The power of taxation is inherent in the State being an attribute of sovereignty. As an incident of sovereignty, the power to tax has been described as unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. [Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667, (1996)].

Dual nature of tax: both inherent and legislative

Taxation with Police PowerTaxation involves the power to raise revenue not only in order to support the existence of government but likewise to carry out legitimate objects of government. Among such legitimate objects are those that police power itself can cover. As early as the case of Lutz vs. Araneta (98 Phil. 148),

Concepts that flow from the Lifeblood Doctrine1. No injunction2. No set off and compensation3. Imprescriptibility4. Presumption of regularity and validity5. Unilimited and plenary6. It may result in the destruction of property

Life blood: Taxation is the indispensable and inevitable price for civilized society: without taxes, the government would be paralyzed.

Direct duplicate taxation1. Same:

a. Objectb. Purposec. Authorityd. Tax period

2. Taxing twice when it should be taxed but once.

No DDT: The impositions are of different nature and character. The fixed annual fee is in the nature of a license fee imposed through the exercise of police power while the 5% tax on purchase or consumption is a local tax imposed through the exercise of taxing powers.

Tax pyramiding refers to the imposition of a tax upon a tax with the accumulation borne by the final consumer. This occurs when the tax is added as part of the tax base. It has no basis in law because it violates the principle of in taxation (People v. Sandiganbayan, 467 SCRA 137 [2005]; CIR v. American Rubber Co., 18 SCRA 842 [1966]).

Indirect taxes. Only taxpayers are allowed to file a claim for refund. A purchaser although a tax exempt entity cannot claim refund for indirect taxes because it paid them as part of the price.

CIR vs Pilipinas Shell: Aviation companies are exempt from excise taxes on fuel it buys from local manufacturer. But Shell paid Excise Tax for the Fuel it sold to airlines. Can it claim refund? YES! It is the statutory tax payer for the Excise Tax which it paid even it should not because the sale is tax exempt.

Silkair Case: The refund was denied because it was the Airline who claimed refund. Its tax liability is only indirect. Only the statutory TP can claim refund.

There is tax avoidance. Mr. Pascual has exploited a legally permissive alternative method to reduce his income tax by transferring part of his rental income to a tax exempt entity through a donation of one-half of the income producing property

The three requisite factors to constitute tax evasion are:(1) the end to be achieved which is the payment of less than that known by them to be legally due; (2) an accompanying state of mind which is evil, in bad faith, willfull or deliberate and not merely accidental;(3) a course of action which is unlawful. [CIR v. Estate of Benigno P. Toda, Jr., 438 SCRA 290 (2004)].

The issuance of the deficiency assessment notice prior to prosecution is not necessary so long as the act of filing fraudulent returns with intent to evade is established.

An assessment is a formal notice to the taxpayer stating that the amount thereon is due as a tax and containing a demand for the payment thereof. Thus, an affidavit of the BIR examiners may not be considered as an assessment of the tax liability of a TP

Interest on investment or loans in the Philippines shall be exempt from taxation, if it has been made by foreign government-owned or controlled financing institutions or international financing institutions established by governments.

The president may enter into treaties for grant of exemption. In which case the majority requirement for concurrence of congress is not required. But still the general rule is tax exemption must be legislative act.

The doctrine of recoupment arose from common law allowing offsetting of a prescribed claim for refund against a tax liability arising from the same transaction on which an overpayment is made and underpayment is due. The doctrine finds no application to cases where the taxes involved are totally unrelated, and although it seems equitable, it is not allowed in our jurisdiction (CIR v. VST, 104 Phil. 1062 [1958]).This scheme is not effective in the Philippines as the law prohibits compensation and offset in general.

Offsetting the amount of Tax Credit Certificate TCC after the court granted refund, against a potential tax liability is not allowed, because both obligations are not yet fully-liquidated. While the amount of the TCC has been determined, the amount of deficiency tax is yet to be determined through the completion of the audit. (PhilexMining Corporation v. CIR, 294 SCRA 687[1998]).

XPN’s to the “no offset” Rule :if the obligation to pay taxes and the taxpayer’s claim against the government are both overdue, demandable, as well as fully liquidated, compensation takes place by operation of law and both obligations are extinguished to their concurrent amounts. [Domingo v. Garlitos, 8 SCRA 443 (1963)]. (BAR 2005) Note this case involves local government taxes.

.Ratio: axes and claims for refund cannot be the subject of set-off for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and a claim for refund. Claims for refunds just like debts are due from the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. [Philex Mining Corp. v. CIR, GR No. 125704, August 29, 1998).

Tax amnesty is immunity from all criminal, civil and administrative liabilities arising from nonpayment of taxes. It is a general pardon given to all taxpayers. It applies only to past tax periods, hence of retroactive application. (People v. Castaneda, G.R. No. L- 46881, 1988).Tax exemption is immunity from the civil liability only. It is an immunity or privilege, a freedom from a charge or burden to which others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365). It is generally prospective in application. (BAR 2001)

The salaries of judges are not tax-exempt and their taxability is not contrary to the non-diminution of the salaries of members of the judiciary during their continuance in office. The clear intent of the Constitutional Commission that framed the Constitution is to subject their salaries to tax as in the case of all taxpayers

The exception contained in the tax statutes must be strictly construed against the one claiming the exemption because the law does not look with favor on tax exemptions they being contrary to the life-blood theory which is the underlying basis for taxes.

In civil cases involving the collection of internal revenue taxes, prescription is construed strictly against the government and liberally in favor of the taxpayer.

BIR rulings are administrative opinions issued by the Commissioner of Internal Revenue interpretative of a provision of a tax law. They are given weight by the courts but not binding thereon. It cannot be given retroactive effect if its retroactive application is prejudicial to the taxpayer

Inherent Limitations1. Taxation is for a public purpose. - The proceeds of the tax must be used (a) for the support of the

State or(b) for some recognized objective of the government or to directly promote the welfare of the community.

2. Taxation is inherently legislative. - Only the legislature has full discretion as to the persons, property, occupation or business to be taxed provided these are all within the State’s territorial jurisdiction.

3. Taxation is territorial. - Taxation may be exercised only within the territorial jurisdiction of the taxing authority.

4. Taxation is subject to international comity. - This is a limitation which is founded on reciprocity designed to maintain a harmonious and productive relationships among the various states. Under international comity, a state must recognize the generally-accepted tenets of international law, among which are the principles of sovereign equality

Congress cannot abolish what is expressly granted by the fundamental law. The only authority conferred to Congress is to provide the guidelines and limitations

"Each local government unit shall have the power to create their own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy."

Principle of mobilia sequuntur personam in income taxation refers to the principle that taxation follows the property or person who shall be subject to the tax.

As an “off-line'’ airline, the revenue it derived in 1997 from sales of airplane tickets in the Philippines, through its agent PAL, is considered as income from within the Philippines, subject to the 35% tax based on its taxable income pursuant to Section 25(a)( 1) of the Tax Code of 1977. The transacting of business in the Philippines through its local sales agent, makes KIA a resident foreign corporation despite the absence of landing rights, thus, it is taxable on income derived from within. In the instant case, it is the sale of tickets in the Philippines which is the activity that produced the income. KIA’s income being derived from within, is subject to Philippine income tax (CIR v. British Overseas Airways Corporation, 149 SCRA 395, [1987]).

Tax treaties are accepted limitations to the power of taxation. Thus, the CTA should apply the treaty provision so that the claim for refund should be granted (Hawaiian-Philippine Company v. CIR, CTA Case No. 3887, May 31, 1988).

Uniform when it operates with the same force and effect in every place where the subject maybe found. (Equitable when all objects or subject under same circumstances are treatses equally.

The SNITS treat professionals as one class of taxpayer so that they shall be treated alike irrespective of whether they practice their profession alone or in association with other professionals under a general

professional partnership. What are taxed differently are individuals and corporations. [Tan vs. del Rosario et al G.R No. 109289, October 3. 1994).

Congress can pass a law taxing income of religious institutions from its property or activities used for profit but not on their income from exercise of religious activities. Otherwise, it will violate their right to religious freedom. (American Bible Society v. City of Manila, 101 Phil. 386[1957J)

The “usage” of the property and not the “ownership" is the determining factor whether or not the property is taxable. [Lung Center of the Philippines v. Q.C., 433 SCRA 119 (2004)].

Proof of actual use is necessary because exemptions are construed against the TP.

Income derived by a non stock, non profit educational institution will be exempt from taxation provided they are used actually, directly and exclusively for educational purposes. As to proprietary educational institutions,, all of its income from school related and non-school related activities will be subject to the income tax. The only exemption granted to proprietary educ is their exemption from the real property they use.

Note: do not apply this rule to non-stock, nonprofit charitable institutions like hospitals. They are exempt only for “not for profit” activities like their wards. Their income fro pay wards are not exempt, regardless of how the income will be spent. The income tax attaches irrespective of the disposition of these incomes.. (St. Lukes)

In summary, if it is an educational institution, the test is “the use of the profit”. If it is religious and charitable, the test is “the kind of activity”

Donation is, likewise, exempt from the donor's tax if actually, directly and exclusively used for educational purposes, provided not more than 30% of the donation is used by the donee for administration purposes.

Sale of lot used for educational charitable religious purposes: Taxable! They are only exempt from real property tax.

"flexible tariff clause "refers to the authority given to the President to adjust tariff rates

Under the Flexible Tariff Clause (Sec. 401, Tariff and Customs Code), any order issued by the President thereunder can generally take effect only thirty (30) days after its issuance. In cases however of an order imposing additional import duties, the law provides that the same can take effect immediately. (BAR 1991)

What is prohibited is for the Senate to enact revenue measures on its own without a bill originating from the House. But once the revenue bill was passed by the House and sent to the Senate, the latter can pass its own version on the same subject matter consonant with the latter’s power to propose or concur with amendments. This follows from the co-equality of the two chambers of Congress [Tolentino v. Secretary of Finance, GR No. 115455, Oct. 30, 1995).

Rational basis test - it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest.

Strict Scrutiny Test (race/ ethnic group)– Government discriminates against a suspect class as it is NECESSARY to promote a compelling state interest.

Intermediate Level of Scrutiny (gender/ legitimacy/ minority) – Not really necessary or indispensable to a state interest, but there must be substantial relation to a government objective.

The equal protection clause of the Constitution merely requires that all persons subjected to legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed. The equality in taxation rule is not violated if classifications or distinctions are made as long as the same are based on reasonable and substantial differences. (Pepsi-Cola Bottling Co., Inc. v. City of Butuan, 24 SCRA 789 [1968]).

Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, (4) apply equally to all members of the same class.

Unilateral grant of exemptions can be revoked, as it is merely gratuitous. If it is a contractual grant of exemption or based on consideration, it cannot be revoked unilaterally as it will violate the non-impairment clause.

Stages of taxationa. Levy. This refers to the enactment of a law by Congress authorizing the imposition of a tax.

b. Assessment and Collection. This is the act of administration and implementation of the tax law by the executive through its administrative agencies.

c. Payment. This is the act of compliance by the taxpayer, including such options, schemes or remedies as may be legally available to him. (BAR 2006)

It is the probate or settlement court which is forbidden to authorize the executor or judicial administrator of the decedent’s estate, to deliver any distributive share to any party interested in the estate, unless a certification from the Commissioner of Internal Revenue that the estate tax has been paid is shown. [Marcos U v. Court of Appeals, 273 SCRA 47 (1997)]. Hence, the approval of the court, sitting in probate, or as a settlement tribunal is not a mandatory requirement in the collection of estate taxes

The law provides that the Commissioner may, even without a written claim therefore, refund or credit any tax where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. ('Sec. 229, NIRC).

Direct taxes are demanded from the statutory tax payer who should pay the tax which he cannot shift to another; while an indirect tax is demanded in the first instance from one person with the expectation that he can shift the burden to someone else, not as a tax, but as part of the purchase price (Maceda v. Macaraig, Jr., 223 SCRA 217 [1993]). Examples of direct taxes are income tax, estate tax and donor’s tax. Examples of indirect taxes are value-added tax, percentage tax and excise tax on excisable articles.

NIRC Taxes:a) Income tax;b) Estate and donor’s taxes;c) Value-added tax;d) Other percentage taxes;e) Excise taxes;f) Documentary stamp taxes

Schedular system,-the various types/items of income (Le. compensation; business/professional income) are classified accordingly and are accorded different tax treatments,

Global System -, all income received by the taxpayer are treated without any distinction as to the type or nature of the income, and after deducting therefrom expenses and other allowable deductions, are subjected to tax at a fixed rate.

Features of our Income Tax systema. It has adopted a comprehensive tax situs by using the nationality, residence, and source rules.b. The individual income tax system is mainly progressive in nature in that it provides a graduated

rates of income tax. Corporations in general are taxed at a flat rate of thirty five percent (35%) of net income.

c. It has retained more schedular features with respect to individual taxpayers but has maintained a more global treatment on corporations.

As a general rule, stockholders cannot be held personally liable for the unpaid taxes of a dissolved corporation. The rule prevailing under our jurisdiction is that a corporation is vested bylaw with a personality that is separate and distinct from those of the persons composing it (Sunio v. NLRC, 127 SCRA 390 [1984]).But they can be held liable if there is ground for piercing or where they have unpaid subscriptions.

The amount of income to be distributed annually to the beneficiary is a deduction from the gross income of the trust but must be reported as income of the beneficiary (Section 61(A), NIRC).

The trustee has to pay the income tax on the trust’s net income determined annually if the income is required to be accumulated. Once a taxable trust is established , its net income is either taxable to the trust, represented by the trustee, or o the beneficiary depending on the provision for distribution of income following the one-layer taxation scheme (Section 61(A), NIRC).

The co-ownership of inherited property is automatically converted into an unregistered partnership from the moment the said properties are used as a common fund with Intent to produce profits for the heirs In proportion to their shares in the inheritance

If after partition, he allows his shares to be held in common with his co-heir under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed (Lorenzo Ona, et at v. CIR, 45 SCRA 74).

Caveat: The mere sharing of income does not of itself establish a partnership absent any dear intention of the co-owners who are only awaiting liquidation of the estate. Thus, if there is co-ownership, the parties are liable for individual tax income (which is lower than corporate income tax imposed on partnerships)

Stock dividends are not realized income. It is a mere increase in capital.However, if the distribution of stock dividends is the equivalent of cash or property, as when the distribution results in the increase of ownership interest of the shareholders, the stock dividends will be subject to income tax

Exchange of properties for stock or in payment of subscription:GR: It is subject to CGT because the payment was just converted from cash to “kind”XPN: To gain control of the corporation. (TAX-FREE EXCHNAGE)*** As to the corporation the land contributed is a mere capital, thus not yet a realized income.

When a taxpayer acquires earnings, lawfully or unlawfully, without the consensual recognition, express or implied, of an obligation to repay and without restriction as to their disposition, he has received taxable income, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged to restore its equivalent (James us. U.S.,366 U.S. 213, 1961).

The “all events test” is a test applied in the realization of income and expense by an accrual-basic taxpayer. The test requires (1) the fixing to the right to the income or liability to pay; and (2) the

availability of reasonably accurate determination of such income or liability, (CIR v. Isabela Cultural Corporation, GR No. 172231, Feb 12, 2007).

Expenses as deductions can be claimed on the year that it has accrued or was fixed.

Gross income includes those, which have been withheld for tax compliance (FWT). The tax payer need not physically receive the income.

Gross income means all wealth which flows into the taxpayer other than as a mere return of capital

A borrowed money or loan is not income as it is not a gain. It is a mere outlay that has to be returned.

Taxable income = gross income - deductions and/ or personal and additional exemptions, Sec. 31. NIRC of 1997)

The proceeds under an insurance policy on the loss of goods is not an item of income but merely a return of capital hence not taxable.

NOTE: FWT on interest from foreign currency deposits is 7.5%. Exempted from these are OCW’s and Seamen.

If the shares of stocks were given to an employee in consideration of his services to the corporation, the same shall constitute taxable compensation income to the recipient because it is a compensation for services rendered under an employer-employee relationship, hence, subject to income tax.

There was no prior agreement or negotiations between Mr. Osorio and Mr. Perez that the former will be compensated for his services. Mr. Perez, in behalf of his company, gave the car to Mr. Osorio out of gratitude. “Legal obligation test” – It is a gift and not compensation if there is no legal obligation to give it. Gifts are excluded from gross income but may be subject to donor’s tax.

A Christmas bonus and other work incentives and gifts given to employees is taxable as additional compensation (Sec. 21 (a). Tax Code).

Transportation and representation allowances are actually reimbursements for expenses incurred by the employee for the employer and thus are not income for the employees. Said allowances are designed to enhance the quality of the service that the employer is supposed to perform for its clientele like the people of the municipality. (BAR 1994)

The BIR cannot impose any tax because there was no real transfer of the ownership of the subject Capitol Golf Club, Inc. (“Capitol”) proprietary share from X to Y. Oriental. Inc. is the true owner of the Capitol proprietary share. It remained the true owner from the time of the Capitol share’s use by X, to the transfer of the Capitol share’s use to Y. There is no exchange of value for value.

Rent of real properties in the Phil = Income within

The one sack of rice given to the supervisors and managers are considered de minimis fringe benefits considering that the value per sack does not exceed PI,000, hence exempted from the fringe benefits tax. (Section 33, NIRC as implemented by RR No. 10-2000).

De minimis benefits are not subject to scheduler income tax and from fringe benefit tax.

The fringe benefit tax is imposed as a final withholding tax placing the legal obligation to remit the tax on the employer. It is the employer who pays.

Only managerial or supervisory employees are entitled to a fringe benefit subject to the fringe benefits tax.

“Convenience of the employer,” – Benefit shall not be considered income for the employee if it is for the convenience of the employee. Ex.: Uniform, Housing, Hotel, car***Beyond what could help the employer, the can be taxed ratably to the excess as it will be considered income.

Free board and lodging are not taxable incomes provided that it is 1. given in the business premises of the lawyer and2. for employer’s convenience and 3. the free lodging was given to X as a condition for employment.***Thus there is a need to qualify between ER’s with offices and none.

Realty Company selling house and lot: 35% ITR TaxOther Companies selling house and lots: CGT

NOT ALL SALE OF CAPITAL ASSETS are subject to CGT. Only disposition of capital assets in the form of real property or shares of stocks in domestic corporations are subject to final taxes or CGT

Income realized from the sale of ordinary assets is taxable and the said income shall be declared in the annual income tax return.

“Ordinary assets”:(1) stock in trade of the taxpayer or other property of a kind which would properly be included in the

inventory of the taxpayer if on hand at the close of the taxable year;(2) property held by the taxpayer primarily for sale to customers in the ordinary course of trade

or business;(3) property used in the trade or business of a character which is subject to the allowance for

depreciation provided in Section 34 (F) of the Tax Code or(4) real property used in trade or business of the taxpayer.

Capital gains are gains realized from the sale or exchange of capital assets, while ordinary gains refer to gains realized from the sale or disposition of ordinary assets.

Capital gains are gains realized from the sale or exchange of capital assets, while ordinary gains refer to gains realized from the sale or disposition of ordinary assets.

In a tax-free exchange, gaining control means acquiring at least 51% of the voting rightsA tax-free exchange merely defers the recognition of income on the exchange transaction. The sale of such shares will eventually be subject to Net Capital Gains tax (5/10%) the basis of which will be the difference between the selling price of the shares (P2 Million) and the basis of the real property in the hands of the transferor (the price for which he acquired it, or the price at the time he inherited it.)

If the exchange of stocks for something in kind is not a tax-free exchange, there will be no gain subject Net CGT (5/10%) for sale of shares when the shares are eventually sold for the same value of the land. This is because, selling price will be the same as the basis of the property, and thus no gain is earned.

I DON’T GET THIS! :The basis in computing capital gains tax in a qualified tax-free exchange under Sec. 34 (c) (2) is:

(a) With respect to the asset received by the corporation the same as it would be in the hands of the transferor increased by the amount of the gain recognized to the transferor on the transfer.

(b) With respect to the shares received by the stockholders in exchange of the assets - the same as the basis of the property, stock or securities exchanged, decreased by the money received and the

fair market value of the other property received, and increased by the amount treated as dividend of the shareholder and the amount of any gain that was recognized on the exchange.

In a qualified merger under Section 34 (c) (2) of the Tax Code, the tax basis for computing the capital gains on:(a) The sale of the assets received by the surviving corporation from the absorbed corporation shall be

the original/historical cost of the assets when still in the hands of the absorbed corporation.(b) The sale of the shares of stock received by the stockholders from the surviving corporation shall be

the acquisition/historical cost of assets transferred to the surviving corporation. (BAR 1994)

Capital Loss limitation rule: Losses from sales or exchanges shall be allowed as deductions only to the extent of the gains fro such sale or transactions

Net loss carry-over: 1. Allowed for individual TP2. Deducted for the succeeding year only3. Deducted from the sale of SHORT-TERM capital assets

Sale of principal residence:1. The proceeds are fully utilized in acquiring or constructing a new principal residence within 18 calendar months from the sale or disposition of the principal residence2. 2.The Commissioner of Internal Revenue must have been informed within thirty (30) days from the date of sale or disposition on July 12, 2000 through a prescribed return of their intention to avail of the tax exemption.3. That the said exemption can only be availed of once every ten (10) years.4. 6% supposed tax must be deposited in escrow

Interest from Bank deposits:Local banks: 20% FWTResidents’ deposit in offshore banks and foreign currency deposits: 7.5%Non-resident’s deposit in offshore banks and foreign currency deposits – exemptNon-resident alien not in TBP – 30% Gross income

Dividends received by a domestic corporation from a foreign corporation is subject to income tax and shall form part of the gross income. There is no law exempting this type of dividend from income tax. (Section 32 (7), NIRC). Dividends received by a domestic corporation from a domestic corporation is tax exempt.

Stock dividends are not realized income. Only cash and property dividends are subject to tax.

Disguised dividends are those income payments made by a domestic corporation, disproportionately larger than the actual value of the services rendered to a parent non-resident foreign corporation. In such case, the excess shall be treated as a dividend, and shall be subjected to the corresponding tax of 35% on gross income for a non-resident foreign corp.

The royalties paid to the non-resident foreign corporation for the use of rights in the Philippines is subject to a 20% final withholding tax, unless a lower tax rate is prescribed under an existing tax treaty. (Sec. 28(B)(1), NIRC).

Insurance proceeds = exempt because it is indemnification for lossBut annuities proceed or the return of premiums (which can also be confusingly called “insurance proceeds”) to the insured himself is taxable as to the excess of what was cpaid as premium.

The prize constitutes a taxable income if it was made primarily in recognition of artistic achievement which he won due to an action on his part to enter the contest. It is subject to FWT of 20%.

Prize and Award tax exempt only if:

(i) The recipient was selected without any action on his part to enter the contest or proceeding: and(ii) The recipient is not required to render substantial future services as a condition to receiving the

prize or award.

“All prizes and awards granted to athletes in local and International sports tournaments and competitions held in the Philippines or abroad and sanctioned by their respective national sports associations shall be exempt from income tax".The donor’s of said prizes and awards shall be exempt from the payment of the donor’s tax.

The separation benefits to employees are excluded from gross income being in the nature of benefits given to employees whose services were terminated due to causes beyond their control

Under Republic Act No. 4917 (those received under a reasonable private benefit plan):

1. the retiring official or employee must have been in service of the same employer for at least ten (10) years;

2. At least 50 years of age3. Availed only once

Under Republic Act No. 7641 (those received from employers without any retirement plan):

1. Under a valid CBA and other agreements,2. In the absence of retirement plan or agreement providing for retirement benefits the benefits are

excluded from gross income and exempt from income tax if:A. retiring employee must have served at least flve (5) years; andB. that he is not less than sixty (60) years of age but not more than sixty five (65).

Benefits received on account of separation due to causes beyond the employees' control are specifically excluded from gross income. Thus separation pay after voluntary resignation is taxable. Resignation due to health and fitness reasons is not taxable as it is not voluntary.

The controlling facts which would lead to the conclusion that the amount received by the widow is not an income are as follows:

a. the gift was made to the widow rather than the estate:b. there was no obligation for the corporation to make further payments to the deceased;c. the widow had never worked for the corporation;d. the corporation received no economic benefit; ande. the deceased had been fully compensated for his services (Estate of Sydney Carter us.

Commissioner, 453 F. 2d 61 (2d Cir. 1971).

The commutation of leave credits or the cash equivalent of accumulated vacation and sick leave credits given to an officer or employee who retires, or separated from the service through no fault of his own, is exempt from income tax. (BIR Ruling 238-91 dated November 8, 1991; Commissioner vs. CA and Efren Castaneda, GRNo. 96016, October 17, 1991).

Recovery of bad debts previously charged off is taxable to the extent of income tax benefit of said deduction

Refund for taxes erroneously paid is taxable but only to the extent of the income tax benefit of said deduction. (Sec. 34(C)(1), NIRC).

Tax benefit rule = to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written-off and claimed as a deduction from income. It also applies when taxes paid and claimed as deductions are refunded.

Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income either because:(1) It is exempted by the fundamental law;(2) It is exempted by statute; or (3) It does not come within the definition of income. (Section 61, RR No. 2).

Deductions from gross income, on the other hand, are the amounts, which the law allows to be deducted from gross income in order to arrive at net income.

Exclusions pertain to the computation of gross income, while deductions pertain to the computation of net income.

Tax credit which reduces the tax liability is different from a tax deduction which merely reduces the taxable income. Since the law allowed bookstores to claim in full the discount as a tax credit, the BIR is not allowed to expand or contract the legislative mandate (CIR v. Central Luzon Drug Corp., Id.).

The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured are not included as part of the gross income of the recipient. (Section 32(B)(1), NIRC). There is no income realized because nothing flows to Noel’s parents other than a mere return of capital, the capital being the life of the insured. Distinguish this from return of premiums to the insured himself, which is taxable as to the excess.

The value of a property acquired by gift is an exclusion from gross income

The assignment can neither be held to be a gift. To be considered a gift within the context of the NIRC, there must be a transfer of ownership or a quantifiable interest. Thus assignment of Club shares among incumbent officers of a corporation is not a gift because the ownership remains with employer-corporation

Compensation for injuries, damages, death, etc is excluded from gross income. These damages are considered by law as mere return of capital, that is the injury itself.

Requisites of deductions:1. Expenses must be ordinary and necessary2. Paid or incurred during the taxable year3. Paid or incurred in carrying out a trade, business or profession4. Substantiated

Under Sec. 29 (h) 11) of the National Internal Revenue Code charitable contributions to be deductible must be:

a. actually paid or made to domestic corporations or associations organized and operated exclusively for religious. charitable, scientific, youth and sports development, cultural or educational purposes or for rehabilitation of veterans or to social welfare institutions no part of which inures to the benefit of any private individual;

b. made within the taxable year;c. not more than 6% (for individuals) of 3% (for corporations) of the taxpayer’s taxable income to be

computed without including the contribution

Note that the law accorded no privilege to similar contributions extended to private individuals. Hence, the P5,000.00 contribution to the crippled girl cannot be claimed as a deduction.

Employees receiving purely compensation income can only deduct from gross compensation income personal exemption, additional personal exemption and special additional personal exemption (Section 29. NIRC as amended).

The tuition fees for pre- bar classes and the bar examination fees paid to the Supreme Court by X do not qualify as deductible expenses for a new lawyer.

The deductibility of the contributions in times of calamity is based on two criteria, to wit:1. The donee or recipient must be the government or accredited relief organization: and2. The contribution must be utilized for the rehabilitation of calamity-stricken areas declared by the

President

When asked if it can be deducted, always qualify your answer with “assuming it was paid or incurred during the taxable year.” And “provided the deductions are substantiated”

Donation of blood is not deductible as it has no monetary value.

Deductions shall not be allowed if the expense is contrary to law, public policy or for immoral purposes (Zamora vs. Collector, SCRA 163; Roxas vs. CTA, 23 SCRA 276). Ex. Bribe money*** but it is income as to the recipient

Giving an extra bonus at a time that the company suffers operating losses is not a payment in good faith and is not normal to the business, hence unreasonable and would not qualify as ordinary and necessary expense.

Donations to political parties and candidates are exempt from donor’s tax, provided that he complies with the requirement of filing returns of contributions with the Commission on Elections as required under the Omnibus Election Code. These are not deductible expenses to the donor because it is not business related and not one of the deductions under the law.

An advertising expense for immediate boost of sales is deductible. But if the benefit to be enjoyed by the taxpayer goes beyond one taxable year or for future sales, it becomes maintenance of goodwill which can depreciated like acquisition of capital assets.

No deduction for dividends on preferred shares. Preferred shares shall be considered capital regardless of the conditions under which such shares is issued and, therefore, dividends paid thereon are not considered interests which are allowed to be deducted from the gross income of the corporation. (Revenue Memorandum Circular No. 17-71, July 12, 1971). (BAR 1999)

For interest to be deductible, the following requirements must be met:(a) That there must be an indebtedness:(b)That there is an interest on such indebtedness:(c) Such interest was paid or accrued within the taxable year(d)Interest was paid on a debt related to one’s profession, trade or business

Interest on loans used to acquire capital assets are capital assets themselves which can be can be deducted at once or amortized

The requisites for deductibility of a loss are a) loss belongs to the taxpayer; b) actually sustained and charged off during the taxable year; c) evidenced by a closed and completed transaction; d) not compensated by insurance or other forms of indemnity;

e) not claimed as a deduction for estate tax purposes in case of individual taxpayers; and f) if it is a casualty loss it is evidenced by a declaration of loss filed within 45 days with the BIR.

Only costs or expenses incurred in earning the income shall be deductible for income tax purposes consonant with the requirement of the law that only necessary expenses are allowed as deductions from gross income. The term “necessary expenses” presupposes that in order to be allowed as deduction, the expense must be business connected, which is not the case insofar as capital losses are concerned

Worthless securities, which are ordinary assets, are not allowed as deduction from gross income because the loss is not realized. However, if these worthless securities are capital assets, the owner is considered to have incurred a capital loss and, therefore, deductible to the extent of capital gains. (Section 34(D)(4), NIRC). This deduction, however, is not allowed to a bank or trust company. (Section 34(B)(2), NIRC).

Requisites of deducting bad debts:1. The debt must be valid and subsisting;2. The debt is connected with the taxpayer's trade or business3. The debt is not between related parties;4. There is an actual ascertainment that the debt is worthless; and5. The debt is charged-off within the taxable year. (PRC v. CA, 256 SCRA 667 11996]; Revenue

Regs. No. 5-99).

Reserve for bad debts are not allowed as deduction from gross income. Bad debts must be charged off during the taxable year to be allowed as deduction from gross income. The mere setting up of reserves will not give rise to any deduction

Depreciation for goodwill is not allowed as deduction from gross income. While intangibles maybe allowed to be depreciated or amortized, it is only allowed to those intangibles whose use in the business or trade is definitely limited in duration. A goodwill has no duration. (Basilan Estates, Inc. v. CIR, 21 SCRA 17).

When a building is erected by a lessee in the leased premises in pursuance of an agreement:1. The lessor may report as income the market value of the building at the time when such building is

completed, ir2. The lessor may spread over the life of the lease the estimated depreciated value of such building

at the termination of the lease and report as income for each year of the lease an aliquot part thereof (amortization method)

The proper allowance of depreciation of any property used in trade or business refers to the reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of said property.

Basis of deduction for donations to qualified institutions: Donations and/or contributions made to qualified donee institutions consisting of property other than money shall be based on the acquisition cost of the property, not the fair market value/zonal value of the lot donated. (Sec. 34(H), NIRC).

OSD: Not exceeding 40% of their gross sales or receiptsNot qualified to use OSD:

1. Non-resident alien (whether or not in TBP)2. Nonresident foreign corporation

The choice of using it is irrevocable for the taxable year. This means , the ITR cannot be amended to use itemized deductions

The distinction between allowable deductions and personal exemptions are as follows:

1. As to amount — Allowable deductions generally refer to actual expenses incurred in the pursuit of trade, business or practice of profession while personal exemptions are arbitrary amounts allowed by law.

2. As to nature — Allowable deductions constitute business expenses while personal exemptions pertain to personal expenses.

3. As to purpose — Deductions are allowed to enable the taxpayer to recoup his cost of doing business while personal exemptions are allowed to cover personal, family and living expenses.

4. As to claimants — Allowable deductions can be claimed by all taxpayers, corporate or otherwise, while personal exemptions can be claimed only by individual taxpayers. (BAR 2001)

Personal exemption: P50000 per TPAdditonal:

1. 25000 pera. 21 year-old child unmarried, dependent and living with the parent TPb. any age, incapable of self-support because of physical or mental support

2. Not more than 4 dependents

Status at the end of the year- Change in status within the year will not affect the status at the end of the year.

Premiums for insurance on the life of an employee:1. For the benefit of his employees: deductible expense for the employer as it is an ordinary expense2. For the benefit of the corporations: not deductible by express provision of law.

More than 180 days= NR-A is engaged in TBP. Thus he will be taxed similar to a RA

Only managerial or supervisory employees are entitled to a fringe benefit subject to the fringe benefits tax. And even so, it should not be for the convenience of the employer

Limited 13th Month Pay exclusion:13th month pay is excluded from the gross income for income tax purposes to the extent of P30,000.00. Any excess will be included in the gross income per income tax return as part of gross compensation income. (Sec. 32(B)(7)(e), NIRC).

Gross compensation income earners are now allowed at least an item of deduction in the form of premium payments on health and/or hospitalization insurance in an amount not exceeding P2.400 per annum [Section 34(M)]. This deduction is allowed if the aggregate family income do not exceed P250.000 and by the spouse, in case of married individual, who claims additional personal exemption for dependents. (BAR 2001)

Basis of 6% CGT:1. Fair market value – as determined by the provincial assessor of the CIR2. Gross selling price**Actual gain is not required for the imposition of the tax but it is the gain by fiction of law which is t

axable.

50% fraud surcharge – in cases of tax evasion and fraudulent returnsNote: CGT is imposed in public sales of real property

Sale od House and Lots or Condo:1. Real estate company – Orndinary income: 30% corporate income tax or VAT

2. Not in the business – 6%CGT

Sale of Capital Assets in personal property other than sharesof stocks:- consider the holding period of the asset. The capital asset having been held for more than twelve months (short-term), only 50% of the gain is recognized.

Real property transactions subject to capital gains tax are not limited to sales but also exchanges of property unless exempted by a specific provision of law

Apartment for rent as business are ordinary assets. Thus, when sold are not subject to CGT.

A BIR regulation establishing gross income as the tax base for corporations doing business in the Philippines (domestic as well as resident foreign) is not valid until the requisites are present.

MCIT2% of gross incomeBeginning in the fourth year of operationExcess of the MCIT from the normal tax can be carried over to the normal tax in the 3 taxable yearsObviously it does not apply to NRFC because they are always taxed 305 on their gross income.

Rationale of MCIT: is designed to forestall the prevailing practice of corporations of over claiming deductions in order to reduce their income tax payments. The filing of income tax returns showing a tax loss every year goes against the business motive which impelled the stockholders to form the corporation.

Exempt from MCIT:1. Proprietary educational institutions (10% of net taxable income)2. Non-profit hospitals (10% of net taxable income)3. Off shore banks (10% on taxable income)4. Regional headquarters of Multinational corporations (10% of taxable income)5. International carriers (2.5% on gross Philippine billings)

OSD = 40 of gross income (not gross recipts)

Who can fix FMV for CGT purposes:1. CIR2. City or Provincial assessor

The donation of lot and building to a proprietary educational institution is subject to the donor’s tax because a donation to an educational institution is exempt only if the school is incorporated as a non-stock entity paying no dividends.

All income of a proprietary educational institution from school related and non-school related activities will be subject to the income tax of 10% based on its aggregate net income derived from both activities

Improperly accumulated earnings tax-applies to closely held corporations (at least 50% shares belong to not more than 20 individuals)-10% tax on IAE-ex. accumulation of earnings in excess of 100% of the paid up capitalThe “immediacy test” is applied to determine whether the accumulation of the tax profits by a domestic or resident foreign corporation is really for the reasonable needs of the business. Under this test, the corporation should be able to prove an immediate need for the accumulation of earnings and profits, or the direct correlation of anticipated needs to such accumulation of profits to justify the said accumulation

Actual CGT on Capital Net Gains from dealings with stock is not a withholding tax. It is paid by the seller though a CGT return. It is impossible for the buyer to determine the capital to deduct from the price to determine the gains.

While the general rule is that a foreign corporation is the same juridical entity as its branch office in the Philippines, when, however, the corporation transacts business in the Philippines directly and independently of its branch, the taxpayer would be the foreign corporation itself and subject to the dividend tax similarly imposed on non-resident foreign corporation. The dividends attributable to the Home Office (non-resident foreign corp) would not qualify as dividends earned by a resident foreign corporation, which is exempt from tax. (Marubeni Corporation v. Commissioner, GR No. 76573, September 14, 1989).

Careful with the combination of NRFC and services outside the Philippines (income withut). This is exempt!

A domestic corporation is required to file income tax returns four (4) times for income earned during a single taxable year. Quarterly returns are required to be filed for the first three quarters where the corporation shall declare its quarterly summary of gross income and deductions on a cumulative basis. (Section 75, NIRC). Then, a final adjustment return is required to be filed covering the total taxable income for the entire year, calendar or fiscal. (Section 76, NIRC).

An individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return (Sec. 51(A)(2)(b), NIRC.). this is notwithstanding the fact that there has been proper withholding of compensation income tax and that employee earns more than 60000.

Income tax to be paid by NRFC or NRA not in TBP is collected through withholding. The government cannot require persons outside of its territorial jurisdiction to file a return; for this reason, the income tax on income derived from within must be collected through the withholding tax system and thus relieve the recipient of the income the duty to file income tax returns. (Section 51, NIRC).

Exemption from income tax does not, necessarily mean an exemption likewise from the filing of an income tax return.

The Tax Code allows an individual taxpayer to pay in two equal installments, the first installment to be paid at the time the return is filed, and the second on or before July 15 of the same year, if his tax due exceeds P2,000. (within minimum of 3 months)

In expropriation, the expropriating body cannot impose FWT because the TP has the option of treating it as ordinary income or subjecting it to CGT. Withholding will deny TP of such option.

When the donor makes his will within a short time of, or simultaneously with, the making of gifts, the gifts may be considered as having been made in contemplation of death. (Roces v. Posadas, 58 Phil. 108) but not always since the circumstances should still be concirdered.

Donations inter vivos, actually constituting taxable lifetime like transfers in contemplation of death or revocable transfers (Sec. 78 (b) and (c). Tax Code) may be taxed for estate tax purposes, the theory being that the transferor’s control thereon extends up to the time of his death.

The value of the property for estate tax purposes shall be the fair market value thereof at the time of death.Indemnity for decedent’s death is not a property existing as of the time of decedent’s death; hence, it cannot be said that she exercised control over its disposition. Since the privilege to transmit the property is not exercised by the decedent, the estate tax cannot be imposed thereon.

Classes of decedents:

Citizens or Residents – properties wherever situated to the extent of the interest therein of the decedent at the time of his deathNonresident alien – properties situated in the Philippines to the extent of the interest therein of the decedent at the time of his death

Compoisition of Gross Estate:value at the time of his death of all property, real or personal, tangible or intangible, wherever situated to the extent of the interest therein of the decedent at the time of his death [Sec. 85 (A). NIRC of 1997].

The proceeds from a LIFE insurance policy taken out BY THE DECEDENT is included as part of the gross estate of the decedent if:1. The designation of the beneficiary is revocable or2. Irrespective of the nature of designation, the designated beneficiary is the estate, the executor or administrator. ***note that the Insurance Code provides that designation of beneficiary is presumed revocable unless express made irrevocable by the insured or by law.***If the designated beneficiary is other than the estate, executor or administrator and the designation is irrevocable, the proceeds shall not form part of his gross estate. (Section 85 (E)*** because it should be taken out by the decedent, insurance from SSS or GSIS are excluded

When answering inclusion in the gross estate, reason out that “he has interest” or he has control”

Deductions from gross estate:1. funeral expenses (5% of GE but not to exceed 200000) 2. expenses for the testamentary proceedings3. claims against the estate4. unpaid mortgage/indebtedness on the property5. taxes oaid6. losses7. vanishing deductions

Special deductions1. Standard: 1000000 (1M)2. Family home3. Medical expenses (1 year prior to his death in an amount not exceeding 500000)

***special deductions are NOT for nonresident aliens who are only taxed for properties within.

Vanishing deductions – Memorize!1. Decedent dies within 5 years from the receipt of the property through donation or succession.2. Propertyis located in the Philippines3. No vanishing deduction was use on the last transfer

100% - within 1 year80% - within 2 years60% within 3 years40%- within 4 years20%within 5 years *** Not that this deduction applies only to a particular property subject of the transfers.

Under the graduated tax rates of the estate tax, a net estate of P200,000 is exempt.(10000 in donation)

Funeral expenses may include expenses during burial but not expenses incurred after burial nor expenses incurred to commemorate the death anniversary. (De Guzman V. De Guzman, 83 SCRA 256). Medical expenses, on the other hand, are allowed only if incurred by the decedent within one year prior to his death.

Fideicommissary substitution – Forms part of the estate of the original testator but in the gross estate of the first heir since he was bound to transmit it upon death to the second heir.

When to file return: 6 months, 30 days, 5 years, 2 years1. The filing of the return and payment of estate tax is within 6 months from date of death following the pay-as-you-file concept.2. The period to file the return is extendible for a maximum of 30 days under meritorious cases as maybe determined by the Commissioner3. The payment of the estate tax may also be extended when the Commissioner finds that the payment of the tax on the due date would impose undue hardship upon the estate or any of the heirs. The period of extension to pay shall not exceed 5 years if the estate is settled through the courts, or shall not exceed 2 years if settled extrajudicially. 4. The Commissioner may also require the posting of a bond to secure the payment of the tax.

Where to file and pay:Except in cases where the Commissioner of Internal Revenue otherwise permits, the estate tax return shall be filed with an authorized agent bank, or Revenue District Officer, Collection Officer, or duly authorized Treasurer City in which the decedent was domiciled at the time of his death.

In a case where the estate has been distributed to the heirs, the collection remedies available to the BIR in collecting tax liabilities of an estate may either (1) sue all the heirs and collect from each of them the amount of tax proportionate to the inheritance received or(2) sue only one heir and subject the property he received from the estate to the payment of the estate tax subject to his right to reimbursement.

Under Sec. 90 of the NIRC a bank with knowledge of the death of a person who maintains a deposit account with such bank shall allow withdrawals therefrom only if the mandatory requirement of a certification from the Commissioner that the taxes due thereon have been paid could be presented by an heir. Otherwise, the bank may withhold.However, the Commissioner may authorize the withdrawal without a certification provided the amount to be withdrawn shall not exceed P 20,000.00.*** In summary, a person who wishes to withdraw should get the certification from CIR that it has been paid, or at least get a permission to withdraw an amount not to exceed P20000.

DONOR’S TAX

If the renunciation is a general renunciation such that the share of the heir who waives his right to the inheritance goes to the other co-heirs in accordance with their respective interest in the inheritance, the law on accretion applies and the property waived is considered to pass through the other co-heirs by inheritance; hence, it has no tax implication.

If it is not a general renunciation in favor of the other co-heirs, the heir renouncing his right is considered to have made a donation and the renunciation is subject to donor’s tax.*** A general renunciation of share in the ACP or CGP between spouses is a donation.

If the sale is for an insufficient consideration, the difference in value is subject to donor’s tax. It arises only if a tax is avoided as a result of selling a property at a price lower than its fair market value.

This provision on “sale deemed gift” is not applicable to

1. A sale of real property subject to the 6% presumed capital gains tax. This is so because the tax is always based on the gross selling price or fair market value, whichever is higher, and therefore, the seller cannot avoid any tax by selling his property below its fair market value.

2. A sale of shares of stock because the basis of computing the net capital gains is the FMV

A condonation of the unpaid balance of the obligation has the effect of a donation made on the part of the creditor, who shall be made liable for donor’s tax.***be keen here on applying the rules on bad debts. If the condonation was due to insolvency of the debtor, it shall have no donor’s tax implication but instead a deduction on gross income of the creditor.

The rule of reciprocity applies only if the property transferred by a non-resident alien is an intangible personal property situated in the Philippines. This is designed to reciprocate the exemption from donor's tax granted by a foreign country to Filipinos who are not residing thereatIt does not apply to tangible properties.

Classes of donors:Citizens or Residents – properties wherever situatedNonresident alien – properties situated in the Philippines

Under the graduated tax rates of the estate tax, a net estate of 100000 is exempt.(200000 in estate)

Exempt donations:1. Dowry or donation on account of marrige (not to exceed P10000)

***applies to gifts of parents to legitimate, illegitimate, and adopted children2. Donations to the government or its agencies3. Donations to non-stock institutions (not more than 30% is for admin)

a. Not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes;

b. The educational institution is incorporated as a non¬stock entity,c. paying no dividends,d. governed by trustees who receive no compensation, and

devoting all its income, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. [Sec. 101 (A) (3), NIRC of 1997)

***a non-resident alien is not entitled to the dowry exemption.

Shares of stocks of a foreign corporation are deemed properties outside the Philippines (Thus, donations thereof by NRA or NRFC is not subject to tax). Unless, 85% of the business of the foreign corporation is located in the Philippines or the shares donated have acquired business situs in the Philippines***Same rule applies to situs of estate tax

Note: The basis of the cost of the donated property would be the same as it would be in the hands of the donor (thus, the cost is the price for he bought the property if acquired by sale). In succession, it would b the value at the time of transmission. (value at the time of death of the decedent)

Doc Stamp Tax – tax on transmissions via deed of properties for a consideration?

Justification for valid splitting of donations: While the donor is tax is computed on the cumulative donations, the aggregation of all donations made by a donor is allowed only over one calendar year.

A Donation to strangers: 30% of the net gifts

stranger is a person who is not a:1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or2) Relative by consanguinity in the collateral line within the fourth degree of relationship." [Sec. 98

(B), NIRC of 1997] (BAR 2000) ***relatives by affinity (in-laws) are always strangers

SKIP VAT:

TAX REMEDIES

The legal remedies of an aggrieved taxpayer under the Tax Code, both at the administrative and judicial levels, may be classified into those for assessment, collection and refund

The procedures for the administrative remedies for assessment are as follows:a. After receipt of the Pre-Assessment Notice, he must within fifteen (15) days from receipt

explain why no additional taxes should be assessed against him.b. If the Commissioner of Internal Revenue Issues a Final Assessment Notice, the taxpayer must

administratively protest or dispute the assessment by filing a motion for reconsideration or reinvestigation within thirty (30) days from receipt of the notice of assessment. (4th par., Sec. 228, NIRC of 1997)Within sixty (60) days from filing of the protest, the taxpayer shall submit all relevant supporting documents.

The judicial remedies of an aggrieved taxpayer relative to an assessment notice are as follows:

1. The taxpayer has a period of thirty (30) days from the denial or from the lapse of said 180 days within which to interpose a petition for review with the Court of Tax Appeals division. The tax payer may wait for the decision of the Commissioner because he files a petition for review.

2. The adverse decision of the Court of Tax Appeals division is appealable to the CTA en banc by means of a petition for review within a period of fifteen (15) days from receipt of the adverse decision., extendible for another period of fifteen (15) days for compelling reasons, but the extension is not to exceed a total of thirty (30) days in all

3. From CTA en banc, Rule 45 within 15 days to the SC

Administrative remedies for refund:1. within 2 years from payment, file a written claim for refund with the CIR2. CIR has 180 days to act upon the claim3. Within the same 2 year period, file a petition for review with the CTA division4. Etc, etc

An assessment notice is a formal notice to the taxpayer stating that the amount thereon is due as a tax and containing a demand for the payment thereof. {Alhambra Cigar and Cigarette Mfg. Co.v. Collector, 10S PR 1337[1959]; CIR v. Pascor Realty and Development Corp., 309 SCRA 402 [1999]). To be valid:

1. It must be made within the prescriptive period to assess; (Section 203, NIRC)2. There must be a preliminary assessment previously issued, except in those instances

allowed by law; (Section 228, NIRC)3. The taxpayer must be informed in writing about the law and facts on which the

assessment is based; (Section 228, NIRC) and

4. It must be served upon the taxpayer or any of his authorized representatives. (Estate of Juliana Diez vda. De Gabriel v. CIR, 421 SCRA 266[2004]).

As a general rule, a deficiency tax assessment is not a bar to a claim for tax refund or tax credit. It is logically appropriate; however, that if the deficiency tax assessment is already final, the Commissioner should not grant the claim unless the taxpayer pays the deficiency. Likewise, no tax refund or tax credit will be granted as long as there is pending a deficiency tax assessment for the same taxable period. To award a tax refund or tax credit despite the existence of deficiency assessment for the same taxable period is an absurdity and a polarity in conceptual effects. A taxpayer cannot be entitled to a refund and at the same time be liable for a tax deficiency assessment. In order to avoid multiplicity of suits, it is logically necessary and legally appropriate that the issue of deficiency tax assessment be resolved jointly with the taxpayer’s claim for tax refund, to determine once and for all in a single proceeding the true and correct amount of tax due or refundable. [CIR v. CA, City trust Banking Corp. and CTA, 234 SCRA 348 (1994)].

A taxpayer whose ITR is filed by an accountant is liable for the deficiency tax as well as for the deficiency interest. However, he is not liable to the fraud penalty because the accountant acted beyond the limits of his authority. A tax return which does not correctly reflect taxable income may only be false but not necessarily fraudulent where it appears that the return was not prepared by the taxpayer himself but by his accountant. Accordingly, the 50% surcharge for fraud could not be imposed. [Aznar v. CTA, 58 SCRA 719, (1974)].

On the other hand, the accountant may be held criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring the sale and overstating the expense deductions. (Sec. 257, NIRC). If Danny's accountant is a Certified Public Accountant, his certificate as CPA shall automatically be revoked or cancelled upon conviction.

A revenue tax is considered delinquent when it is unpaid after the lapse of the last day prescribed by law for its payment. Likewise, it could also be considered as delinquent where an assessment for deficiency tax has become final and the taxpayer has not paid it within the period given in the notice of assessment.

’An embezzler’s liability to pay the tax is based on his having realized a taxable income from his swindling activities and will not affect his obligation to make restitution. Payment of the tax is a civil obligation imposed by law while restitution is a civil liability arising from a crime.

The 50% fraud surcharge attaches only if a false or fraudulent return is willfully made by tax payer

If the TP admits deficiency, what he can do is amend his ITR for that year and include the deficiency. He cannot pay it in the following year during which it has not been earned.

Commissioner of Internal Revenue has the authority to inquire into bank deposit accounts of a decedent to determine his gross estate notwithstanding the provisions of the Bank Secrecy Law. This is one of the recognized exceptions to the laws on bank secrecy. Hence, the banks holding the deposits in question may not refuse to disclose the amount of deposits on the ground of secrecy of bank deposits. (Section 6(F) of the 1997 Tax Code)The shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon have been paid. To enable the CIR to certify correctly, he must inquire into the assets.

The Commissioner of Internal Revenue or his duly authorized representative may be allowed to inquire or look into the bank deposits of a taxpayer in the following cases:

a) For the purpose of determining the gross estate of a decedent;

b) Where the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity to pay such tax liability. [Sec. 6 (F), NIRC of 1997]

c) Where the taxpayer has signed a waiver authorizing the Commissioner or his duly authorized representatives to inquire into the bank deposits.

Prescriptive period for assessment:3years from the time ITR was filed or must have been filed, whichever is later10 years from discovery of falsity failure or fraud if ITR is false or fraudulent ***However, if the return originally filed is amended substantially, the counting of the three-year period starts from the date the amended return was filed

Prescription of collection3 years from issuance of assessment (not finality)10 years from discovery of falsity failure or fraud***the period runs from issuance of assessment but protest of the TP suspends the running of the period and begins to run again only once the CIR makes a final assessment notice or denial of the protest.

What is the remedy if right to assess has prescribed but such assessment has become final for failure of TP to protest?-Wait for collection. File a petition for review against the collection and raise the defense of prescription.

If the CIR charged penalty or surcharge, it is a hint that the ITR is fraudulent and thus apply 10-year prescription

A false return implies a deviation from the truth or fact whether intentional or not, whereas the second is intentional and deceitful with the aim of evading the correct tax due. Falsity is not subject to surcharge while fraud is subject thereto. (Aznar v. Commissioner, GR No. L-20569, August 23, 1974, 58 SCRA S19[1974]).

Prima facie evidence of false or fraudulent return (30% Rule)30% underdeclaration of income30% overdeclaration of deductions

The waiver of the statute of limitation executed by a taxpayer is not a waiver of the right to invoke the defense of prescription. The waiver of the statute of limitation is merely an agreement to extend period to assess and collect. If prescription has already set in at the time of the execution of the waiver, it is invalid, the taxpayer can still raise prescription as a defense (Phil. Journalists Inc., v. CIR, GR No. 162852, Dec. 16, 2004)

A request for reconsideration which does not express or specify the grounds therefor stated is insufficient, not being substantiatied, to stop the running of the 30-day period within which the assessment may be disputed

Before the CIR can collect from a compromise penalty, there must be showing that the compromise penalty was imposed by the Commissioner of Internal Revenue with the agreement and conformity of the taxpayer. (Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, et al. 64 SCRA 555)

When are taxes paid?Income tax: Filing of return (15th day of the fourth month after the end of the taxable yearCGT: 30 days from transactionEstate tax: 6 months from deathDonor’s tax: 30 days after the gist is paidVAT: generally paid on a mothy basis

Percentage tax: 25 days from the end of each taxable quarterDST; 10 days from the close of the month when the document was signed, accepted, or transferred.

Failure to respond to a PAN puts a TP in default to the investigaton. But it does not bar him from filing a protest once the FAN is issued by the CIR.

Final Notice Before Seizure is a final decision of the Commissioner on the disputed assessment [CIR v. Isabela Cultural Corp., 361 SCRA 71 (2001)]. It is an act deemed to be a denial of the protest.

Collection without deciding on the protest shall be tantamount to denial. Because there is collection pending, the TP’s Petition for Review before the CTA division must have an application for issuance of a writ of preliminary injunction to enjoin the Bureau of Internal Revenue.The CTA may, however, remand the case to the BIR and require the Commissioner to specifically rule on the protest.

There is no final, executory and demandable assessment which can be enforced by the BIR, once a timely appeal is filed. Thus, a timely appeal of the assessment is a ground for the dismissal of the collection case with the RTC.

The remedy of a taxpayer with the inaction of CIR:1. File a petition for review with the CTA within 30 days after the expiration of the 180-day

period from submission of all relevant documents; or2. Await the final decision of the Commissioner on the disputed assessment and appeal such

final decision to the CTA within 30 days after receipt of a copy of such decision.*** These options are mutually exclusive such that resort to one bars the application of the other (RCBC v. OR, 522SCRA 144(2007]

A protest filed out of time is invalid and does not suspend the running of the prescriptive period for the collection of the tax. So that, 3 years for collection will lapse if the CIR does not make a move (CIR v. Atlas Mining and Development Corp., February 14,2000).

The 5-year period to file a criminal action commences to run only when the assessment becomes final and appealable.

The BIR is authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency of protest ????

Financial incapacity is a ground allowed by law in order that the Commissioner of Internal Revenue may compromise a tax liability

The Commissioner of Internal Revenue may be authorized to compromise the payment of any internal revenue tax where:

1) A reasonable doubt as to the validity of the claim against the taxpayer exists: or2) the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

The Commissioner of Internal Revenue may abate or cancel a tax liability when:1) The tax or any portion thereof appears to be unjustly or excessively assessed: or2) The administration and collection costs involved do not justify the collection of the amount due.

(Sec. 204 (B). NIRC of 1997]

A taxpayer who is constituted as withholding agent who has deducted and withheld at source the tax on the income payment made by him holds the taxes in trust for the government. His financial inability will not be ground for compromise. Those are not taxes due from withholding agent but from the TP themselves and which the agent is authorized to collect.

The compromise of the tax liability is possible at any stage of litigation and the amount of compromise is left to the discretion of the Commissioner except with respect to final assessments issued against large taxpayers wherein the Commissioner cannot compromise for less than fifty percent (50%). Any compromise involving large taxpayers lower than fifty percent (50%) shall be subject to the approval of the Secretary of Finance

All criminal violations except those involving fraud, can be compromised by the Commissioner but only prior to the filing of the information with the Court.

The filing of an administrative claim for refund with the BIR is necessary in order:

1) To afford the Commissioner an opportunity to consider the claim and to have a chance to correct the errors of subordinate officers (Gonzales v. CTA. et aL, 14 SCRA 79): and

2) To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating the revenue available for expenditures. [Bermejo v. Collector, G.R. No. L-3028. Jufy 29, 1950)

Refund by the commissioner without any claim from TP: When the taxpayer files a return which on its face shows an overpayment of the tax and the option to refund/ claim a tax credit was chosen by the taxpayer, the Commissioner shall grant the refund or tax credit without the need for a written claim. This is so, because a return filed showing an overpayment shall be considered as a written claim for credit or refund. (Secs. 76 and 204, NIRC).

Withholding agents (WA) can claim refund because he is not only an agent of the government but is also an agent of the taxpayer/income earner. Hence, ABCD is also an agent of the beneficial owner of the dividends with respect to the actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such for refund (CIR v. Procter & Gamble, 204 SCRA 377, {1991})

The two-year period of limitation for filing a claim for refund is not only a limitation for pursuing the claim at the administrative level but also a limitation for appealing the case to the Court of Tax Appeals.The law provides that no suit or proceeding shall be filed after the expiration of two years from the date of the payment of the tax or penalty regardless of any supervening cause that may arise after payment (Section 229, NIRC).

The Supreme Court ruled that in the case of overpaid quarterly corporate income tax, the two-year prescriptive period for tax refunds (Sec. 230, Tax Code) is counted from the filing of the final, adjustment return under Sec. 67 of the Tax Code, and NOT from the filing of the quarterly return and payment of the quarterly tax. (Commissioner v. TMX Sales.fnc., 205 SCRA 184)

The theory of supervening event expresses that an event which is beyond the control of the parties would allow recovery of refund provided the proceeding for such recovery is made within the prescriptive period from the occurrence of such event. The law now disregards all supervening event and thus does shall not suspend the running of the period anymore.

The summary prepared by the CPA is not enough evidence as it does not prove anything unless the documents which were the basis of the summary are submitted to the CTA and adduced in evidence. The invoices and receipts must be presented because they are the only real and direct evidence that would enable the Court to determine with particular certainty the basis of the refund (CIR v. Rio Tuba Nickel Mining Corp., 207SCRA S49[l992]).

The law may provide that only tax credit is used and not tax refund in money. The term tax credit connotes that the amount when claimed shall only be treated as a reduction from any tax liability, plain and simple. There is nothing in the law that grants a refund when the bookstore has no tax liability against which the tax credit can be used. This is true even if its business is closed due to losses without being able to recoup the discount. The right shall be lost all together. (CIR v. Central Luzon Drug Corp., 456 SCRA 414 [2005]).

Conditions for a valid refund:(1) A written claim for refund is filed by the taxpayer with the Commissioner of Internal Revenue.

(Sec. 204, NIRC);(2) The claim for refund must be a categorical demand for reimbursement. [Bermejo v. Collector of

Internal Revenue, 87 Phil. 96 (1950)](3) The claim for refund or tax credit must be filed with the Commissioner, or the suit or proceeding

therefore must be commenced in court within 2 years from date of payment of the tax or penalty regardless of any supervening cause (Sec. 229, NIRC).

A withholding agent should be allowed to claim for tax refund, because under the law said agent is the one who is held liable for any violation of the withholding tax law should such violation occur [Commissioner of Internal Revenue v. Wander Philippines Inc., 160 SCRA 570, (1988)1. Furthermore, since the withholding agent is made personally liable to deduct and withhold any tax under Section 53(c) of the Tax Code, it is imperative that he be considered the taxpayer for all legal intents and purposes. Thus, by any reasonable standard, such person should be regarded as a party in interest to bring suit for refund of taxes [Commissioner of Internal Revenue v. Procter and Gamble Philippines Manufacturing Corporation and CTA, 204 SCRA 377, (1991).

A subsidiary, while not the real party in interest, could prosecute a claim of refund in behalf of its non-resident stockholders by virtue of its being the withholding agent for the government in respect of the cash dividends it declared [Comm. vs. Wander Phils.)

Payment under ProtestFor taxes imposed under the NIRC, protest at the time of payment is not required to preserve the taxpayers’ right to claim refund. This is clear under Section 230 of the NIRC which provides that a suit or proceeding maybe maintained for the recovery of national internal revenue tax or penalty alleged to have been erroneously assessed or collected, whether such tax or penalty has been paid under protest or not.For duties imposed under the Tariff and Customs Code, a protest at the time of payment is required to preserve the taxpayers’ claim for refund. The procedure under the TCC is to the effect that when a ruling or decision of the Collector of Customs is made whereby liability for duties is determined, the party adversely affected may protest such ruling or decision by presenting to the Collector, at the time when payment is made, or within fifteen days thereafter, a written protest setting forth his objections to the ruling or decision in question (Sec. 2308, TCC).

Deficiency interest for purposes of the income tax is the interest due on any amount of tax due or installment thereof which is not paid on or before the date prescribed for its payment computed at the rate of 20% per annum or the Manila Reference Rate, whichever is higher, from the date prescribed for its payment (or the deadline for filing the ITR) until it is fully paid

Delinquency interest is the 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; orb) the amount of the tax due for which return is required; orc) the deficiency tax or any surcharge or interest thereon, on the due date appearing in the notice

and demand of the Commissioner of Internal Revenue.***Delinquency begins from the deadline of payment of assessment, while deficiency begins from the date of filing a return.

Delinquent accounts may be compromised if either of the two conditions is present: (1) the assessment is of doubtful validity, or (2) the financial position of the taxpayer demonstrates a clear inability to pay the tax.

Cases where final reports of reinvestigation or reconsideration have been issued resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the required agreement form, cannot be compromised. By giving his conformity to the revised assessment, the taxpayer admits the validity of the assessment and his capacity to pay the same. (Sec. 2 of Revenue Regulations No. 30-2002).

The compromise settlement of the criminal violations will not relieve the taxpayer from its civil liability. But the civil liability for taxes may also be compromised independently if the financial position of the taxpayer demonstrates a clear inability to pay the tax.

The prosecutor in criminal actions for violation of tax laws must be a legal officer of the Bureau of Internal Revenue to whom the conduct of criminal actions is lodged by the Tax Code.

During the pendency of the appeal, the taxpayer may still enter into a compromise settlement of his tax liability for as long as any of the grounds for a compromise, ie. doubtful validity of assessment and financial incapacity of taxpayer, is present. A compromise of a tax liability is possible at any stage of litigation, even during appeal, although legal propriety demands that prior leave of court should be obtained (Pasudeco vs. CIR. L-39387. June 29. 1982).

BIR rulings are the best guess of the moment and incidentally often contain such well-considered and sound law, but the courts have held that they are merely advisory - sort of an information service to the taxpayer.A BIR ruling of first impression to be valid must not be against the law and it must be issued only by the Commissioner of Internal Revenue.

The general rule is that a BIR ruling does not have a retroactive effect if giving it a retroactive application is prejudicial to the taxpayer. However, if the first ruling is tainted with either of the following:

(1) misstatement or omission of material facts, (2) the facts gathered by the BIR are materially different from the facts upon which the ruling is based, (3) the taxpayer acted in bad faith, a subsequent ruling can have a retroactive application. (ABS-CBN Broadcasting Co. v. CTA & CIR, 08 SCRA 142 [1981]; Sec 246, NIRC).***Note that these circumstances must be clearly present in order for the exception to apply.

The taxing power of the provinces, municipalities and cities is directly conferred by the Constitution by giving them the authority to create their own sources of revenue, subject only to the limitations that the Congress may impose. The local government units do not exercise the power to tax as an inherent power or by a valid delegation of the power by Congress, but pursuant to a direct authority conferred by the Constitution. (Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 [1996]; NPC v. City of Cabanatuan, 401 SCRA 259 [2003]).

Considering that inasmuch as the power to tax may be exercised by local legislative bodies, no longer by valid congressional delegation but by direct authority conferred by the Constitution, in interpreting statutory provisions on municipal fiscal powers, doubts will, therefore, have to be resolved in favor of municipal corporations (City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353 (1999]). This means that the court must adopt a liberal construction of a law granting a municipal corporation the power to tax.

Constitutional basis:"Each local government unit shall have the power to create their own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy."

Only the Sanggunian can impose taxes by way of an ordinance. The Mayor or Governor cannot.

No public hearing is required before the enactment of a local tax ordinance levying the basic real property tax (Art. 324, LGC Regulations).

Only cities and provinces can impose professional tax. This authority is to impose a professional tax only on persons engaged in the practice of their profession requiring government examination and lawyers are included within that class of professionals.

A professional is given the option to pay professional taxes either in the city where he practices his profession or where he maintains his principal office in case he practices his profession in several places.This will entitle him to practice his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such profession. (Sec. 139 in relation to 151, Local Government Code).

The Local Tax Code only allows provinces and cities to impose a tax on the transfer of ownership of real property or the so called transfer tax (Sec. 7 and Sec. 23, Local Tax Code). Municipalities are prohibited from imposing said tax that provinces are specifically authorized to levy. (Sec. 22, Local Tax Code)

Retiring business under the LGC are taxed on their gross sales or gross receipts in the current year and not on the preceding year. If the tax paid in the current year is less than the tax due on gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired (Sec. 145, LGC).

The business tax on contractors is a graduated annual fixed tax based on the gross receipts for the preceding calendar year. However, when the gross receipts amount to P2 million or more, the business tax on contractors is imposed as a percentage tax at the rate of 50% of 1% (Sec. 143(e), LGC).

Rules in Sales Tax70%-where factory is located30% where principal office is located*** if it does not have a separate office then it shall be taxed wholly on the place of the factory100% of sale on each branch shall be taxed on the place where branch is located

The municipality is authorized to impose reasonable fees and charges as a regulatory measure in an amount commensurate with the cost of regulation, inspection and licensing (Section 147, LGC).A warehouse used for keeping or storing copra is an establishment likely to endanger the public safety or likely to give rise to conflagration because the oil content of the copra, when ignited, is difficult to put under control by water and the use of chemicals is necessary to put out the fire. It is, thus, reasonable that the Municipality impose storage fees for its own surveillance and lookout (Procter & Gamble Philippine Manufacturing Corporation v. Municipality of Jagna, Province of Bohol, 94 SCRA 894 [1979])

***the usual issue raised is if the imposition is income tax which only the national government can impose. Income tax is on the privilege of earning.

LGU’s cannot legally levy the Gross Receipts Tax on the shipping line, because taxes on the gross receipts of carriers by air, land or water is a limitation on the exercise of taxing powers by local government units (Sec, 133(f), LGC).

The tax period for local taxes is generally the calendar year.

The inaction of the Secretary of Finance does not bar the professionals from questioning the legality of the ordinance. While it is true that the Secretary of Finance may himself suspend the tax ordinance within a 120-day period from receipt thereof, his failure to do so, however, has no preclusive effect on taxpayers who may be adversely affected by the ordinance.

Professional fee can not be based on income. LGU cannot impose income tax.

A local tax payer may pursue his remedies either administratively or Judicially. 1. He may, if collection has not yet been enforced, file a formal protest with the Secretary of Finance or query with the Provincial Fiscal whose opinion is appealable to the Secretary of Justice whose decision may be contested in the proper court. The taxpayer has the right to protest an assessment within 60 days from receipt thereof5. The judicial remedy would be to file a special civil action for declaratory relief (if circumstances still warrant) or 6. To pay the tax and thereafter to file a court action for refund within six (6) years after such payment.

From protest, the taxpayer has 30 days from receipt of the denial of the protest or from the lapse of the 60-day period for the treasurer to decide, whichever comes first, otherwise the assessment becomes conclusive and unappeallable.

The remedies available to the local government units to enforce collection of taxes, fees, and charges are:1. Administrative remedies of distraint of personal property of whatever kind whether tangible or

intangible, and levy of real property and interest therein;2. Judicial remedy by institution of an ordinary civil action for collection with the regular courts of

proper jurisdiction.

Fundamental principles governing real property taxation:1. The appraisal must be at the current and fair market value; 2. Classification for assessment must be on the basis of actual use.3. Assessment must be on the basis of uniform classification;4. Appraisal, assessment, levy and collection shall not be let to private persons; and5. Appraisal and assessment must be equitable. (Sec. 198, Local Government Code)

*Study the definition of Real Property in taxationex. Machineries or fixtures which are necessary to the business are always real properties whether permanent or not, and whether placed by the lessee or the owner.Taxes on real property:

1. Real Estate Tax2. Additional levy on real property for the Special Education Fund (Sec. 235, LGC);3. Additional Ad-valorem tax on Idle lands (Sec. 236, LGC); and4. Special levy (Sec, 240),

Only provinces, cities, and municipalities within the Metro Manila area (Sec. 232, Local Government Code) may impose an ad valorem tax not exceeding five percent (5%) of the assessed value (Sec.236, Ibid.) of idle or vacant residential lots in a subdivision, duly approved by proper authorities regardless of area. (Sec. 237, Ibid.)*** In fact, only these LGU’s can impose real property taxes. Municipalities can only impose special levy

Those exempt from Real Prop Tax under the constitution are also exempt from special levy.

The special levy under the Real Property Tax Code on lands, specially benefited by the proposed infrastructure, may not exceed sixty per cent (60%) of the cost of said improvement. All lands comprised within the district benefited are subject to the special levy except lands exempt from the real property tax (Sec. 47. RPT). The rate of two percent (2%) of the assessed value refers to the real property tax and not to special levies. While ad valorem tax on idle lands cannot exceed 5%.

Before a council could enact an ordinance imposing a special levy, it shall conduct a public hearing thereon; notify in writing the owners of the real property to be affected or the persons having legal interest therein as to the date and place thereof and afford the latter the opportunity to express their positions or objections relative to the proposed ordinance.

Advise owners liable to ad valorem tax for idle lands to construct or place improvements on their idle lands by making valuable additions to the property or ameliorations in the land’s conditions so the lands would not be considered as idle

The test of exemption from the tax is not ownership but the beneficial use of the property (City of Baguio v. Busuego, L-29772, Sept. 18, 1980).

The following properties are exempt from the real property tax:1. Real property owned by the Republic of the Philippines or any of its political subdivisions except when

the beneficial use thereof has been granted for consideration or otherwise to a taxable person2. haritable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or

religious cemeteries, and all lands, buildings, and improvements actually, directly and exclusively used for religious, charitable or educational purposes;

3. All machineries and equipment that are actually, directly and exclusively used by local water utilities and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;

4. All real property owned by duly registered cooperatives as provided for under R.A. 6938; and5. Machinery and equipment used for pollution control and environmental protection. [Sec. 234,

LGC]

Whenever the decision of the Collector of Customs is adverse to the government, it is automatically elevated to the Commissioner for review and if he affirms it, it is automatically elevated to the Secretary of Finance for review

For purposes of the real property tax, the registered owner of the property is deemed the taxpayer, not the user or lessee. Neither shall the unregistered owner the tax payer. Thus, warrant of levy served upon the registered owner without notice upon the possessor or unregistered owner is VALID.

The law requires that a notice of the auction sale must be properly sent to the registered owner. A mere publication of the notice of delinquency would not suffice, considering that the procedure in tax sales is in personam. An auction sale, although preceded by advertisement and publication but without an actual notice to the delinquent taxpayer, is void. (TanBantegui, 473 SCRA 663 [2005];

The CTA is devoid of jurisdiction to entertain appeals from the decision of the Local Board of Assessment Appeals. Said decision is instead appealable to the Central Board of Assessment Appeals, which under the Local Government Code, has appellate jurisdiction over decisions of Local Board of Assessment Appeals. (Caltex Phils. Inc. v. Central Board of Assessment Appeals, L- 50466. May 31, 1982)

Importation begins from the time the carrying vessel or aircraft enters Philippine territorial jurisdiction with the intention to unload therein and ends at the time the goods are released or withdrawn from the customhouse 1. upon payment of the customs duties, or2. with legal permit to withdraw (Viduya vs. Berdiago, 73 SCRA 553).

The Freeport Zone is an extension of a foreign territory so that the vehicles imported while still within its secured perimeter is not subject to Philippine taxes

The tax base for the customs duties is the transaction value while for VAT purposes, the tax base is the value used in computing customs duties plus customs duties, excise taxes and other charges incident to importation. (Section 107 (A), NIRC). These taxes on importation must be paid to the Bureau of Customs before the Authority to Release Imported Goods will be issued by the BIR. (Revenue Regulations No. 16-2005).

The term “returning residents” refers to nationals who have stayed in a foreign country for a period of at least six (6) months. (Section 105(f) of the Tariff and Customs Code). Credit must likewise be given if the candidate answered in the affirmative, considering that Travelers or tourists are given the same tax treatment as that of returning residents, treating their personal effects, not in commercial quantities, as conditionally free importation.

The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff and Customs Code is its transaction value which shall be the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by adding certain cost elements 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.

*** If transaction value could not be determined, then the following values are to be utilized in their sequence:

1. Transaction value of identical goods2. Transaction value of similar goods3. Deductive value4. Computed value 5. Fallback value

Dumping Duty - This is a duty levied on imported goods where it appears that a specific kind or class of foreign article is being imported into or sold or is likely to be sold in the Philippines at a price less than its fair value:

Countervailing Duty - This is a duty equal to the ascertained or estimated amount of the subsidy or bounty or subvention granted by the foreign country on the production, manufacture, or exportation into the Philippines of any article likely to injure an industry in the Philippines or retard or considerable retard the establishment of such industry

Marking Duty - This is a duty on an ad valorem basis imposed for improperly marked articles. The law requires that foreign Importations must be marked in any official language of the Philippines the name of the country of origin of the article:

Discriminatory or Retaliatory Duty - This is a duty imposed on imported goods whenever it is found as a fact that the country of origin discriminates against the commerce of the Philippines in such a manner

as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country.

"When articles have entered and passed free of duty or final adjustment of duties made, with subsequent delivery, such entry and passage free of duty or settlement of duties will, after the expiration of one (1) year, from the date of the final payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties, unless the liquidation of import entry was merely tentative" (Sec 1603, TCC).

The Bureau of Customs normally avails itself of the administrative remedy of seizure, such as by enforcing the tax lien on the imported articles if it is still in the custody or control of the Government. In the case, however, of Importations which are prohibited or undeclared, the remedy of seizure and forfeiture may still be exercised by the Bureau of Customs even if the goods are no longer in its custody.

On the other hand, when the goods are properly released and thus beyond the reach of tax lien, the government can seek payment of the tax liability through judicial action since the tax liability of the importer constitutes a personal debt to the government, therefore, enforceable by action.

The issuance of a warrant of seizure and detention by the Collector of Customs for goods released contrary to law-When outside dwelling: it is valid-When inside a dwelling, it is void as it is within the jurisdiction of the regular courts to issue search warrant for it

Undervaluation by more than 30% of the actual value of an article gives rise to a prima facie evidence of fraud which subjects the vehicle to forfeiture.. Thus, it may be forfeited by BOC.

An action for forfeiture is an action in rem, or an action directed against the imported goods themselves independently of any criminal action, which is in the nature of an action in personam, that may result as a consequence of a violation of an existing law. Forfeiture is not a criminal action (C.F. Sharp and Co. Inc., v. Commissioner of Customs, 22 SCRA 760 [1968]).

Regular courts cannot issue injunction against BOC to stop forfeiture and seizure because this is within BOC’s jurisdiction not the courts’.

the Collector of Customs of the port can seize and forfeit a truck as an instrument in the smuggling activity, if the same is used to carry smuggled articles. The mere carrying of such articles on board the truck (in commercial quantities) shall subject the truck to forfeiture, since it was not being used as a duly authorized common carrier, which was chartered or leased as such. (Sec. 2530 (a], TCC)

The procedure in seizure cases may be summarized as follows:(a) The collector issues a warrant for the detention or forfeiture of the imported articles; (Sec. 2301.

Tariff and Customs Code)(b) The Collector gives the importer a written notice of the seizure and fixes a hearing date to give the

importer an opportunity to be heard: (Sec. 2303, TCC)(c) A formal hearing is conducted; (Sec. 2312. TCC)

(d) The Collector renders a declaration of forfeiture; (Sec. 2312, TCC)

(e) The importer aggrieved by the action of the Collector in any case of seizure may appeal to theCommissioner for his review within fifteen (15) days from written notice of the Collector’s decision; (Sec. 2313, TCC)

(f) The importer aggrieved by the action or ruling of the Commissioner in any case of seizure may appeal to the Court of Tax Appeals; (Sec. 2402, TCC)

(g) The importer adversely affected by the decision of the Court of Tax Appeals may appeal to the Supreme Court.

The RTC has no jurisdiction to pass upon the validity or regularity of the seizure and forfeiture proceedings conducted by the Bureau of Customs. [Commissioner of Customs vs. Makasiar. 177 SCRA 27, 33-34 (1989) citing Pacis vs. Averin, 18 SCRA 9071966)]. Neither does it have review powers over Customs

What determines validity of warrant of seizure is whether there was, in fact, an irregularity committed in the importation of the articles and their release from customs.

As a rule, decisions of the Collector of Customs are not appealable to the Court of Tax Appeals. If the Collector of Customs, however, does not decide a protest for a long period of time, the inaction may be considered as an adverse decision by the Collector of Customs and the aggrieved taxpayer may appeal to the CTA even without the Collector’s and Commissioner’s actual decision (Commissioner of Customs v.Planters Products, Inc. G.R. No. 82018, March 16, 1989).

PROTEST under NIRC: The remedy before payment consists of administrative remedy which is the filing of protest within 30 days from receipt of assessment, and judicial remedy which is the appeal of the adverse decision of the Commissioner on the protest with the Court of Tax Appeals, thereafter to the Court of Appeals and finally with the Supreme Court.

REFUND under NIRC: Filing a claim for refund or tax credit of these taxes on grounds that they are erroneously paid within two years from date of payment. If there is a denial of the claim, appeal to the CTA shall be made within thirty days from denial but within two years from date of payment. If the Commissioner fails to act on the claim for refund or tax credit and the two- year period is about to expire, the taxpayer should consider the continuous inaction of the Commissioner as a denial and elevate the case to the CTA before the expiration of the two- year period.

REFUND under TCC: taxpayer’s remedies arise only after payment of duties. The administrative remedies consist of filing a claim for refund which may take the form of abatement or drawback.

PROTEST under TCC: The taxpayer can also file a protest within 15 days from payment (note: only after payment) if he disagrees with the ruling or decision of the Collector of Customs regarding the legality or correctness of the assessment of customs duties. If the decision of the Collector is adverse to the taxpayer, he can notify the Collector within 15 days from receipt of said decision of his desire to have his case reviewed by the Commissioner. The decision of the Collector on the taxpayer’s protest, if adverse to the Government, is automatically elevated to the Commissioner for review; and if such decision is affirmed by the Commissioner, the same shall be automatically elevated to and finally reviewed by the Secretary of Finance.

Resort to judicial relief can be had by the taxpayer by appealing the decision of the Commissioner or of the Secretary of Finance (for cases subject to automatic review) within 30 days from the promulgation of the adverse decision to the CTA. (BAR 1996)

Remedies in forfeiture:During the pendency of seizure proceedings the importer may secure the release of the imported property for legitimate use by posting a bond in an amount to be fixed by the Collector, conditioned for the payment of the appraised value of the article and/or any fine, expenses and costs which may be adjudged in the case; provided, that articles the importation of which is prohibited by law shall not be released under bond.

The importer may also offer to pay to the collector a fine imposed by him upon the property to secure its release or in case of forfeiture, the importer shall offer to pay for the domestic market value of the seized article, which offer subject to the approval of the Commissioner maybe accepted by the Collector in settlement of the seizure case, except when there is fraud. Upon payment of the fine or domestic market value, the property shall be forthwith released and all liabilities which may or might attach to the property

Summary of remedies in protest1. Protest with the Collector of Customs (Sec. 2308, TCC);2. Review by the Commissioner of Customs (Sec. 2313, TCC);3. Appeal to the Court of Tax Appeals (RJL 9282); and4. Petition for Review on Certiorari with the Supreme Court (RJL 9282).

Automatic review – a decision of the collector adverse to the government is raised automatically to the commissioner and if affirmed shall be raise ultimately to the secretary of finance.

Automatic review is intended to protect the interest of the Government in the collection of taxes and customs duties in seizure and protest cases. Without such automatic review, neither the Commissioner of Customs nor the Secretary of Finance would know about the decision laid down by the Collector favoring the taxpayer.

A Revenue Memorandum Order (RMO) is in reality a ruling or an opinion issued by the Commissioner in implementing the provisions of the Tax Code dealing with the taxability of pawnshops. The power to review rulings issued by the Commissioner is lodged with the Court of Tax Appeals (CTA) and not with the Regional Trial Court. A ruling falls within the purview of “other matters arising under the Tax Code, ’’ appealable only to the CTA (CIR v. Leal, 392 SCRA 9 [2002]).

The power to issue writ of injunction provided for under Section 11 of RA 1125 is only ancillary to its appellate jurisdiction of the CTA. It cannot be filed without a jointly filed appeal..

In instances in which the Commissioner of Internal Revenue is vested with authority to compromise, such authority should be exercised in accordance with the Commissioner's discretion, and courts have no power, as a general rule, to compel him to exercise such discretion one way or another. (Koppel Phils., Inc. v. CIR, 87 Phil. 35

If the Commissioner abuses his discretion by not following the parameters set by law, the CTA, not the Court of Appeals, may correct such abuse if the matter is appealed to it or by certioratu in the exercise of its appellate jurisdiction.

NOTE: Jurisdiction of CTA is over decisions of Commissioner of Internal Revenue or of Customs. Decisions of the collector or the assessor are not yet ripe for appeal or review.

When the Commissioner decided to collect the tax assessed without first deciding on the taxpayer's protest, the effect of the Commissioner is action of filing a judicial action for collection is a decision of denial of the protest, in which event the taxpayer may file an appeal with the CTA. (Republic v. Lim Tian Teng &. Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L-39910, Sept. 26, 1988)

The Supreme Court has ruled that the CIR must categorically state that his action on a disputed assessment is final; otherwise, the period to appeal will not commence to run. That final action cannot be implied from the mere issuance of a warrant of distraint and levy. (CIR v. Union Shipping Corporation, 185 SCRA 547)

In criminal cases where the Court of Tax Appeals (CTA) has exclusive original jurisdiction , the right to file a separate civil action for the recovery of taxes may not be reserved

there is no prohibition for this procedure considering that the filing of a civil action for collection during the pendency of an administrative protest constitutes the final decision of the Commissioner on the protest (CIR v. Union Shipping Corp., 85 SCRA 548 [1990]).***Once collection is instituted, the remedy of the TP now is to participate in and appeal the collection suit.

The employment by the Bureau of Internal Revenue of any of the administrative remedies for the collection of the tax like distraint, levy, etc. may be administratively appealed by the taxpayer to the Commissioner whose decision is appealable to the Court of Tax Appeals under other matter arising under the provisions of the National Internal Revenue Code. The judicial appeal starts with the Court of Tax Appeals, and continues in the same manner as shown above.

Should the Bureau of Internal Revenue decide to utilize its judicial tax remedies for collecting the taxes by means of an ordinary suit filed with the regular courts for the collection of a sum of money, the taxpayer could oppose the same going up the ladder of judicial processes from the Municipal Trial Court (as the case may be) to the Regional Trial Court, to the Court of Appeals, thence to the Supreme Court.

Assessment under the Local Government Code - Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. In case of fraud or intent to evade the payment of taxes, fees or charges the same maybe assessed within ten years from discovery of the fraud or intent to evade payment. They shall also be collected either by administrative or judicial action within five (5) years from date of assessment (Sec. 194, LGC).

The CTA may suspend the collection of internal revenue taxes if the following conditions are met:

a. the case is pending appeal with the CTA;b. in the opinion of the Court the collection will jeopardize the interest of the Government and/ or the

taxpayer; andc. the taxpayer is willing to deposit in Court the amount being collected or to file a surety bond for not more than double the amount of the tax (Sec. 11, RA 1125, as amended by RA 9282).However, An appeal to the CTA shall not suspend the enforcement of the tax liability, unless a motion to that effect shall have been presented in court and granted by it on the basis that such collection will jeopardize the interest of the taxpayer or the Government (Pirovano v. CIR, 14 SCRA 832 [1965]).

In the case of failure to file a return, a proceeding in court for the collection of the tax may be filed without an assessment. (Sec. 222(a), NIRC). The tax can be collected by filing a criminal action with the RTC because a criminal action is a mode of collecting the tax liability. (Sec. 205, NIRC). Besides, the Commissioner is empowered to prepare a return on the basis of his own knowledge, and upon such information as he can obtain from testimony or otherwise, which shall be prima facie correct and sufficient for legal purposes (Sec. 6(B), NIRC; The issuance of a formal deficiency tax assessment, therefore is not required.Finally, assessment is different from criminal prosecution

Prescription of criminal actions fro violations of tax laws : 5 YEARS from commission***It is only when the assessment has become final and unappealable that the 5-year period to file a criminal action commences to run (Tupaz v. Ulep, 316 SCRA 118 [1999]).

The accountant may be held criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring the sale and overstating the expense deductions.

A taxpayer's suit may only be allowed when an act complained of, which may include a legislative enactment, directly involves the illegal disbursement of public funds derived from taxation (Pascual vs. Secretary of Public Works, 110 Phil. 331).