in proportion to its value or in

accordance with some other reasonable method o apportionment.•

$xcise taxo A charge imposes upon the perormance o an act, the enjoyment o

privilege, or the engaging in an occupation.

As ' 7+'s$

2eneralFfscal revenue tax is that imposed or the purpose o raising public unds

or the service o the government.

A special or regulatory tax is imposed primarily or the regulation o useul or

non#useul occupation or enterprises and secondarily only or the purpose o raising

public unds.

As ' 9*' %$4+s *$ %7+($

" Direct tax

A direct tax is demanded rom the person who also shoul,ders the burden o the

tax. It is a tax which the taxpayer is directly or primarily liable and which he or she

cannot shit to another.

+ Indirect tax

An indirect tax is demanded rom a person in the expectation and intention that

he or she shall indemniy himsel or hersel at the expense o another, alling fnally

upon the ultimate purchaser or consumer. A tax which the taxpayer can shit to

another.

As ' *$ s-'$ '# *$ 46

• !ational taxo A national tax is imposed by the national government.

• 1ocal taxo A local tax is imposed by the municipal corporations or local government

units 8123s).

As ' *$ ($$+3"4"' '# 43'7

" pecifc tax

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A specifc tax is a tax o a fxed amount imposed by the head or number or by

some other standard o weight or measurement. It re:uires no assessment other

than the listing or classifcation o the objects to be taxed.

+ Ad valorem tax

An ad valorem tax is a fxed proportion o the value o the property with

respect to which the tax is assessed. It re:uires the intervention o assessors or

appraisers to estimate the value o such property beore due rom each taxpayer

can be determined.

As ' 5+4(74"' '+ +4$

• 5roportional taxo Tax based on a fxed percentage o the amount o the property receipts

or other basis to be taxed. $xample0 real estate tax.• 5rogressive or graduated tax

o Tax the rate o which increases as the tax base or brac%et increases.• Digressive tax rate0 progressive rate stops at a certain point. 5rogression halts

at a particular stage.• ;egressive tax

o Tax the rate o which decreases as the tax base or brac%et increases. There is no such tax in the 5hilippines.

L. Tax systems

C's"7"'4& 34(4$

• The rule o taxation shall be uniorm and e:uitable. The (ongress shall evolvea progressive system o taxation. MSection 28 1:, Article @I, )onstitution

• ;egressivity is not a negative standard or courts to enorce. @hat (ongress isre:uired by the (onstitution to do is to evolve a progressive system of taxationB This is a directive to (ongress, just li%e the directive to it to givepriority o the enactment o law or the enhancement o human dignity. Theprovisions are put in the (onstitution as moral incentives to legislation, not as judicially enorceable rights. 1"olentino v Secretary of inance.)

P+'5+$ss"v$ s,s$3 '# 464"' vs. +$5+$ss"v$ s,s$3 '# 464"'

• A progressive system of taxation means that tax laws shall place emphasis ondirect taxes rather than on indirect taxes, with ability to pay as the principalcriterion.

• A regressive system of taxation exists when there are more indirect taxesimposed than direct taxes.

• !o regressive taxes in the 5hilippine jurisdiction

S7334+, '# -&4ss"/-4"' '# 46$s:

• personal tax ' also %nown as capitaliBation or poll tax*

• property tax ' assessed on property o a certain class*

• direct tax ' incidence and impact o taxation alls on one person and cannotbe shited to another*

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• indirect tax ' incidence and liability or the tax alls on one person but theburden thereo can be passed on to another*

• excise tax ' imposed on the exercise o a privilege*

• general taxes ' taxes levied or ordinary or general purpose o thegovernment*

• special tax * levied or a special purpose*

•

speciCc taxes ' imposed on a specifc sum by the head or number or by somestandards o weight or measurement*• ad valorem tax ' tax imposed upon the value o the article*

• local taxes ' taxes levied by local government units pursuant to validlydelegated power to tax*

• progressive taxes ' rate increases as the tax base increases* and

• regressive taxes ' rate increases as tax base decreases.

2$!$;A1 ;31$0

# Taxes are personal to the taxpayer. (orporation>s tax delin:uency cannot beenorced on the stoc%holder or transer taxes on the estate be assessed on theheirs.

$4($5TIH!0

" stoc%holders may be held liable or unpaid taxes o a dissolved corporationi the corporate assets have passed into their hands* and

+ heirs may be held liable or the transer taxes on the estate, i prior to thepayment o the same, the properties o the decedent have been distributed

to the heirs.

N. 1imitations on the power o taxation

I*$+$ &"3"4"'s

• It must be imposed or a public purpose.

• I delegated either to the 5resident or to a 1.2.3., it should be validlydelegated.

• It is limited to the territorial jurisdiction o the taxing authority.

• 2overnment entities are exempted.

• International comity is recogniBed i.e. property o oreign sovereigns are notsubject to tax.

C's"7"'4& &"3"4"'s

Indirect

a) Due process clauseb) $:ual protection clausec)


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• Distribution o copies & days beore the &rd reading.

g) 5residential power to grant reprieves, commutations and pardons, and remit fnes

and oreitures ater conviction by fnal judgment.

$irect

a) ;evenue bill must originate exclusively in .;. but the enate may propose with

amendments.

b) !on#imprisonment or non#payment o poll tax.

c) Taxation shall be uniorm and e:uitable.

d) (ongress shall evolve a progressive system o taxation.

e) Tax exemption o charitable institutions, churches and personages or convents

appurtenant thereto, mos:ues, non#proft cemeteries, and all lands, buildings andimprovements AD$ 8actually, directly , exclusively) used or charitable, religious, and

educational purposes.

) Tax exemption o all revenues and assets used actually directly and exclusively or

educational purposes o0

• !on#proft non#stoc% educational institutions.

• 5roprietary or cooperative educational institutions subject to limitations

provided by law including0o restriction on dividendso provisions or re#investments.

g) Tax exemption o grants, endowments, donations or contributions AD$ or

educational purposes, subject to conditions prescribed by law.

h) !o tax exemption without the concurrence o a majority o all members o

(ongress.

i) ( power to review judgments or orders o lower courts in all cases involving '

1egality o any tax. Impost or toll, 1egality o any penalty imposed in relation

thereto.

1. IT3 H< TA4ATIH!

• 5lace o taxation

• The tate where the subject to be taxed has a situs may rightully levy andcollect the tax

• In determining the situs o taxation, you have to consider the nature o thetaxes

#xample&

" 5oll tax, capitation tax, community tax

;esidence o the taxpayer

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+ ;eal property tax or property tax

1ocation o the property

• De can only impose property tax on the properties of a person whoseresidence is in the %hilippines

$4($5TIH! TH T$ T$;;ITH;IA1ITG ;31$

A Dhere the tax laws operate outside territorial jurisdiction

") TA4ATIH! o resident citiBens on their incomes derived rom abroad

: Dhere tax laws do not operate within the territorial jurisdiction of the State

" @hen exempted by treaty obligations+ @hen exempted by international comity

S"7s '# 46 ' +$4& +'$+,

• L#< +#I SI";S or where the property is located

;$AH!0

The place where the real property is located gives protection to the realproperty, hence the property or its owner should support the government o that place

S"7s '# +'$+, 46 ' $+s'4& +'$+,

• 5>ILIA S#E;?";+ %#+S>?A5

• movables ollow the owner

• movables ollow the domicile o the owner

• ;31$0

"A?6IL# %#+S>?AL %+>%#+"=

@here located, usually the owners domicile

2 I?"A?6ILL# %#+S>?AL %+>%#+"=

2. ;. ' Domicile o the owner

$4($5TIH!0 The situs location not domicile0 @here the intangible

personal property has ac:uired a business situs in another jurisdiction

• The principle o 5obiliaSeFuntur%ersonamO is only or purposes o

convenience. It must yield to the actual situs o such property.• 5ersonal intangible properties which ac:uires business situs here in the

5hilippines0

")


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) hares, obligations, bonds issued by a oreign corporation which

shares o stoc% or bonds ac:uire situs here

-) ;ights, interest in a partnership, business or industry established in

the 5hilippines

•

These intangible properties ac:uire business situs here in the 5hilippines, youcannot apply the principle o Q5obiliaSeFuntur%ersonamO because the

properties have ac:uired situs here.

S"7s '# "-'3$ 46

$omicillary theory

The location where the income earner resides in the situs o taxation

?A"I>?ALI"= "G#>+=

The country where the income earner is a citiBen is the situs o taxation

i S>;+)# +;L#

The country which is the source o the income or where the

activity that produced the income too% place is the situs o taxation.

S"7s '# s4&$ '# $+s'4& +'$+,

The place where the sale is consummated and perected

S"7s '# 46 ' "$+$s "-'3$

The residence o the borrower who pays the interest irrespective o the placewhere the obligation was contracted

)I+ vs >A)

• ;evenue derived by an o#line international carrier without any Right rom the5hilippines, rom tic%et sales through its local agent are subject to tax on gross5hilippine billings

S"7s '# $6-"s$ 46

@here the transaction perormed

G>%#D#LL vs )>5 > );S">5S

• The power to levy an excise upon the perormance o an act or the engagingin an occupation does not depend upon the domicile o the person subject tothe exercise, nor upon the physical location o the property or in connectionwith the act or occupation taxed, but depends upon the place on which the act

is perormed or occupation engaged in.

Thus, the gauge o taxability does not depend on the location o the oce, but

attaches upon the place where the respective transaction is perected and

consummated

C. Double taxation

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• Taxing same property twice when it should be taxed but once. Taxing the sameperson twice by the same jurisdiction over the same thing.

• Also %nown as duplicate taxation

%#%SI )>LA vs )I"= > ;";A?

• There is no constitutional prohibition against double taxation in the5hilippines. It is something not avored but is permissible, provided that theother constitutional re:uirements is not thereby violated

NI!D H< DH31$ TA4ATIH!

") DI;$(T DH31$ TA4ATIH!

• Double taxation in the objectionable or prohibited sense

• ame property is taxed twice

+#E;ISI"#S&

A) The same property is taxed twice when it should only be taxed once*

) oth taxes are imposed on the same property or subject matter or the

same purpose*

() Imposed by the same taxing authority*

D) @ithin the same jurisdiction*

$) During the same period* and


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$) A tax imposed on both on the occupation o fshing and o the fshpond

itsel

A6;I> vs $# L#>?

• The argument against double taxation may not be invo%ed where one tax isimposed by the state and the other imposed by the city, it being widelyrecogniBed that there is nothing inherently obnoxious in the re:uirement thatlicense ees or taxes be exacted with respect to the same occupation, callingor activity by both the state and a political subdivision thereo. And where thestatute or ordinance in :uestion applies e:ually to all persons, frms andcorporations placed in a similar situation, there is no inringement o the ruleon e:uality.

@ILLA?;#@A vs )I"= > IL>IL>

• An ordinance imposing a municipal tax on tenement houses was challengedbecause the owners already pay real estate taxes and also income taxesunder the !I;(. The upreme (ourt held that there was no double taxation. The same tax may be imposed by the !ational 2overnment as well as thelocal government. There is nothing inherently obnoxious in the exaction o license ees or taxes with respect to the same occupation, calling or activity byboth the state and a political subdivision thereo.


17/66

+) Gou can :uestion the validity o double taxation i there is a violation o the $:ual

protection clause or $:uality or 3niormity o Taxation

&) All doubts as to whether double taxation has been imposed should be resolved in

avor o the taxpayer

Es-4$ #+'3 464"'

I. I


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Impact and Incidence of "axation

• Impact of taxation is the point on which a tax is originally imposed. In so ar asthe law is concerned, the taxpayer is the person who must pay the tax to thegovernment. e is also termed as the statutory taxpayer#the one on whom the

tax is ormally assessed. e is the subject o the tax

• Incidence of taxation is that point on which the tax burden fnally rests orsettle down. It ta%es place when shiting has been e9ected rom the statutorytaxpayer to another.

Statutory "axpayer

• The tatutory taxpayer is the person re:uired by law to pay the tax or the oneon whom the tax is ormally assessed. In short, he or she is the subject o thetax.

• In direct taxes, the statutory taxpayer is the one who shoulders the burden o the tax while in indirect taxes, the statutory taxpayer is the one who pay thetax to the government but the burden can be passed to another person orentity.

+elationship between impact, shifting, and incidence of a tax

• The impact is the initial phenomenon, the shifting is the intermediate process,and the incidence is the result. Thus, the impact in a sales tax 8i.e. 6AT) is onthe seller 8manuacturer) who shits the burden to the customer who fnally

bears the incidence o the tax.

• Impact is the imposition o the tax* shifting is the transer o the tax* whileincidence is the setting or coming to rest o the tax.

II. (A5ITA1ISATIH!

• ;eduction is the price o the taxed object e:ual to the capitaliBed value o uture taxes on the property sold

• This is a special orm o bac%ward shiting, where the burden o uture taxes

which the buyer may have to pay is shited bac% to the seller in the orm o reduction in the selling price

III. T;A!


19/66

$#L%G#+S "+A$#+S )>+% vs IA) 13. S)+A '49:

• The upreme (ourt upheld the estate planning scheme resorted to by the5acheco amily in converting their property to shares o stoc% in a corporationwhich they themselves owned and controlled. y virtue o the deed o exchange, the 5acheco co#owners saved on inheritance taxes. The upreme(ourt said the records do not point anything wrong and objectionable about

this estate planning scheme resorted to. The legal right o the taxpayer todecrease the amount o what otherwise could be his taxes or altogether avoidthem by means which the law permits cannot be doubted.

#xample&


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Noe: $:uity is not a ground or tax exemption. $xemption is allowed only i there is

a clear provision thereor.

?ature of tax exemption

• It is a mere personal privilege o the grantee.

• It is generally revocable by the government unless the exemption is ounded

on a contract which is contract which is protected rom impairment.• It implies a waiver on the part o the government o its right to collect what

otherwise would be due to it, and so is prejudicial thereto.• It is not necessarily discriminatory so long as the exemption has a reasonable

oundation or rational basis.• It is not transerable except i the law expressly provides so.

Hinds of tax exemption according to manner of creation

") #xpress or aJrmative exemption

@hen certain persons, property or transactions are, by express provision,

exempted rom all certain taxes, either entirely or in part.

+) Implied exemption or exemption by omission

@hen a tax is levied on certain classes o persons, properties, or transactions

without mentioning the other classes.

T!0 #very tax statute ma!es exemptions because of omissions

• !o tax exemption by implication

It must be expressed in clear and unmista%able language

)AL"#< vs )>A

• In claiming tax exemption, the burden o proo lies upon the claimant

• It cannot be created by mere implication

• It cannot be presumed that you are entitled to tax exemption

• Gou must prove it

;31$0

Taxation is the rule and exemption is the exception

%+>%#+"= "A< * 6>@#+?5#?" %+>%#+"=

• 5roperties owned by the government whether in their proprietary orgovernmental capacity are exempt rom real estate tax

T$T0

# >D?#+SGI%

• Hnce established that it belongs to the government, the nature o the use o the property whether proprietary or sovereign becomes immaterial.

• $xemption o public property rom taxation does not extend to improvementstherein made by occupants or claimants at their own expense.

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Hinds of tax exemptions according to scope or extent

") THTA1

@hen certain persons, property or transactions are exempted, expressly orimpliedly rom all taxes

+) 5A;TIA1

@hen certain persons, property or transactions are exempted, expressly orimpliedly rom certain taxes, either entirely or in part.

&) There can be no simultaneous exemptions under two laws, when one grants

partial exemption while other grants total exemption.

$oes provision in a statute granting exemption from all taxesB include indirect taxesK

• !H. As a general rule, indirect taxes are not included in the grant o suchexemption unless it is expressly stated.

6I. TA4 ;$CIIH! H; TA4 (H!DH!ATIH!

• The word remitB means to desist or rerain rom exacting, inRicting orenorcing something as well as to restore what has already been ta%en. Theremission o taxes due and payable to the exclusion o taxes already collecteddoes not constitute unair discrimination. uch a set o taxes is a class by itsel

and the law would be open to attac% as class legislation only i all taxpayersbelonging to one class were not treated ali%e. M uan Luna Subd @ Sarmiento,K" 5hil &=J

• The condition o a tax liability is e:uivalent to and is in the nature o a taxexemption. Thus, it should be sustained only when expressly provided in thelaw. MSurigao )onsolidated 5ining v )ommissioner of Internal +evenue, 9S)+A .28

6II. TA4 AC!$TG

• Tax amnesty, being a general pardon or intentional overloo%ing by the tate o its authority to impose penalties on persons otherwise guilty o evasion orviolation o a revenue to collect what otherwise would be due it and, in thissense, prejudicial thereto. It is granted particularly to tax evaders who wish torelent and are willing to reorm, thus giving them a chance to do so andthereby become a part o the new society with a clean slate. M+epublic vIntermediate Appellate )ourt , "K/ (;A &&-

• 1i%e tax exemption, tax amnesty is never avored nor presumed in law. It isgranted by statute. The terms o the amnesty must also be construed againstthe taxpayer and liberally in avor o the government.

Tax amnesty v. tax condonation v. tax exemption

• A tax amnesty, being a general pardon or intentional overloo%ing by thetatute o its authority to impose penalties on persons otherwise guilty o evasion or violation o a revenue or tax law, parta%es o an absolute

5age +"


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orgiveness or waiver by the 2overnment o its right to collect what otherwisewould be due it and, in this sense, prejudicial thereto, particularly to taxevaders who wish to relent and are willing to reorm are given a chance to doso and thereore become a part o the society with a clean slate.

• 1i%e a tax exemption, a tax amnesty is never avorednor presumed in law, andis granted by statute. The terms o the amnesty must be strictly construed

against the taxpayer and literally in avor o the government. 3nli%e a taxexemption, however, a tax amnesty has limited applicability as to cover aparticular taxing period or transaction only.

• There is a tax condonation or remission when the tate desists or rerains romexacting, inRicting or enorcing something as well as to reduce what hasalready been ta%en. The condonation o a tax liability is e:uivalent to and is inthe nature o a tax exemption. Thus, it should be sustained only whenexpressed in the law.

• Tax exemption, on the other hand, is the grant o immunity to particular

persons or corporations o a particular class rom a tax o which persons andcorporations generally within the same state or taxing district are obliged topay. Tax exemptions are not avored and are construed strictissimijurisagainstthe taxpayer.

)I+ vs +I> ";A

• 1aw granting partial reund parta%es the nature o a tax exemption andthereore must be strictly construed against the taxpayer

)I+ vs ">;+ S%#)IALIS"

• 2ross receipts subject to tax under the tax code do not include monies orreceipts entrusted to the taxpayer which do not belong to it and does notredound to the taxpayers beneft, and it is not necessary that there must be alaw or regulation which would exempt such monies and receipts within themeaning o gross receipts.

6III. TA4 $6AIH!

• It is also %nown as tax dodgingO

• It is punishable by law

• Tax evasion is the use by the taxpayer o illegal or raudulent means to deeator lessen the payment o tax.

=;"I@> vs )"A

Tax evasion is a term that connotes raud through the use o pretenses ororbidden devices to lessen or deeat taxes

$1$C$!T H< TA4 $6AIH!

Tax evasion connotes the integration o three 8&) actors0

") The end to be achieved, i.e. payment o less than that %nown by the taxpayer to

be legally due, or paying no tax when it is shown that tax is due

+) An accompanying state o mind which is described as being QevilO, Qin bad aithO,

QwillulO, or QdeliberateO and not QaccidentalO

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&) A course o action 8or ailure o action) which is unlawul

I!DI(IA o


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") @hen the law itsel expressly provides or a liberal construction thereo.

+) In cases o exemptions granted to religious, charitable and educational

institutions or to the government or its agencies or to public property because the

general rule is that they are exempt rom tax.

Strict interpretation does not apply to the government and its agencies

• 5etitioner cannot invo%e the rule on stritissimijuris with respect to theinterpretation o statutes granting tax exemptions to the !5(. The rule onstrict interpretation does not apply in the case o exemptions in avor o apolitical subdivision or instrumentality o the government. 75aceda v5acaraigN

$avao 6ulf v )ommissioner, 29' S)+A ./ 1998:

• A tax cannot be imposed unless it is supported by the clear and express

language o a statute* on the other hand, once the tax is un:uestionablyimposed, Qa claim o exemption rom tax payers must be clearly shown andbased on language in the law too plain to be mista%en.O ince the partialreund authoriBed under ection -, ;A "&-, is in the nature o a taxexemption, it must be construedstrictissimijurisagainst the grantee. ence,petitioner>s claim o reund on the basis o the specifc taxes it actually paidmust expressly be granted in a statute stated in a language too clear to bemista%en.

• #xemption of the buyer does not extend to the seller

•

$xemption o the principal does not extend to the accessory

S;+I6A> vs )>LL#)">+ of );S">5S

• "ax refunds, condonations and amnesties, they being in the nature o taxexemptions must be strictly construed against the taxpayer and liberally inavor o the government.

II- Naiona" Inerna" Revenue )oe o 1&&$ as amene (NIR),

A- Income axaion

Income is the Row o wealth which goes into the hands o the taxpayer other than

the return o capital.

". Income tax systems

a) 2lobal tax system

This is also %nown as the totality or the aggregate approach.The 2lobalystem o Taxation o Income ollows the principle that all income are one and

the same. There is no variance as to the type, the purpose, the character andthe %ind o income.

b) chedular tax system

This is also %nown as di9erentiated or segregated approach. The chedularystem o Taxation recogniBes that income are di9erent rom each other.

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There is a distinction and di9erentiation on tax treatment and character. Atype o income is to be di9erentiated rom another type o income. All incomeare not one and the same.Also includes the system o Qpay#as#you#goO

c) emi#schedular or semi#global tax system

+.


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Hne who stays in the 5hilippines or more than "7Jdays.

8+) !ot engaged in trade or business T!0 These persons are taxable only on income derived romsources within.

8iii) pecial class o individual employees

8a) Cinimum wage earner The statutory minimum wage earners are no longer taxable. They are exempted rom payment o income tax. Thedetermination o statutory wages is determined on a regularbasis by the ;T@5. 8;.A. K-J, Luly +JJ7)

b) (orporations8i) Domestic corporations8ii)


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) $xclusions rom 2ross Income 8$xempt rom Tax)0

8") 1ie Insurance.3 @hen you are indemnifed or such loss or insurance

proceeds are paid or such loss, what you have is a return o capital. That is

excluded and not subject to income tax.

ut i such amounts are held by the insurer under an agreement to pay

interest, then, income is earned by way o the interest but not on the principalamount covering the proceeds o the policy.

8+) Amount ;eceived by Insured as ;eturn o 5remium. # These are return o

premiums. They represent return o capital. They are not income.

8&) 2its, e:uests, and Devises. # The value o property ac:uired by git,

be:uest, devise, or descent0 5rovided, however, That income rom such property,

as well as git, be:uest, devise or descent o income rom any property, in cases

o transers o divided interest, shall be included in gross income.

8) (ompensation or Injuries or ic%ness. 3 These are orms o indemnity.

These are return o capital. Actual damages in payment or hospitaliBation and

other medical expenses are not income. Coral damages are not income. ut i

they are damages or payment o loss o income or loss o earning capacity, then,

they are taxable income.

8-) Income $xempt under Treaty. # Income o any %ind, to the extent re:uired

by any treaty obligation binding upon the 2overnment o the 5hilippines.

8/) ;etirement enefts, 5ensions, 2ratuities, etc.#

• ;etirement benefts received under ;epublic Act !o. =/" 81abor (ode) and

those received by ocials and employees o private frms, whether individual

or corporate, in accordance with a reasonable private beneft plan maintained

by the employer

;$V3I;$C$!T


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service o the employer because o death, sic%ness or other physical disability

or or any cause beyond the control o the said ocial or employee.

This reers to separation pay.As a rule, separation pay is taxable. It becomes

excluded when it is payment by reason o death, sic%ness or other physical disability

or or any cause beyond the control o the said ocial or employee.

I you resign and you are given a separation pay, that is taxable because that is acause within the control o the employee.

There are resignations which are beyond the control o the employee such as in

the case o mergers or consolidations. The separation pay given in such

circumstances is excluded because despite the resignation, it is a cause beyond the

control o the employee.

• The provisions o any existing law to the contrary notwithstanding, social

security benefts, retirement gratuities, pensions and other similar benefts

received by resident or nonresident citiBens o the 5hilippines or aliens whocome to reside permanently in the 5hilippines rom oreign government

agencies and other institutions, private or public.• 5ayments o benefts due or to become due to any person residing in the

5hilippines under the laws o the 3nited tates administered by the 3nited

tates 6eterans Administration.• enefts received rom or enjoyed under the ocial ecurity ystem in

accordance with the provisions o ;epublic Act !o. 7+7+.• enefts received rom the 2I under ;epublic Act !o. 7+K", including

retirement gratuity received by government ocials and employees.

As a rule, priBes and awards are taxable. They are excluded in the instances

provided.

8=) 5riBes and Awards in ports (ompetition. # All priBes and awards granted to

athletes in local and international sports competitions and tournaments whether

held in the 5hilippines or abroad and sanctioned by their national sports

associations.As a rule, priBes and awards in sports competition are taxable. They

are excluded under the conditions aorementioned.

87) "&th Conth 5ay and Hther enefts. # 2ross benefts received by ocials andemployees o public and private entities0 5rovided, however, That the total exclusion

under this subparagraph shall not exceed Thirty thousand pesos 85&J,JJJ) which

shall cover0

8i) enefts received by ocials and employees o the national and local

government pursuant to ;epublic Act !o. //7/*

8ii) enefts received by employees pursuant to 5residential Decree !o. 7-", as

amended by Cemorandum Hrder !o. +7, dated August "&, "K7/*

8iii) enefts received by ocials and employees not covered by 5residentialdecree !o. 7-", as amended by Cemorandum Hrder !o. +7, dated August "&, "K7/*

and

8iv) Hther benefts such as productivity incentives and (hristmas bonus0

5rovided, urther, That the ceiling o Thirty thousand pesos 85&J,JJJ) may be

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increased through rules and regulations issued by the ecretary o


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In the case o 2H((s, the rule is that they are taxable. Those which are not

taxable are 2I, , 5hilealth and 5(H. 5A2(H; has been removed under ;A

K&&= as being exempted. o, 5A2(H; is already taxable.

In the case o proprietary educational institutions and hospitals, they are subject,

as a rule, to the regular corporate income tax. 3nless, under the reominance

es, where they are entitled to a "JP tax on their taxable income provided that thepredominant income is the educational or hospital income. I the predominant

income 8more than -JP) o the proprietary educational or hospital is rom unrelated

income or unrelated business, then, it will be subject to regular rates.

"+. CI!IC3C (H;5H;AT$ I!(HC$ TA4 or C(IT

5inimum )orporate Income "ax on $omestic )orporations 1Sec 2., ?I+): O

A minimum corporate income tax o two percent 8+P) o the gross income as o the

end o the taxable year, as defned herein, is hereby imposed on a corporation

taxable under this Title, beginning on the ourth taxable year immediately ollowingthe year in which such corporation commenced its business operations, when the

minimum income tax is greater than the tax computed under ubsection 8A) o this

ection or the taxable year.

5inimum )orporate Income "ax on +esident oreign )orporations 1Sec 28, ?I+): O

A minimum corporate income tax o two percent 8+P) o gross income, as

prescribed under ection +=8$) o this (ode, shall be imposed, under the same

conditions, on a resident oreign corporation taxable under paragraph 8") o this

ubsection.

• The C(IT applies to both domestic corporations and to the resident oreign

corporations.• In its application, the tax due computed during the tax year at &-P is

compared to the +P o gross income. The tax due payable is whichever is

higher.• @hen we say that the C(IT applies beginning on the th taxable year

immediately ollowing the year in which the corporation commenced business,

it means that newly established corporations will not yet be subject to the

C(IT. @hen the corporation has been in the business and operating or years or more at the time this tax became e9ective, then, that provision is

covered.• 5rior to ;A K&&=, the C(IT was annualiBed ' you determine the tax to be paid,

whether C(IT or &-P, at the end o the year. @hen ;A K&&= too% e9ect in

+JJ-, the application o the C(IT is now on a :uarterly basis.• (orporations are re:uired to fle :uarterly returns. In the case o corporations

subject to C(IT, they have to determine at the end o the :uarter the taxable

income computed under the C(IT and under the &-P rate.• There is no th :uarter return or you will have the annual return.

"&. Imposition o Improperly Accumulated $arnings Tax. 8ec. +K, !I;()

The improperly accumulated earnings tax is in addition to your income tax.

This actually operates more as a penalty tax or a surtax. It is imposed on the

improperly accumulated taxable income o the corporation.


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accumulating earnings beyond the reasonable needs o the business, the

corporation will be subject to "JP on the improperly accumulated taxable

income.

@hen corporations are set up and it continues to accumulate profts

beyond the reasonable means o the business, the tax code penaliBes these

corporations because corporations should not accumulate beyond its businessneeds. It should distribute their earnings to the stoc%holders, to the owners o

the corporations, whether individuals or corporations. Htherwise, i they

would accumulate earnings beyond the reasonable means o the business,

then, it would be penaliBed and subject at "JP improper accumulated

earnings tax on the basis o improperly accumulated taxable income. This is

in addition to the regular corporate income tax that it will pay.

The improperly accumulated earnings tax shall apply to every corporation

ormed or availed or the purpose o avoiding the income tax with respect toits shareholders or the shareholders o any other corporation by permitting

earnings and profts to accumulate instead o being divided or distributed.

o as not to be penaliBed, the corporation has to declare dividends. I the

corporation accumulates earnings, there must be a business purpose or it not

to be penaliBed.

This penalty tax will not apply to0

" 5ublicly#held corporations* 8corporations which are traded in the stoc%exchange)+ an%s and other non#ban% fnancial intermediaries& Insurance companies

;emember that the distribution o dividends to the individual taxholders is

a taxable distribution, except when the distribution is made to another

corporation where it is tax#ree distribution o dividends.

". D$D3(TIH! 8ee ec. &, &-, &=, and /")

• 5rior to ;A K-J, corporate taxpayers were only entitled to avail o the

itemiBed deductions. !ow, under ;A K-J, both the individual and corporate

taxpayers may avail the itemiBed or the optional standard deduction 8HD).

"-. $TAT$ TA4

". asic principles

Transer taxes # imposed upon the privilege o disposing gratuitously privateproperties. These are levied on the transmission o properties rom a decedent to hisheirs or rom a donor to a donee.

+. Defnition

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It is an excise tax imposed upon the privilege o transmitting property at the time odeath and on the privilege that a person is given in controlling to a certain extentthe disposition o his property to ta%e e9ect upon death.

The tax should not be construed as a direct tax on the property o the decedentalthough the tax is based thereon.

$state Tax vs. Inheritance Tax

Inheritance tax # It is the tax on the privilege to receive property rom a deceasedperson. This has been abolished by 5.D. /K passed on !ovember +, "K=+, e9ective Lanuary ", "K=& due to administrative diculty in its collection.Noe: 5resently, there is no inheritance tax imposed by law. Hnly estate taxes areimposed.

&. !ature They are excise taxes* not property taxes.Noe: They are not property taxes because their imposition does not rest upon

general ownershipbut rather they are privilege tax since they are i. 5urpose or object". 2enerate additional revenue or the government+. ;educe the concentration o wealth&. 5rovide or an e:ual distribution o wealth. (ompensate the government or the protection given to the decedent thatenabled him to prosper and accumulate wealthNoe: 2enerally, the purpose o the estate tax is to tax the shiting o economicbenefts and enjoyment o property rom the dead to the living

-. Time and transer o properties': W6en are 6e roeries an ri76s ranserre o successors8A: The properties and rights are transerred to the successors at the time o death.1Art ..., )ivil )ode:': W6a "aw 7overns 6e imosiion o 6e esae ax8A: The statute in orce at the time o death o the decedent.': W6en oes esae ax accrue8A: The estate tax accrues as o the death o the decedent. The accrual o the tax isdistinct rom the obligation to pay the same which is / months ater the death o thedecedent.

/. (lassifcation o decedent': W6o are 6e axa!ers "ia#"e o a! esae ax8A: Hnly individuals #". ;esident citiBen+. !on#resident citiBen&. ;esident alien. !on#resident alien

Noe: Domestic and oreign corporations are subject only to donor>s tax and not toestate tax because it is not capable o death but may enter into a contract o donation.

=. 2ross estate vis#E#vis net estate

': W6a is 6e esae ax ormu"a8

2ross estate8Sec 83)1ess0 8") Deductions 8Sec 8/)8+) !et share o the surviving spouse???

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!et $statex Tax rate8Sec 84)$state tax due1ess0 Tax credit 8i any) 8Sec 8/1#: or P1:)$state Tax Due, i any

7. Determination o gross estate and net estate

': 9ow is 6e 7ross esae eermine8". I the decedent is a resident or non#resident citiBen, or a resident alien ' Allproperties, real or personal, tangible or intangible, wherever situated.+. I the decedent is a non#resident alien ' Hnly properties situated in the 5hilippinesprovided that, intangible personal property is subject to the rule o reciprocityprovided or under ection "J o the !I;(. 1Section 83, ?I+):

K. (omposition o gross estate". DecedentUs interest+. Transer in contemplation o death

&. ;evocable transer. 5roperty passing under general power o appointment-. 5roceeds o lie insurance/. 5rior interests=. Transers o insucient consideration

Noe: !os. +, &, and =# properties not physically in the estate 8these have alreadybeen transerred during the lietime o the decedent but are still subject to paymento estate tax) # are transers inter-vivoswhich are considered part o gross estate.

A: I 6e eceen is a resienciien$ non3resien ciien$ orresien a"ien

I 6e eceen is a non3resiena"ien

6alue at the time o death o all0". ;eal property wherever situated+. 5ersonal property, tangible orintangible, wherever situated&. To the extent o the interesttherein o the decedent at the timeo his death.

6alue at the time o death o all0". Tangible personal property situated inthe 5hilippines+. Intangible personal property with situsin the 5hilippines unless exempted onthe basis o reciprocity

"J. Items to be included in gross estate

/- Tax remeies uner 6e NIR)

W*4 4+$ *$ +$3$("$s 4v4"&4%&$ ' *$ 464,$+". Administrative

• eore payment o taxes0a. Dispute Assessment 85rotest)

i. ;e:uest or reconsiderationii. ;e:uest or reinvestigation

b. $ntering a compromise agreement

• Ater payment o taxes0a. (laim or Tax ;eund

+. Ludiciala. (ivilb. (riminal

&. ubstantivea. Vuestion validity o tax statuteF regulation

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b. !on#retroactivity o rulingsc. Cust be inormed o the legal and actual bases o assessmentd. 5reservation o boo%s o accounts and examination once a year

I3'+4-$ '# 46 +$3$("$s:

". To the government # s rights against arbitraryaction.

S7%8$-s '# 46 +$3$("$s " "$+4& +$v$7$ 464"'

They include the action o the I; where there may be controversy between thetaxpayer and the tate such as0". Assessment o internal revenue taxes+. (ollection o internal revenue taxes&. ;eund o internal revenue taxes

. Imposition o administrative or civil fnes, penalties, interests or surcharges*promulgation andFor enorcement o administrative rules and regulations or thee9ective and ecient enorcement o internal revenue laws-. 5rosecution o criminal violations o internal revenue laws.

E& State the ?o injunction to restrain tax collection ruleB A0 2;0 3nder this rule, Q!o court shall have the authority to grant an injunction torestrain the collection o any national internal revenue, tax, ee or charge.O 8ec.+"K, ;.A. 7+)45!0 The (TA can issue injunction in aid o its appellate jurisdiction i in its opinionthe same may jeopardiBe the interest o the government andFor the taxpayer. In thisinstance, the court may re:uire the taxpayer either to deposit the amount claimedor fle a surety bond or not more than double the amount with the court. 8;A ""+-as amended by ;A K+7+)!ote0 The 1ieblood doctrine re:uires that the collection o taxes cannot be enjoined,without taxation, a government can neither exist nor endure.

Ass$ss3$

It is a written notice to a taxpayer to the e9ect that the amount stated thereinis due as tax and containing a demand or the payment. It is a fnding by the taxingagency that the taxpayer has not paid his correct taxes.

!ote0 A notice o assessment contains not only a computation o tax liabilities butalso a demand or the payment within a prescribed period. It also signals the timewhen penalties and interests begin to accrue.

I3'+4-$ '# 4 46 4ss$ss3$

A TH T$ 2H6$;!C$!T". In the proper pursuit o judicial and extrajudicial remedies+. To enorce taxpayer liabilities and certain matters that relate

to it, such as the imposition o surcharges and interests*&. To inorm the taxpayer o his liabilities*. In the establishment o tax liens* and-. In estimating the revenues that may be collected by the

government.

A TH T$ TA45AG$;

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". In the proper pursuit o judicial and extrajudicial remedies+. In the application o the tatute o 1imitations*&. To determine the period within which to protest.. To determine prescription o government claim.

N47+$ '# 4 4ss$ss3$

It is merely a notice to the e9ect that the amount stated therein is due as tax and

containing a demand or the payment. 8Alhambra (igar Cg. (o. v. (I;, 2; 1#+&++/,

!ov. +7, "K/=)

E& Dho has the burden of proof in pre-assessment proceedingsK

A0 The burden o proo is on the taxpayer or there is a presumption o correctness

on the part o the (I;. Htherwise, the fnding o the (I; will be conclusive and the

(I; will assess the taxpayer. I the taxpayer does not controvert, such fnding is

conclusive, even i the (I; is wrong.

P+"-"&$s 5'v$+"5 46 4ss$ss3$s PAD )

Assessments are0

a. .rima acie presumed correct and made in good aith*

b. hould be based on actual acts* 8estimates can also be a basis given that it is not

arrived at arbitrarily or capriciously)

c. %iscretionary on the part o the (ommissioner*

d. Cust be irected to the right party*

e. Authority to assess maybe elegated.

E& Is the assessment made by the )I+ subject to judicial reviewK

A0 !o, or such power is discretionary. @hat may be the subject o a judicial review is

the decision o the (I; on the protest against the assessment, not the assessment

itsel.

E& Are taxes self-assessingK

A0 2;0 Taxes are generally sel#assessing and do not re:uire the issuance o an

assessment notice in order to establish the tax liability o a taxpayer.

45!s0

". Improperly Accumulated $arnings Tax 8ec. +K, !I;()

+. @hen the taxable period o a taxpayer is terminated 8ec. / MD, !I;()

&. In case o defciency tax liability arising rom a tax audit conducted by the I;

8ec. -/ M, !I;()

. Tax lien 8ec. +"K, !I;()

-. Dissolving corporation 8ec. -+ Mc, !I;()

R$;7"s"$s #'+ V4&"( Ass$ss3$

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". e in writing and signed by the I;*

+. (ontain the law and the acts on which the assessment is made* and

&. (ontain a demand or payment within the prescribed period. 8ec. ++7, !I;()

D"s ailure to0

a. (omply with audit and investigation re:uirements to present his boo%s o

accounts andFor pertinent records, or

b. ubstantiate all or any o the deductions, exemptions or credits claimed in hisreturn.

!ote0 This is issued when the revenue ocer fnds himsel without enough time to

conduct an appropriate or thorough examination in view o the impending expiration

o the prescriptive period or assessment. To prevent the issuance o a jeopardy

assessment, the taxpayer may be re:uired to execute a waiver o the statute o

limitations.

P'9$+s '# *$ C'33"ss"'$+ " *$ 4ss$ss3$ '# 46$s

The (I; or his duly authoriBed representative is authoriBed to use the ollowing

powers0 8ec. /, !I;()

". $xamination o return and determination o tax due

+. 3se o the best evidence available

&. Authority to conduct inventory ta%ing, surveillance and prescribe gross sales and

receipts i there is reason to believe that the taxpayer is not declaring his correct

income, sales or receipts or internal revenue purposes

. Authority to terminate taxable period in the ollowing instances0

a. Taxpayer is retiring rom business subject to tax*

b. Taxpayer is intending to leave the 5hilippines or to remove his property

thererom or to hide or conceal his property and

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c. Taxpayer is perorming any act tending to obstruct the proceedings or the

collection o taxes.

-. Authority to prescribe real property values

/. Authority to in:uire into ban% deposits accounts in the ollowing instances0

a. A decedent to determine his gross estate*

b. Any taxpayter who has fled an application or compromise o his tax

liability by reason o fnancial incapability to pay*

c. A specifc taxpayerFs is subject o a re:uest or the supply o tax inormation

a oreign tax authority pursuant to an intentional convention or agreement on tax

matters to which the 5hilippines is a signatory or a party o. 5rovided that the

re:uesting oreign tax authority is able to demonstrate the oreseeable relevance o

certain inormation re:uired to be given to the re:uest. 8ec. & X 7, ;A "JJ+")

d. @here the taxpayer has signed a waiver authoriBing the (ommissioner orhis duly authoriBed representative to in:uire into the ban% deposits.

=. Authority to accredit and register tax agents

7. Authority to prescribe additional procedural or documentary re:uirements.

W*$ "s Ass$ss3$ M4($

@hen it is released, mailed or sent by the collector o internal revenueto the

taxpayer within the three#year or ten#year period, as the case may be. 8(I; v.5ascor, 2; "+7&"-, Lune +K, "KKK)

E& A notice of assessment was mailed within the period prescribed by law but the

same was received by the taxpayer beyond the period Das there a valid

assessmentK

A0 Ges. There was an assessment made within the period. I the notice is sent

through registered mail, the running o the prescriptive period is QstoppedO. @hat

matters is the sending o the notice is made within the period o prescription. It is

the sending o the notice and not the receipt that tolls the prescriptive period.8asilan v. (I;, 2; 1#++K+, ept. -, "K/=)

P+$s-+""v$ P$+"'(s

;ationale

To secure the taxpayers against unreasonable investigation ater the lapse o the

period prescribed. They are benefcial to the government because tax ocers will be

obliged to act promptly in the assessment and collection o the taxes, or when such

period have lapsed their right to assess and collect would be barred by the statute

o limitations.

;ules on prescription

". @hen the tax law itsel is silent on prescription, the tax is imprescriptible*

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+. @hen no return is re:uired, tax is imprescriptible and tax may be assessed at any

time as the prescriptive periods provided in ec. +J& and +++, !I;( are not

applicable. ;emedy o the taxpayer is to fle a return or the prescriptive period to

commence.

!ote0 1imitation on the right o the government to assess and collect taxes will

not be presumed in the absence o a clear legislation to the contrary.

&. 5rescription is a matter o deense, and it must be proved or established by the

party 8taxpayer) relying upon it.

. Deense o prescription is waivable, such deense is not jurisdictional and must be

raised seasonably, otherwise it is deemed waived.

-. The law on prescription, being a remedial measure, should be interpreted liberally

in order to protect the taxpayer.

/. I the last day o the period alls on a aturday, a unday or a legal holiday in theplace where the (ourt sits, the time shall not run until the next wor%ing day. 8ec. ",

;ule ++, ;ules o (ourt)

!ote0 Assessment and collection by the government o the tax due must be made

within the prescribed period as provided by the Tax (ode* otherwise, the right o the

government to collect will be barred.

(omputation o prescriptive period

It is computed based on the Administrative (ode. ec. &" o the Administrative (ode

o "K7= provides that a QyearO shall be understood to be "+ calendar months. oth

Article "& o the (ivil (ode and ec. &" o the Administrative (ode o "K7= deal with

the same subject matter Y the computation o legal periods. 3nder the (ivil (ode, a

year is e:uivalent to &/- days whether it be a regular year or a leap year. 3nder the

Administrative (ode o "K7=, however, a year is composed o "+ calendar months

and the number o days is irrelevant. There obviously exists a maniest

incompatibility in the manner o computing legal periods under the (ivil (ode and

the Administrative (ode o "K7=.


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!ote0 Date o discovery must be made within the three#year period ollowing

the general rule.

b. I the return is fled but it is alse or raudulent and made with intent to

evade the tax, the period is "J years rom the date o discovery o the alsity

or raud.

!ote0 !othing in ec. +++ 8A) shall be construed to authoriBe the examinationand investigation or in:uiry into any tax return fled in accordance with the

provisions o any tax amnesty law or decree.

c. @here the (I; and taxpayer, beore the expiration o the year period have

agreed in writing to the extension o the period, the period so agreed upon

may thereater be extended by subse:uent agreements in writing made

beore the expiration o the period previously agreed upon.

d. @here there is a written waiver or renunciation o the original year

limitation signed by the taxpayer.

!ote0 ;e:uests or reconsideration o tax assessments, as re:uired by the I;,

must be accompanied by a waiver o statute o limitations accomplished by

the taxpayer.

+. The return was amended substantially ' The prescriptive period shall be counted

rom the fling o the amended return.

E& Dhat is the e(ect of Cling a defective returnK

A0 I the return was deective, it is as i no return was fled. The corollary prescriptionwill be "J years rom and ater the discovery o the ailure or omission and not the &

year prescriptive period. There is an omission when the taxpayer ailed to fle a

return or the particular tax re:uired by law. 8utuan awmill v. (TA, 2; 1#+J/J",


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A0


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;e:uisites0

". $ntered beore the expiration o the & year period or assessment o the tax*

+. In writing*

&. igned by the taxpayer*

. Cust speciy a defnite date agreed upon between the parties within which to

assess and collect taxes*

-. igned and accepted by the (I; or his duly authoriBed representative* and

/. Date o acceptance must be indicated. 8;C( J/#J-)

P+$04ss$ss3$ N'"-$

It is a communication issued by the ;egional Assessment Division, or any other

concerned I; Hce, inorming a taxpayer who has been audited o the fndings othe ;H, ollowing the review o these fndings.

I the taxpayer disagrees with the fndings stated in the 5A!, he have "- days rom

receipt o the 5A!, to fle a written reply contesting the proposed assessment. 8ec.

&.".+, ;; "+#KK)

Htherwise, the taxpayer shall be considered in deault, in which case a ormal letter

o demand and assessment notice shall be issued by the I;. 8ec. &.".+, ;; "+#KK)

;e:uisites0

". In writing* and

+. hould inorm the taxpayer o the law and the acts on which the assessment is

made 8ec. ++7, !I;()

!ote0 This is to give the taxpayer the opportunity to reute the fndings o the

examiner and give a more accurate and detailed explanation regarding the

assessments. The absence o any o the re:uirements shall render the assessment

void.

$xceptions to Issuance o 5A!

". @hen the fnding or any defciency tax is the result o Cathematical error in the

computation o the tax appearing on the ace o the tax return fled by the taxpayer*

or

+. @hen the $xcise tax due on excisable articles has not been paid* or

&. @hen a Discrepancy has been determined between the tax withheld and the

amount actually remitted by the withholding agent* or

. @hen an article locally purchased or imported by an $xempt person, such as, butnot limited to, vehicles, capital e:uipment, machineries and spare parts, has been

sold, traded or transerred to non#exempt persons* or

-. @hen a taxpayer who opted to claim a reund or tax credit o excess creditable

withholding tax or a taxable period was determined to have (arried over and

5age "


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automatically applied the same amount claimed against the estimated tax liabilities

or the taxable :uarter or :uarters o the succeeding taxable year. 8ec &.".&, ;; "+#

KK)

N'"-$ '# Ass$ss3$?F'+34& L$$+ '# D$34( FAN)

• It is a declaration o defciency taxes issued to a taxpayer who ails to respond

to a 5A! within the prescribed period o time, or whose reply to the 5A! was

ound to be without merit.• It shall be issued by the (ommissioner or his duly authoriBed representative.

• It must be0

". In writing* and

+. hall state the acts, the law, rules and regulations, or jurisprudence

on which the assessment is based, otherwise, the


43/66

. tate the acts, applicable law, rules and regulations or jurisprudence on which

the protest is based otherwise the protest would be void* and

-. Cust contain the ollowing0

a. !ame o the taxpayer and address or the immediate past & taxable years*

b. !ature o the re:uest, speciying the newly discovered evidence to bepresented*

c. Taxable periods covered by the assessment*

d. Amount and %ind o tax involved and the assessment notice number*

e. Date o receipt o the assessment notice or letter o demand*

. ItemiBed statement o the fnding to which the taxpayer agrees 8i any) as

basis or the computation o the tax due, which must be paid upon fling o the

protest*

g. ItemiBed schedule o the adjustments to which the taxpayer does not agree*

h. tatements o acts or law in support o the protest* and

i. Documentary evidence as it may deem necessary and relevant to support its

protest to be submitted /J days rom the fling thereo.

5rocedure

". I; issues assessment notice.+. The taxpayer fles an administrative protest against the assessment. uch protest

may either be a re:uest or reconsideration or or reinvestigation. The protest must

be fled within &J days rom receipt o assessment.

&. All relevant documents must be submitted within /J days rom fling o protest*

otherwise, the assessment shall become fnal and unappealable.

. In case the (I; decides adversely or i no decision yet at the lapse o "7J days,

the taxpayer may appeal to the (TA Division, &J days rom the receipt o the

decision or rom the lapse o the "7J days otherwise the decision shall become fnal,executory and demandable. 8;(( v. (I;, 2; "/7K7, Apr. +, +JJ=)

-. I the decision is adverse to the taxpayer, he may fle a motion or reconsideration

or new trial beore the same Division o the (TA within "- days rom notice thereo.

/. In case the resolution o a Division o the (TA on a motion or reconsideration or

new trial is adverse to the taxpayer, he may fle a petition or review with the (TA en

banc.

=. The ruling or decision o the (TA en banc may be appealed with the upreme

(ourt through a verifed petition or review on certiorari pursuant to ;ule - o the

"KK= ;ules o (ivil 5rocedure.

I C4s$ '# I4-"' %, C'33"ss"'$+ 9"*" 1@ (4,s #+'3 S7%3"ss"' '#

D'-73$s

5age &


44/66

The taxpayer has two alternative options0

".


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It is the seiBure o real property and interest in or rights to such properties or thesatisaction o taxes due rom the delin:uent taxpayer.

ow made0

It may be e9ected by serving upon the taxpayer a written notice o levy in the ormo a duly authenticated certiCcate prepared by ;evenue District Hcer containing0

;%NA<". %escription o the property upon which levy is made*+. Name o the taxpayer*&. Amount o tax and penalty due.

T!0 Its timely service suspends the running o the prescriptive period to collect thetax defciency in the sense that the disposition o the attached properties might wellta%e time to accomplish, extending even ater the lapse o the statutory period orcollections. In those cases, the I; did not fle any collection case but merely reliedon the summary remedy o distraint and levy to collect the tax defciency. Thus, theenorcement o tax collection through summary proceedings may still be carried out

as the service o warrant o distraint or levy suspends the prescriptive period orcollection. 1+% v Gion, 6+ 'P4'P, $ec ', 999:

5rocedure0

". 5reparation o a duly authenticated certiCcate which shall operate with orce o alegal execution throughout the 5hilippines.+. Service o the written notice to the0

a. Delin:uent taxpayer, orb. I he is absent rom the 5hilippines, to his agent or the manager o thebusiness in respect to which the liability arose, orc. I there be none, the occupant o the property.d. The ;egistry o Deeds o the place where the property is located shall also

be notiCed0&. Advertisement o the time and place o sale within +J days ater the levy by posting of notice and by publication or three consecutive wee%s.. Sale at a public auction.-. $isposition o proceeds o sale./. +esidue to be returned to the owner.

5ossession o the property levied

The owner shall not be deprived o the property until the expiration o theredemption period and shall be entitled to rents and other income until theexpiration o the period or redemption. 1Sec 24, ?I+):

;edemption by the taxpayerIt shall entitle the taxpayer, the delivery o the certifcate issued to the purchaserand a certifcate rom the ;evenue District Hcer that he has redeemed theproperty. The ;evenue District Hcer shall pay the purchaser the amount by whichsuch property has been redeemed and said property shall be ree rom lien o suchtaxes and penalties. 1Sec 24, ?I+):

imilarities o Distraint and 1evy

". Summary in nature+. ;e:uires notice of sale&. Cay not be resorted to i the amount involved is less than %PP

Distinctions among warrants o distraint, levy and garnishment

5age -


46/66

%ISTRAINT LE=> +ARNIS9?ENTS7%8$- 34$+

5ersonal property ownedby and in possession othe taxpayer

;eal property ownedand in the possession o the taxpayer

5ersonal property owned bythe taxpayer but in thepossession o the thirdparty

A-;7"s""' %, *$ G'v$+3$ 5ersonal propertydistrained are purchasedby the 6overnment andresold to meetdefciency

;eal property subject tolevy is forfeited to the6overnment then soldto meet the defciency.

5ersonal propertygarnished are purchasedby the 6overnment andresold to meet defciency

A(v$+"s$3$ '# S4&$!o newspaperpublication re:uired

The sale o realtysubject to levy isre:uired to bepublished once a wee%or & consecutive wee%sin a newspaper ogeneral circulation inthe municipality or citywhere the property islocated.

!o newspaper publicationre:uired

F'+#$"7+$

• It is the divestiture o property without compensation, in conse:uence o a

deault or o9ense.

5roperty oreited is transerred to another without consent o the deaultingtaxpayer or wrongdoer.


47/66

". I there is no bidder in the public sale or i the amount o the highest bid isinsucient to pay the taxes, penalties and costs, the real property shall be oreitedto the government.+. The ;egister o Deeds shall transer the title o oreited property to the2overnment without necessity o a court order.&. @ithin " year rom the date o sale, the property may be redeemed by thedelin:uent taxpayer or any one or him, upon payment o taxes, penalties and

interest thereon and cost o sale* i not redeemed within said period, the oreitureshall become absolute. 8Sec 23, ?I+):

E#'+-$3$ '# T46 L"$

Tax 1ien

• It is a legal claim or charge on property, personal or real, established by law asa sort o security or the payment o tax obligations.

• It is enorced as payment o tax, interest, penalties, costs upon the entireproperty and rights to property o the taxpayer. owever, to be valid againstany mortgagee, purchaser or judgment creditor, notice o such lien has to befled by (I; with the ;egistry o Deeds. 1Sec 29, ?I+):

• It is applied when0

• Dith respect to personal property ' Tax lien attaches whenthe taxpayer neglects or reuses to pay tax ater demandand not rom the time the warrant is served 1Sec 29, ?I+):

• Dith respect to real property ' rom time o registration with

the register o deeds.

Noe: A valid assessment is re:uired to be issued beore a tax lien shall beannotated at the proper registry o property.

$xtinguishment

". y payment orremissiono the tax+. y prescription o the right o government to assess or collect&. yfailure to fle notice o such tax lien in the oce o ;egister o Deeds. ydestruction o property subject to tax lien

-. y replacing it with a bond

Noe: A buyer in an execution sale ac:uires only the rights o the judgment creditor.

1ien vs. Distraint

LIEN %ISTRAINTD"+$-$( 454"s 9*4

The property subject tothe tax

!eed not be directedagainst the propertysubject to tax

T' 9*'3 ("+$-$( The property itselregardless o thepresent owner o theproperty

The property shouldbe presently owned bythe taxpayer

5age =


48/66

)omromise an A#aemen

(ompromise

• It is an agreement between two or more persons who,amicably settle theirdi9erences on such terms and conditions as they may agree on to avoid anylawsuit between them. It implies the mutual agreement by the parties in

regard to the thing or subject matter which is to be compromised.• It is a contract whereby the parties, by reciprocal concessions avoid litigation

or put an end to one already commenced• Cade when0

o )riminal cases ' (ompromise must be made prior to the fling o theinormation in court.

o )ivil cases ' eore litigation or at any stage o the litigation, evenduring appeal, although legal propriety demands that prior leave ocourt should be obtained.

;e:uisites

". Tax liability o the taxpayer*+. An o9er o the taxpayer o an amount to be paid by him* and&. The acceptance 8the (I; or the taxpayer) o the o9er in the settlement o theclaim

Noe: I the o9er to compromise was rejected by the taxpayer, the compromisepenalty cannot be enorced thru an action in court, or by distraint or levy. I the (I;wants to enorce a penalty he must fle a criminal action in the courts. 1)I+ v Abad6+ L-9/2., une 2., 9/8:

(ases which may be compromised

". Delin:uent accounts+. (ases under Administrative protest ater issuance o the


49/66

- @ithholding tax cases, unless the applicant ' taxpayer invo%es provisions o law that cast doubt on the taxpayer>s obligation to withhold.

/ (riminal violations already fled in courts.= Delin:uent accounts with duly approved schedule o instalment payments.

!ote0 The (TA may issue an injunction to prevent the government rom collecting

taxes under a compromise agreement when such would be prejudicial to thegovernment.

2rounds

" Doubtul validity o assessment*+ sauthority to in:uire into said ban% deposits 1Sec / 7N, ?I+):

@ho may compromise

• The )I+ may compromise with respect to criminal and civil cases arising romviolations o the !I;( as well as the payment o any internal revenue taxwhen0

o A reasonable doubt as to the validity o the claim against the taxpayerexists provided that the minimum compromise entered into is e:uivalentto JP o the basic tax* or

o The fnancial position o the taxpayer demonstrates a clear inability topay the assessed tax provided that the minimum compromise enteredinto is e:uivalent to "JP o the basic assessed tax.

Noe: In these instances, the (I; is allowed to enter into a compromise only i thebasic tax involved does not exceed 5"C and the settlement o9ered is not less thanthe prescribed percentages. 1Sec 2P4 7AN, ?I+): I the basic tax involves exceeds 5"million or when the settlement o9ered is less than the prescribed minimum rates theapproval o the $valuation oard is needed.

A preliminary compromise may be entered into by subordinate oJcials subject toreview by the (I;.

• The +egional #valuation oard 1+#: may compromise0o Tax assessments by revenue ocers involving basic defciency taxes o

5-JJ,JJJ or less* ando


50/66

As a rule, the obligation to pay tax is based on law. ut when, or instance, ataxpayer enters into a compromise with the I;, the obligation o the taxpayerbecomes one based on contract.

(ompromise is a contract whereby the parties, by reciprocal concessions, avoidlitigation or put an end to one already commenced. 1Art 2P28 ?)): ince it is acontract, the prescriptive period to enorce the same is P years based on Art 44

?)) rec%oned rom the time the cause o action accrued.

A%4$3$

• (ancellation o a tax liability.

• It is made when0

o The tax or any portion thereo appears to be unjustly or excessivelyassessed* or

o The administration and collection costs involved do not justiy thecollection o the amount due. 8Sec 2P47N, ?I+):

Abatement vs. (ompromise)omromise A#aemen

Involves a reduction o thetaxpayer>s liability.

Involves the cancellation o theentire tax liability o a taxpayer.

Hcers authoriBed tocompromise0 (I; and ;egional$valuation oard

Hcer authoriBed to abate orcancel tax, penalties andForinterest0 (I;

2rounds0

+. ;easonable doubt as to thevalidity o assessment*&.


51/66

". Cust ollow and observe the legalparameters set orth in the law.8e.g. An action or collection by theI; 1Sec 2P3, ?I+): must be fledwithin the prescriptive period 1Sec222, ?I+):*

+. Cust be approved by the (I;1Sec 22P, ?I+):

Ludicial remedies are Qexclusive.O Thus, the (I; decision must beappealed to the (TA and the (TA enbanc decision must be appealed tothe (.

I# "3&"$( Cay avail o the usual judicialremedies or convenience andexpediency.

Cay resort to the laws o generalapplication. Thus, a declaratoryrelie may be availed o i the lawdoes not provide or judicialremedies.

C"v"& A-"'


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Canila;egional Trial (ourts within CetroCanila

JJ,JJ" to KKK,KKK

C+"3"4& A-"'

(riminal complaint is instituted not to demand payment but to penaliBe taxpayer or

the violation o the !I;(.

(riminal action is resorted to not only or collection o taxes but also or enorcemento statutory penalties o all sorts.

(rimes 5unishable

". @illul attempt to evade or deeat tax 1Sec 234, ?I+):+.


53/66

The (TA was originally created under ;A ""+-. The law creating the (ourt o Tax

Appeals was under ;A ""+- way bac% in "K-. The objectives o the creation o the

court are0

") to entrust tax cases to a specialiBe court composed o men technically :ualifed

in the feld o taxation and to develop expertise on the subject*

+) to expedite the disposition o tax cases and collection o taxes and provide

ade:uate and speedy remedy to the taxpayers.

The objective was addressed to enorce collection o taxes and to provide

protection also and remedy to the taxpayers.

The (ourt under ;A ""+- was sitting li%e the ;T(. And the adjudicator sitting in

the court was called a judge. ince it was then li%e the ;T(, the adjudicators then

were called judges. The ;T( was then was only exercising what we call exclusive

appellate jurisdiction. And the cases that are decided by the (TA are decisions o the (ommissioner o the Internal ;evenue and the decisions o the (ommissioner o

(ustoms.

@hile it used to include the (entral oard o Assessment Appeals, but when the

;eal 5roperty Tax (ode too% e9ect, it changed the jurisdiction where the decisions o

the (entral oard o Assessment Appeals were no longer brought to the (TA but to

the (ourt o Appeals.

The taxes then that were handled by the (ourt o Tax Appeals were the decisions

o the (ommissioner o the Internal ;evenue and o the (ommissioner o (ustoms.uch that rom the (I; or the (ommissioner o (ustoms, it is brought to the (TA, to

the (A and then, the upreme (ourt. This was the Row o the remedies on the tax

cases.

The local tax cases have their own separate remedies. The venue was not the

(TA. It had a separate venue. 1i%ewise, on the decisions o the (entral oard on

the ;eal 5roperty Tax, also provided a di9erent avenue where to pursue the cases,

but not to the (TA under ;A ""+-.

In Carch +JJ, the entire picture o the (TA was completely changed. ;A K+7+

expanded the jurisdiction o the (TA. The (TA was treated as an e:uivalent o the

(A. As an e9ect, the tax cases will no longer pass through the (A because the (TA

now was sitting as an e:uivalent o the (A.

@hile you have here 8;A ""+-) the adjudicators called judges e:uivalent to the

;T(, you have now here 8;A K+7+) justices. And its jurisdiction, by reason o that

expansion o its jurisdiction, was now exclusive appellate and original jurisdiction. It

has an exclusive original jurisdiction as well as an exclusive appellate jurisdiction.

o, under the new law, the (TA now sits as an e:uivalent o the (ourt o Appeals.

o, you have justices there, no longer called judges. The jurisdiction has beenexpanded, not only exclusive appellate jurisdiction but also exclusive original

jurisdiction. uch that when cases are brought to the (TA, it is (TA by division, then,

(TA en banc then, you have the upreme (ourt. The mode o appeal, we will ollow

;ule & in the petition brought beore the (TA. And when it is brought to the

upreme (ourt, we ollow ;ule - ' a petition or appeal by way o certiorari.

5age -&


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;ule & ;ule -(TA 8divis

98254326 taxation law reviewer

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