ATENEO CENTRAL BAR OPERATIONS 2019 JORGE ALFONSO C. MELO Bar Review Coordinator LEILA S. LIM Bar Review Secretariat ATENEO CENTRAL BAR OPERATIONS PATRICK EDWARD BALISONG Chairman KATRINA Y. COSCOLLUELA JONATHAN VICTOR NOEL CZARINA CHER CUERPO GENICA THERESE ENDALUZ JOHN STEPHEN PANGILINAN BENIGNO ENCISO Administration Comentiee Heads ‘Academics Commitee Heads Hotel Operations Commitee Heads ATTY. MICHAEL DANA MONTERO. ATTY. IGNATIUS MICHAEL INGLES TAXATION LAW Faculty Advisers RITZ ANGELICA ALEJANDRO DECE CHRISTINE FULACHE JOHN JEFFRICK FRANCISCO RIO MEI UY ‘STEPHEN DANIEL JAVIER JOSHUA MANUEL MAGISTRADO TAXATION LAW Subject Heads EUNICE A. MALAYO FRANCES CHRISTINE F. SAYSON ‘Central Bar Operations Academies Understudies KEVIN LUMBRE TAXATION LAW Understudies JOHAN FABRIEL FABIA eae monD ena CASSANDRA POLINAR, TIFFANY SO KJ ESGUERRA DyRanee TOPHER TAYLO TAXATION LAW VolunteersATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW GENERAL PRINCIPLES. Q: What are the three elements of taxation? A: (CIS) 1. Itis an enforced proportional Contribution from persons and properties. 2. itis Imposed by the State by virtue of its sovereignty. 3. Itis levied for the Support of the government (PCGG v. Cojuangco, G.R. No, 147062, 2001) Q: Can the Congress validly grant a discount to senior citizens from certain establishments and only allow such establishments to claim the discounts granted as a tax deduction and not as a tax credit? ‘A: Yes, The tax deduction scheme is a valid exercise of the State's police power and not an exercise of the power of eminent domain. As such, 1no just compensation is warranted in favor of the establishment. Therefore, the fact that the establishments are not able to get a peso for peso. reimbursement of the 20% discount given to senior citizens does not make the scheme unconstitutional. (Manila Memorial Park v. Secretary of Department of Social Weltare and wDevelopment, G.R. No. 175356. December 3, 2013) Q: Will an erroneous interpretation of a BIR officer based on misapprehension of law put the government in estoppel? A: No, Prolonged practice of the BIR in not collecting specific tax cannot validate what is an otherwise erroneous application and enforcement of the law. The government is never estopped from collecting legitimate taxes because of the error committed by its agents. The BIR is not precluded from making a new interpretation of the law specifically when the old interpretation was flawed. (La Suerte Cigar & Cigarette Factory v. CIR, G.R. No. 125346, 2014) Q: ABC, a non-stock, non-profit educational stitution, filed an application for a buil permit to construct its medical center building in its campus. A Building Permit Fee and a Locational Clearance Fee was assessed by the local government unit. ABC argues that it is ‘exempt from payment of the building permit fee and locational clearance fee. Is ABC correct? A: No. It is not exempt from the building permit fees and locational clearance fees as these charges are in the nature of regulatory fees and not taxes. A building permit fee is a regulatory imposition highlighted by the fact that in processing an application for a building permit, the Building Official shall see to it that the applicant satisfies and conforms with the approved standard requirements on zoning and land use, lines. and grades, structural design, sanitary and sewerage, environmental health, electrical and mechanical safely as well as with other rules and regulations implementing the National Building Code. Since building permit fees are not charges on property, they are not impositions from which ABC is ‘exempt. The fact that the revenue is incidentally raised does not make the imposition a tax (Angeles University v. City of Angeles, G.R. No. 189999, 2012) Q: Can a Revenue Memorandum Order impose additional conditions or limitations on the tax ‘exemption of nonstock, nonprofit educational institutions? ‘A: No. This constitutional exemption gives the onstock, nonprofit educational institutions a distinct character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school must be nonstock and nonprofit; and (2) The income is actually, directly and exclusively used for educational Purposes. There are no other conditions and limitations. (Hon. Kim Jacinto-Henares v. St Paul College of Makati G.R. No. 215383, March 8, 2017) Q: When are proprietary non-profit educational institutions and proprietary non-profit hospitals exempt from income tax? If they engage in for-profit activities, what is the tax implication? ‘A: For an institution to be completely exempt from income tax, Sec. 30(E)&(G) of the 1997 NIRC requires said institution to operate exclusively for charitable or social welfare purpose. But in case an exempt institution under Sec. 30(E) or (G) of the 1997 NIRC earns income from its for-profit activities, it will not lose its tax exemption. However, its income from for-profit activities will be subject to income tax at the preferential 10% rate PAGE 1 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW Pursuant to Sec. 27(B). (CIR v. St. Luke's Medical Center, G.R, No. 203514, February 13, 2017) Clark Special Economic Zone (CSEZ) imposes payments on the movement of petroleum fuel to and from the economic zone (eco-zone). Specifically, CSEZ provides for the Payment of accreditation fees, annual inspection fees, royalty fees and gate pass fees. CSEZ billed Chevron, a domestic company located within the eco-zone, for royalty fees at Php 0.50fiter. Chevron protests the payment of royalty fees stating that CSEZ levies the same purely for revenue generation, which amounts to a tax. Chevron also argues that even if it were levied for regulatory Purposes, the royalty fees are unduly excessive and beyond the costs of regulation within the eco-zone. Are the royalty fees imposed a regulatory fee or a tax? A: Royalty fees are regulatory fees. There can be ‘no doubt that the oil industry is greatly imbued wit Public interest as it vitally affects the general welfare. Fuel is a highly combustible product which, if left unchecked, poses a serious threat to life and property. The reasonable relation between the royaily fees imposed on a per iter basis ang the regulation sought to be attained is that the higher the volume of fuel entering CSEZ, the greater the extent and frequency of supervision and inspection required to ensure the safety, security, and order within the eco-zone. (Chevron Philippines v. BCDA, G.R. No. 173863, 2010) @: What are the purposes/objectives of taxation? A (Rew-Rog-PREP) Revenue — to raise revenue to promote the general welfare and protection of its citizens. 2, Regulatory ~ may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State; 3. Promotion of general welfare ~ may be used as an implement of the police power to promote the general welfare of the people; 4. Reduction of social inequality ~ progressive system of taxation prevents the undue concentration of wealth in the hands of a few individuals; 5. Encourage economic growth by granting incentives and exemptions; 6. Protectionism — to protect local industries from foreign competition. (REVIEWER ON TAXATION, VICTORINO C. MAMALATEO, 2014, at 11-13) Q: Differentiate license fee from tax. Tax Po Purpose | Imposed for| Imposed for revenue regulatory | purposes _| purposes Basis | Imposed | Imposed under under the | the police power power of | of the State L taxation | Amount [No limit as to | Limited to the | the amount of | cost of the | tax license and the expenses of, i police surveillance and regulation Time of | Normally paid | Normally — paid Payment | atter the start | before the of abusiness | commencement of the business Effect of [Does not | Makes the Non- | make the | business ilegal | Payment | business | itegat Surrender | Being the | May be with or | | lifeblood of the | without State, cannot | consideration be surrendered except for lawful consideration (MAMALATEO, supra at 17) Q. Can an injunction be issued to restrain the collection of any national internal revenue tax, fee or charge? ‘A: As a general rule, no court shall have the authority to grant an injunction to restrain the colle or charge. (Sec. 218, NIRC) ion of any national internal revenue tax, fee ‘As an exception, an injunction may be issued by the CTA to restrain the collection of taxes when, in PAGE 2 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW the opinion of the Court, the collection may jeopardize the interest of the Government and/or the taxpayer. The Court at any stage of the proceeding may suspend the said collection and require the taxpayer either 1. To deposit the amount claimed; or 2. To file a surety bond for not more than double the amount with the Court. (Sec. 9, RA 9282 amending Sec. 11, RA 1125) Further, the prohibition on the issuance of a writ of injunction to enjoin the collection of taxes is applied only to national internal revenue taxes, not to local taxes. However, the Supreme Court noted that such injunctions enjoining the collection of local taxes are frowned upon. (Angeles City v. Angeles Electric Corporation, G.R. No. 166134, 2010) Q: Differentiate the two types of double taxation. A: Bsa oo Pers pees Lee LOU Definition | Taxing the same | One where | property twice | some of the when it should be | elements of taxed only once; | direct that is, taxing the | double same person | taxation twice by the same | are absent jurisdiction for the same thing. There is double taxation if the two taxes are imposed: 1. On the same subject matter; For the same purpose; By the same taxing authority; Within the same jurisdiction [ 5. During the same. taxing period: and 6. The taxes must be of the same kind or character (City of Manila v. Coca-Cola Bottors, G.R. No. 181645, 2009) ‘lowed [No Yes under the law? : What are the usual methods of avoiding double taxation? ‘A: (TVC-CRIED) 1. Entering into Tax Treaties with other countries where certain tax relief or schemes are adopted providing for reciprocal concessions between the contracting States; 2. Estate taxes provide for a Vanishing deduction to mitigate the effects of double taxation on the same property that is subject to 2 or more transfers pertaining to 2 or more decedents; Allowing tax Credit for foreign taxes paid; Allowing Tax Credit of Foreign Taxes Paid; Application of Reciprocity Rule; For VAT purposes, the Input tax on items that go into the manufacture of finished products which are eventually sold may be credited against or deducted from the output tax; Providing Tax Exemptions; or 8. Allowing Deduction for foreign taxes paid (MAMALATEO, supra at 25; GRUBA, supra at 147-148) ones Q: Are petroleum companies that sell petroleum products to international carriers, ‘exempt from paying excise taxes? If paid by the said companies, are they entitled to refund? A: Yes. To exempt aviation fuel from excise tax and other impositions prohibits the passing of the excise tax to intemational carriers who buy petroleum products from local ‘manufacturersisellers. As the statutory taxpayer who is directly liable to PAGE 3 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW pay the excise tax, the company is entitled to a refund or credit of the excise taxes it paid for Petroleum products sold to international carriers, the latter having been granted exemption from the Payment of said excise tax under Sec. 135 (a) of the NIRC. (Commissioner of Interal Revenue v. Pilipinas Shell Petroleum Corporation G.R. No. 180402, 2016) @ Are PAL’s alcohol and tobacco importations for its commissary supplies subject to excise tax? ‘A: No. The tax privileges granted in Section 13 of PD 1590 (PAL's franchise) has not been revoked by Section 131 of the NIRC of 1997, as amended by Section 6 of RA 9334. The franchise of PAL remains the governing law on its exemption from taxes. Its payment of either basic corporate income tax or franchise tax — whichever is lower — shall be in lieu of all other taxes, duties, royalties, registrations, licenses, and other fees and charges, except only real property tax. The phrase “in lieu of all other taxes" includes but is not, limited to taxes, duties, charges, royailies, or fees ue on all importations by the grantee of the ‘commissary and catering supplies, provided that such arlicies oF suppiies of maietiais are imporled for the use of the grantee in its transport and non, transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price. (Commissioner of Internal Revenue and Commissioner of Customs v. Philippine Airlines, Inc., GR No. 215705-07, February 22, 2017) Q: Distinguish indirect taxes from withholding taxes. DEE TUE ~ the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another person RMR the incidence and ar burden of taxation fall on the same entity, the statutory taxpayer; + withnolding agent merely collects, by withholding, | the tax due from income payments to entities | arising from _ certain “ansaclons and remis | the same to. the goverment (Asia International Auctioneers v. CIR, GR. No. 179115, 2012) Q: Is an offline carrier (an international air carrier with no flight operations to and from the Philippines) considered a special corporation and therefore taxable based on its Gross Philippine Billings? A: No, the tax attaches only when the carriage of Persons, excess baggage, cargo, and mail ‘originated from the Philippines in a continuous and uninterrupted flight, regardless of where the passage documents were sold. Not having fights to and from the Philippines, an offline carrier is clearly not liable for the Gross Philippine Billings tax. (Air Canada v. CIR, G.R. No, 169507, 2016) Q: What are the requisites of a taxpayer's suit? ‘A: To constitute a taxpayer's sult, two requisites must be met, namely, that ‘© Public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed, and + Petitioner is directly affected by the alleged ultra vires act. (Anti-Graft League v. San Juan, GR. No. 97787, 1996) Q: Will a petition qualify as a taxpayer's suit when there has been neither an appropriation nor an authorization of disbursement of funds? No. A taxpayer's suit contemplates a situation in which there is already an appropriation or a disbursement of public funds, Therefore, until and unless the Legislature appropriates funds for a particular project, or unless petitioners can pinpoint a specific item in the current budget that allows expenditure under the agreement, the Court cannot rule that there is in fact an appropriation or a disbursement of funds that would justify the filing of a taxpayer's suit (Saguisag v. Ochoa Jr, GR. Nos. 212426 & 212444, 2016) @: The Enhanced Defense Cooperation ‘Agreement, an executive agreement between the Philippines and the United States, states that the taxes on the use of water, electricity, PAGE 4 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, and public utilities of the other party are for the account of tHe Philippine Government. Does this create a tax exemption, which under the law should originate from the Congress? ‘A: No. This provision in the executive agreement creates a situation in which a contracting party assumes the tax liability of the other and not a tax exemption. Since the Philippine Government stands to benefit from the agreement not only from the structures to be built or improved, but also from the joint training with U.S. forces, disaster preparation and the preferential use of Philippine suppliers, the provision on the assumption of tax liability does not constitute a tax exemption, (Saguisag v. Ochoa Jr, G.R. Nos. 212426 & 212444, 2016) Q: What are the three factors to be considered in determining if a scheme is designed to evade taxes? ‘A: The three (3) factors to be considered are: (E- MU) 1. The End to be achieved (which is payment of less taxes than that known by the taxpayer to be legally due or non-payment of a tax when it is shown that a tax is due); 2. Anevil or deliberate state of Mind; and 3. Accourse of action which is Unlawful. (CIR v. The Estate gf Benigno Toda, G.R. No. 147188, 2004) Q. Distinguish tax avoidance from tax evasion. ry vas AVOIDANCE Other | Tax Dodging | Tax Name Minimization —_ Means [Use legal [Use legal | means. means. Penalty, Punishable by | Not punishable Liaw | bylaw ‘Object [To entirely |To merely | escape minimize | payment of | payment of | taxes taxes | (GRUBA, Sipra at 24-125) Q: Distinguish the cases of People v. Kintanar and People v. Judy Ann Santos. au TAXATION LAW errr eas oo fea Tax evasion connotes the integration of three factors: 1, The end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when itis shown that a tax is due; 2. An accompanying state of mind which is described as being “evil” in "bad faith,” “willful,” or “deliberate and not accidental’ and 3. A.course of action or failure of action which is unlawtul. ‘Allihe elements are | Lacks the element of present wilfuliness “Willy” in tax | The element of willful crimes means | failure to supply correct voluntary, and accurate information Intentional violation | must be fully established of a known legal | as a positive act or state duty, and bad faith | of mind, It can neither be or bad purpose | presumed nor attributed need not be shown | to mere inadvertent or negligent acts, PAGE 5 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW involves —nonlng | Involves Talre wo Supply of Income Tax/| correct and accurate Return information, Mere understatement of a tax isnot itself proof of fraud for the purpose of tax | evasion, The elements of a| The elements of a violation of Section | violation of Section 255 255 of the NIRC for | of for failure to supply failure to make or | correct and accurate file a return are: information are: 1. That a person is required to supply a person | correct and accurate required to] _ information; make or file @| 2. That there is failure return; to supply correct and 2 The accused | accurate information failed tomake or | at the time or times file the retum at| required by law or the time | rules and required by law; | reguiations; and 3. The failure to | 3. That such failure to make or file the | supply correct and reium was | accurate information wilful is done wilfully. (GRUBA, supra at 128-129) ~ Q: What is a tax amnesty? : A tax amnesty refers to the articulation of the absolute waiver by a sovereign of ts right to collect taxes and power to impose penalties on persons or entities guilly of violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders: who wish to come clean by giving them an opportunity to straighten out their records. Amnesty taxpayers may immediately enjoy the privileges and immunities under a Tax Amnesty Law, provided they fulfil the suspensive conditions imposed therein, (CS Garments, Inc. v. Commissioner of internai Revenue, G.R. No. 182399, 2014) 1. The accused is Q: Can tax amnesty be presumed? ‘A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. (Asia International Auctioneers v. CIR, G.R. No. 179115, 2012) Q: Explain the rule on non-retroactivity of rulings. A: As a general ule, any revocation, modification or reversal of any of the rules and regulations promulgated or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, ‘modification or reversal will be prejudicial to the taxpayers, Exception: Even if prejudicial to the taxpayer, they shall have retroactive effect in the following cases: 1. The taxpayer deliberately misstates or ‘omits material facts from his retum or any document required from him by the Bureau of Internal Revenue; 2. The facts subsequently gathered by the Bureau of Intemal Revenue are materially different from the facts on which the ruling was based; or 3, The taxpayer acted i NIRC bad faith. (Sec. 246, Note: RR 5-2012 provides that ali rulings issued rior to January 1, 1998 will no longer have any binging eifect. They can no ionger be invoked as basis for any current business transaction/s or as «a basis for securing legal tax opinions and rulings. Note, however, that RMC 22-2012 clarified that BIR Rulings prior to January 1, 1998 remains valid to the taxpayer who was issued the ruling and covering the specific transaction which is subject of the ruling. Note further that RMC 69-2016 suspended until further notice all revenue issuances issued within period covering June 1-30, 2016. May a BIR ruling be invoked by a taxpayer other than the one who requested the same? : No. The Supreme Court ruled that in keeping with the caveat attendant in every BIR ruling to the effect that itis valid only ifthe facts claimed by the taxpayer are correct, a BIR ruling could be invoked only by the taxpayer who sought the same, If the taxpayer is not the one who, in the first instance, sought the ruling from the BIR, he cannot invoke the principle of non-retroactiviy of BIR rulings. (CIR v. Filinvest Development Corporation, G.R. Nos. 163653 & 167689, 2011) PAGE 6 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW Q: What are the inherent limitations on the power to tax? ‘A: The inherent limitations are those limitations that exist despite the absence of an express Constitutional provision thereon. (P-FN-E-T) 1. Public purpose - power of taxation is exercised for a public purpose and for the general welfare of the State's jurisdiction (Planters Products, Inc. v. _ Fettiphil Corporation, G.R. No. 166006, 2008) 2. Principle of International comity — Comity is respect accorded by nations to each other as co-equals. AS taxation is an act of sovereignty, such power should not be imposed upon equals out of respect. The property of a foreign state or government may not be taxed by another foreign state or government (Tanada v. Angara, G.R. No.118295, 1997) 3. Inherently legislative or Non-delegability of the taxing power ~ Only the legislature can exercise the power of taxes unless the same is delegated by the constitution or through a aw which does not violate the constitution (Manila Electric Company v. Province of Laguna, G.R. No. 131359, 1999) 4. Tax Exemption of the State — entities = exercising sovereign functions are tax: exempt, unless expressly taxed. However, government agencies performing proprietary functions remain subject to tax. (Maceda v. Macaraig, Jr, G.R. No. 88291, 1991) 5. Tertitoriality or situs of taxation — power to tax is limited to the territorial jurisdiction of the taxing State. Itis the place or authority that has the right to impose and collect taxes. (CIR v. Marubeni Corporation, G.R. No. 137377, 2001) (GRUBA, supra at 76-97) Q: What are the constitutional provisions directly affecting taxation? ‘A: The direct constitutional provisions on taxation are 41. Nonimprisonment for non-payment of poll tax (PHIL, CONST., Art Il, Sec. 20) 2. Uniformity, equitability and progressivity of taxation (PHIL. CONST., Art. VI, Sec. 28, par. 2). 3. Grant by Congress of authority to the President to fix tatif rates, import and export quotas, etc. (PHIL. CONST., Art. VI, Sec. 28, par. 2) 4. Tax exemption of properties actually, directly, and exclusively used for religious, charitable and educational purposes (PHIL. CONST. Art. VI, Sec. 28, par. 3) 5. Exemption from taxes of the revenues and assets of educational institutions including grants, endowments, donations —_ or contributions. (PHIL. CONST., Art. XIV, Sec. 4, par. 3) 6. President's veto power on appropriation, revenue, tariff bills (PHIL. CONST., Art. VI Sec. 27, par. 2) 7. Non-impairment of the Supreme Court's jurisdiction in tax cases (PHIL. CONST., Art Vill, Sec. 5, par. 2(b)) 8. Power of local governments to create its own ‘sources of revenue and to levy taxes subject to Congressional limitations (PHIL. CONST., Art. X, Sec. 6) 9 Voting requirement in connection with the legislative grant of tax exemption (PHIL. CONST., Art. VI, Sec. 28, par. 4) 10. The provision which mandates that money collected on a tax levied for a public purpose shall be paid out for such purpose only (PHIL. CONST, Art. VI, Sec. 29, par. 3) Q: What are the constitutional provisions indirectly affecting taxation? A: The indirect constitutional provisions on taxation are: 1. Due Process (PHIL. CONST., Art Il, Sec. 1) 2. Equal Protection (PHIL. CONST., Art. Ill, Sec. 1) 3. Religious Freedom (PHIL. CONST., Art I, Sec 5) 4, Non-impairment of Obligations of Contracts (PHIL. CONST., Art. ll, Sec. 10) Q: Believing that it overpaid its branch profi remittance tax (BPRT), Deutsche Bank filed its administrative claim for refund with the BIR. On the same date it filed its administrative claim with the BIR, it also filed its Tax Treaty Relief Application (TTRA) with the BIR- International Tax Affairs Division (BIR-ITAD) for the confirmation on its entitlement to the preferential tax rate of 10% under the RP- Germany Tax Treaty. Due to the inaction of the BIR on its administrative claim, Deutsche Bank filed its judicial claim with the CTA. CTA denied the claim on the ground that the TTRA was not PAGE 7 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW filed at least 15 days prior to the availment of, the preferential rate, as required under RMO 1- 2000. Is the CTA correct in ruling that BIR rightfully denied the claim on the ground that the TTRA was not filed at least 15 days prior to the availment of the preferential rate, as required under RMO 1-200? A: No, the CTA is incorrect. Taxpayers cannot be deprived of their entitlement to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring the prior application for tax treaty relief. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the rele. To divest entitlement to the relief, would constitute a violation of the doctrine of pacta sunt servanda that requires that parties should comply with their treaty obligations in good faith. The obligation to comply with a tax treaty must take precedence over RMO No. 1-2000. (Deutsche Bank AG Manila v. CIR, G.R. No.188550, 2013; CBK Power Company Limited v. CIR, G.R. No, 193383-84 and 193407-08, 2015) Notwithsianding, the BIR stil requires ine fing of ‘TRA although they are no longer strict as to the Period of filing (1e., before the first taxable event) (AMO No. 72-2010; amended RMO No. 1-2000) POWERS OF THE BIR Q: What is the Commissioner of Internal Revenue's power to interpret tax laws? ‘A: The power to interpret the provisions of the NIRC and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. (NIRC, Sec. 4) Q: What are the different tax issuances? h 1. Revenue Regulations (ARs) ~ issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and enforcement ofthe provistons of the NIRC and rolated issuances. (GRUBA, supra at 211) regulations for the effective 2. Revenue Memorandum Orders (RMOs) ~ issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing (GRUBA, supra at 211) 3. Revenue Memorandum Rulings (RMRs) ~ rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other laws, as applied to a specific set of facts, with oF without established precedents, and which the Commissioner may issue from time to fime for the purpose of providing taxpayers ‘guidance on the tax consequences in specific situations, BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio. (GRUBA, supra at 212-213) 4, Revenue Memorandum Circular (RMCs) ~ issuances thal publish pertinent and applicable portions, as well as ampifcations, of laws, rules, regulations and precedents issued by the BIK and other agencies/offices. (GRUBA, supra at 211) Revenue Bulletins (RBs) - refer to periodic issuances, notices and official announcements of the CIR that consolidate the BIR’s position on certain specific issues of law or administration in relation to the provisions of the 1997 Tax Code, relevant tax laws and other issuances for the guidance of the public. (GRUBA, supra at 213 6. BIR Rulings — the offical position of the Bureau of intemal Revenue to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws. (GRUBA, supra at 212 7. Revenue Administrative Orders (RAOs) ~ issuances that cover subject matters dealing strictly with the permanent administrative set- up of the Bureau, more specifically, the organizational structure, statements of functions andior responsibilities of BIR offices, definitions and delegations of authority, staffing and personnel requirements and standards of performance. (GRUBA, supra at 211) PAGE 8 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW 8 Revenue Delegation of Authority Orders (RDAOs) — to functions delegated by the Commissioner to revenue officials in accordance with law. (GRUBA, supra at 212) 9 Revenue Special Orders (RSOs) ~ administrative orders issued by the CIR assigning revenue officers and employees of the BIR to special duties which shall not exceed 1 year. (GRUBA, supra at 212) 10. Revenue Audit Memorandum Orders (RAMOs) — declarations of audit programs of the BIR for a specific taxable year signed by the CIR. (GRUBA, supra at 212) 11, Revenue Travel Assignment Orders (RTAOs) — issued by the CIR transferring, assigning or reassigning revenue officers or employees to other or special duties, connected with the enforcement or administration of revenue laws as the exigencies of the service may require Provided, however, that revenue officers assigned to perform assessment or collection functions shall not remain in the same assignment for more than 3 years. (GRUBA, ‘supra at 213) Q: What is the value of Revenue Regulations? A: General rule: The Supreme Court said that @ void law or administrative act cannot be the source of legal rights or duties. Article 7 of the New Civil Code provides that"... administrative or executive acts, orders and requlations shall be valid only when they are not contrary to the laws or the Constitution.” (CIR v. San Roque Corporation, G.R. No. 187485, 2013) Exception: In the same case, citing Section 246 of the NIRC, the Court said that taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact Q: When is the CIR authorized to inquire into bank deposits as an exception to the Bank Secrecy Law? A: The CIR is authorized to inquire into bank deposits on the following instances: (D-C-A-T) 1. A Decedent to determine his gross estate: INIRG, Sec. 6(F)} 2. Any taxpayer who has filed an application for Compromise of his tax liability by reason of financial incapacity to pay his tax liability; INIRC, Sec. 6(F)} 3. A taxpayer who Authorizes the CIR to inquire into his bank deposits; 4. Ifthe Philippines is under a Treaty obligation and a specific taxpayer is subject of a request for the supply of tax information from a foreign tax authority. [RA 10021, Sec. 3 amending Sec. 6(F) of the NIRC} @: In 2011, the Commissioner of the U.S. Internal Revenue Service (IRS) requested in writing the Commissioner of Internal Revenue to get the information from a bank in the Philippines, regarding the deposits of a U.S. citizen residing in the Philippines, who is under examination by the officials of the US IRS, pursuant to the US-Philippine Tax Treaty and other existing laws. Should the BIR Commissioner agree to obtain such information from the bank and provide the ‘same to the IRS? Explain your answer. ‘A: Yes, provided that the Philippines is under a treaty obligation, Pursuant to Section 6 of the NIRC, the Commissioner shall provide the tax information obtained from banks and. financial institutions pursuant to a convention or agreement upon request of the foreign tax authority when such requesting foreign tax authority has provided the following information to demonstrate the foreseeable relevance of the information to the request: (P-C-E-G) 1. The Identity of the person under examination or investigation, and the name and address of any person believed to be in possession of the requested information, if known 2. Astatement of the Information being sought and its tax purpose; 3, Grounds for believing that the information requested is held in the Philippines; 4. A statement that the request is in Conformity with the law and administrative practices of the said foreign tax authority; and 5. A-statement that the requesting foreign tax authority has Exhausted all means available in its own territory, [RA 10021, Sec. 3 amending Sec. 6(F) of the NIRC] PAGE 9 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW Q: What is the CIR’s authority to prescribe real properties? The CIR is authorized to divide the Philippines into different zones upon mandatory consultation with competent appraisers both from public and private sectors, and with prior notice to affected taxpayers to determine the FMV of real properties This is subject to automatic adjustment once every three (3) years. Any adjustment in zonat valuation shall be valid provided itis (a) published in a newspaper of general circulation, in the province, city or municipality concemed, or (b) in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two (2) other conspicuous public places. (NIRC, Sec. 6(e), as amended by RA No. 10963) : In computing the internal revenue tax what will be the value of the property? A: It willbe the higher of: a, FMV as determined by the Commissioner or ». FMV as shown in the schedule of values of the provincial nd city assessors. (NIRC, See. 6(6), as amended by FA No. 10963) : Is there a presumption of regularity of an official act in a tax delinquency sale through an auction by the local government upon the delinquency of a taxpayer in the payment of real property taxes? (0. There is no presumption of the regularity of any administrative action which resulted in depriving a taxpayer of his property through a tax sale. This is an exception to the rule that administrative proceedings are presumed to be regular. It is incumbent upon the buyer at an auction sale to prove the regularity of all proceedings leading to the sale for the buyer could not rely on the presumption of regularity accorded to ordinary administrative proceedings. (Corporate Strategies Development Corp. and Prieto v. Agojo, GR. No. 208740, 2014) Define global and schedular systems of income taxation. : The Global system of taxation is a system employed where the tax system views indifferently the tax base and generally treats in common all PAGE 10 OF 58 categories of taxable income of the individual (Tan v, Del Rosario, Jr., G.R. Nos. 109289 & 109446, 1994) ‘The Schedular system of taxation is a system ‘employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer. (Tan v. Del Rosario, Jr., G.R. Nos. 109289 & 109446, 1994) Q: What system of income taxation prevails here in the Philippines? ‘A: Our income tax system adopts a semi- schedular or semi-global tax system. Passive investment income subject to final withholding tax and capital gains from sale or transfer of certain shares of stock and real properties classified as capital assets are subject to different sets of tax rates. Meanwhile, income items that are not subjected to final withholding tax under Sec. 57(A) « Code are added together in the determination of the taxable income that is subjected to one set of graduated tax rates for individuals or regular corporate income tax for corporations, as the case may be. (MAMALATEO, supra at 85-86) Discuss the source rule of income taxation 2 provided in the NIRC. fe TAK. TAXABLE ON Mestebieid Ei res Resident | Taxable | Wain and wahout Citizen | Income _ | tne Piipines Nonresident | Taxable | Within the Citizen | income _| Philippines Resident | Taxable | Winn The lien Income _| Philippines Nonresident 1 Alien | engaged in | royale | witin the trade | Income | Phitprines (more than | 180 days) Nonresident Aion not | masa? Ej cioss | win ate | ade got | income | Phiprines (180 days or fess) _ATENEO CENTRAL BAR OPERATIONS 20189. TAXATION LAW SCC eee BASE INCOME GP tel nt onera taxable, however, | Taxable | ida partners Professional | come will be taxed Partnership depending on classification ‘Same wi individual (dep. on classification of Estate and | Taxable Trust Income | decedent, i estete; Toston, i trust) : Within and Corpersion [income |Wihout te Le Philippines Resident | taxable [wihin the Fei on | nome | Pitpines Nonresident | Goss |witin the se Income Philippines | corporation (NIRC, Secs. 23, 24, 25, 26, 27, 28 & 61) @: Discuss the tax rates of tax on taxable income of idual citizen and individual ‘resident aliens.* A: The tax shall be computed in accordance with the rates below: (a) Tax Schedule effective January 1, 2018 until December 31, 2022 Not over P250,000 0% Over P250,000 butnot 20% of the excess over P400,000 over P250,000 ‘Over P400,000 butnot P30,000+ 25% of the cover 800,000 excess over P400,000 (Over P800,000 butnot P'130,000 + 30% of ‘over P2,000,000 the excess over 800,000 Over P2,000,000 but P490,000 + 32% of not over P8,000,000 the excess. over 2,000,000 P2,410,000 + 35% of the excess over 8,000,000 ‘Over P8,000,000 Tax Schedule Effective January 1,2023 and onwards: " This has been amended by Sec. 5 of RA No. 10963. Not over P250,000 0% Over P250,000 butnot 15% of the excess over 400,000 over 250,000 Over P400,000 but not P22,500+ 20% of the over 800,000 ‘excess over P400,000 Over P800,000 but not P102,500 + 25% of ‘over P2,000,000 the excess over 800,000 Over P2,000,000 but P402,500 + 30% of not over P8,000,000 the excess over, 2,000,000 2,202,500 + 35% of the excess over 8,000,000 ‘Over P8,000,000 (b) Self-employed individuals and/or professionals shall have the option to avail of an eight Percent (8%) tax on gross sales or gross receipts and other non-operating income in ‘excess of Two hundred fifty thousand pesos (P250,000) in lieu of the graduated income tax rates and percentage tax provided that thelr gross sales or gross receipts and non- ‘operating income does not exceed the VAT threshold (P3,000,000). (c) Rate of Tax for Mixed Income Earners. 1, All income from compensation — graduated rates 2. All income from business or practice or profession a. If total gross sales and/or gross receipts and other non-operating income do not exceed the VAT threshold ~ 8% income tax based on gross sales or gross receipts; OR the graduated rates b. If total income exceeds the VAT threshold — graduated rates. (NIRC, Sec. 24, as amended by RA No. 10963) Q: What are the withholding tax rates available to individuals and corporations? A: ror oo aes 1. Interest under the expanded | 15% foreign currency deposit system 2. Royally from books, iterary | 10% works, and musical compositions 3. Royalty other than abo PAGE 11 OF 58ATENEO CENTRAL BAR OPERATIONS 2018 TAXATION LAW rae aS es 4, Inlerest on any current bank | 20% deposit, yield or other monetary | benefits from deposit substitute, trust) fund and similar | arrangement 5. Prizes (except if P10,000 or | 20% less, which shall be subjected to graduated income tax rates) | 8. Winnings (except Phiippine | 20% DOES EN Mere Ent) BUSINESS 4. Interest on any current bank | 20% deposit, yield or other monetary benefits from deposit substitute, trust fund and similar arrangement less, which shall be subjected to graduated income tax rates) Charity Sweepstakes. and Lotto winnings amounting to P10,000 ‘oF fess, which shall be exempt) | 17. Dividend from a domestic | 70% | | corporation, or from a joint stock | | company, insurance or mutual | |fund company, and regional | | everating headquarters of | multinational company or share in| | the distributive net income atter | tax of partnership (except GPP), | joint stock or joint venture or | consortium taxable asa! corporation Note: Dividends from foreign | corporation [+ Giizens ~ computed under | Sec, 24(a) tax table Resident aliens - not taxable {income derived trom abroad) | 8 Interest on long-ferm depositor | Exempt | 6. Winnings (except Philippine | 20% Charity Sweepstakes and Lotto winnings amounting to P10,000 | or less, which shall be exempt) _| 7. Dividend from a domestic | 20% corporation, or from a joint stock ‘company, insurance or mutual fund company, and regional | operating headquarters. of, multinational company or share in the distributive net income after tax of a partnership (except GPP), joint stock or joint venture or consortium taxable as a corporation | Note: Dividends from foreign | corporation * Citizens — computed under Sec. 24(a) tax table | Resident aliens — not taxable {income derived from abroad) irr | | 5. Prizes (except if P10,000 or | 20% | investment in banks (with matunty | of 5 years or more) 9. Capital gains from REAL | 6% PROPERTY located here | classified as CAPITAL assets | iE Capital gains from REAL | 6% PROPERTY located here | lat iied as CAPITAL assets 10. Capital gains from sale of | 16% | shares of stock of a domestic corporation, not traded thru a | local stock exchange Dee eee Rae Etnies 1. Interest under the expanded foreign currency deposit system _| | | 2. Royally from Looks, literary | 10% works, and musical composition: mabove | 20% | 10. Capital gains from sale of | 15% shares of stock of a domestic corporation, not traded thu a local stock exchang esse ua Eerie RU to) BUSINESS On income from ALL sources within the Philippines Capital gains from REAL | 6% PROPERTY located here PAGE 12 OF 58ATENEO CENTRAL BAR OPERATIONS 2018, TAXATION LAW Deo rele Ry te) SSS corporation, not traded thru a | tocal stock exchange PSS eg fat 15% Interest under the expanded | foreign currency deposit system 2, Royally of all types within the | 20% Philippines | - Royalty from abroad, enters the | taxable income tax table [3 Interest on any current Bank | 20% | deposit, yield or other monetary | benefits from deposit substitute, | trust fund and similar | arrangement [4. Income BY A DEPOSITORY | 10% | BANK under the FCDU (5. Capital gains from REAL | 6% | PROPERTY located here classiied as CAPITAL assets, & Capital gains trom sale of | 15% | shoree of stock of &- domestic | corporation, not traded thru a | ocal stock exchange Gas Ga e Benefit | 35% on grossed up monetary value [reves | 25% on grossed-up monetary value (for non-resident aliens not engaged in trade cor business [Taformers reward [10% (Tax Made Less Taxing: The Train Supplement, Ingles) Deu ieuscul eustaauunitc regis a POR} Goran’ | 1. Interest income actually | 15% received by a resident citizen or resident alien from FCD PAGE 13 OF 68 2. If deposited by an OCW or | Exempt ‘seaman or nonresident citizen 3. fin a bank account in the | 50% exempt joint names of an OCW and spouse (resident) 50% FWT of 15% 4, Interest income actually received by a domestic corporation or resident foreign corporation from FCO L Q: How are employees of the regional or area headquarters or regional operating headquarters of mul nal companies, offshore banking units and petroleum service contractor or subcontractor taxed? A: Special aliens are now subject to the regular income tax rate as the preferential income tax rate is no longer applicable, without prejudice to preferential rates under existing tax treaties. (RR- 2078 in accordance with the veto message of the President) Q: Discuss the source rules to determine whether income is derived within or without the Philippines A De ET ag ies Residence of debtor From domestic corp — income within the Philippines Interests Dividends If received from a foreign corporation: Income within if more than 50% of the gross income of | such foreign corp. for the 3- Yr. period ending with the close of the taxable year prior to the declaration of dividends (or for such part of such period asATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW TSN rt Phil GL_ x Dividend Income without, if less than 50% of the gross foreign corp. for the 3- yr. period ending with taxable year prior to dividends was derived from sources win the Therefore, nothing of such dividends form part of income within Place of performance of (compensation labor/personal propertylinterest in such Place of use or location of intangibles (such as | Gain on sale of | Real property Gain on sale of Location of property property other than shares of (ee a SES eens [and sold in | another Gain on sale of | Philippines regardless of shares of stock | place where sold (NIRC, in a domestic | Sec. 42) corp. Note: CIR v. British Overseas Airways Corporation provides a special source rule for airline ‘companies. BOAC was taxed on income even if it did not perform any of its services in the Philippines. The case pronounced that the source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, itis sufficient that the income is derived from activity within the Philippines. In BOAC’s case, the sale of tickets in the Philippines is the activity that produces the income. (CIR v. British Overseas Airways Corporation, G.R. No. L-65773-74, 1987) Air Canada v. CIR provides the same ruling holding that Air Canada is a resident foreign corporation and realizes income within the Philippines from its sale of airline tickets through local agent, Aerotel Ltd., Corp. (Air Canada v. CIR, GR. No. 169507, 2016) : After the PCGG filed cases to recover the i gotten wealth of Benedicto’s late husband, a ‘compromise agreement was reached wherein the parties agreed that the Swiss cases involving Benedicto’s husband’s bank deposits would be terminated in exchange for the PCGG unfreezing all of the deposits so that Benedicto could get his 49% share from the deposits. The CIR assessed the amount of the unfrozen accounts claiming that the same was income subject to tax. is the CIR correct? A: No. The 49% was not income because Benedicto's husband did not gain any wealth nor did he become any richer than he was before as in fact his wealth diminished to the extent of 51% which he ceded to the PCGG. The 49% was a mere return of capital not subject to income tax. It is only the interest income arising from the deposits which may be subjected lo income tax as the same is the only gain, (CIR v. Benedicto, G.R. No. 191999, 2014) PAGE 14 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW Q: What are the requirements in order for a joint venture formed for construction purposes be not liable for income tax? A: A joint venture or consortium formed for the purpose of undertaking construction projects which is not considered as a taxable corporation should be: a. For the undertaking of a construction project; b. Should involve joining or pooling of resources by licensed local contractors, licensed by the Philippine Contractors Accreditation Board (PCAB) of the DTI; c. The local contractors are engaged in construction business; and d. The joint venture itself must likewise be duly licensed as such by the PCAB, ‘Absent one of the requirements, the joint venture formed for construction purposes shall be considered a taxable corporation. (AA 10-2012) Note: A joint venture between a landowner and a developer to construct a particular project is NOT exempt under this provision Q: What items are included in the gross income? ‘A: Except when otherwise provided, all income derived from whatever source, including, but not limited to, the following items: (1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions and similar items; (2) Gross income derived from the conduct of trade or business or the exercise of a profession; (3) Gains derived from dealings in property (4) Interests (5) Rents (6) Royalties (7) Dividends (8) Annuities (9) Prizes and winnings (10) Pensions; and (11) Partner's distributive share from the net income of the GPP NIRC, Sec. 32 (A)] Q: In a damage suit, the court awarded the following in favor of X's hospitalization | P 100,000 ‘Moral damages 200,000 | ‘Smonths unearned salary | P 750,000 Lost profits 300,000) Replacement cost for X's | P'600,000 car (originally valued at P 500,000) Which of these receipts Is part of taxable income? A: Only the lost profits (P300,000) are taxable, since such profits would have been taxable as income had the injury of X did not occur. a, For hospital and medication, they are not taxable because they are actual damages, being in the nature of compensation from personal injuries or sickness. (NIC, Sec. 32(8)(4)) b. The payments of moral damages, as well as the 3 months unearned salary, are excluded as they are considered compensation from personal injuries or sickness, (NIRC, Sec. 32(8)(4)) ©. The P100,000 representing the difference between the current replacement cost of the car_{(P600,000) _and_its_ original value (P500,000) will be considered as capital gain, since such gain was considered to have been derived from a dealing with a capital property = the personal car of X. (TAX LAW AND JURISPRUDENCE, VITUG & ACOSTA) Q: To entice Mr. Noel Santos to accept an offer of employment with Hewlett Packard, the latter offered that part of his compensation will be an insurance policy with a face value of 20,000,000. Assume that Mr. Santos accepted the offer of employment. If the beneficiaries are the parents of Noel, will the proceeds of the insurance® form part of the Income of the parents of Noel? Will it be subject to income tax? ‘A: The proceeds of the life insurance received by a beneficiary upon the death of the insured is a mere return of capital. Hence, if in any case Mr. Nos! Santos dies and the parents receive the proceeds ofthe life insurance as beneficiaries, the proceeds are excluded from the parents’ gross income and is therefore not subject to income tax. INIRG, Sec. 32(8)(1)] @: Can Hewlett Packard deduct from its gross income the amount of the premium? ‘A: The cost of life insurance premium borne by the employer for his employee shall be treated as a PAGE 15 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW taxable fringe benefit. For as long as the premiums paid by the employer are ordinary and necessary business expenses of the company, the company ‘can deduct the amount of the premium to its gross income, as long as the employer is not a direct or indirect beneficiary thereof. If the employee is a ‘manager or supervisor, the premium paid by the employer shall be treated as a fringe benefit, expense of the employer, provided that the premium payment is subjected to a final withholding tax on the fringe benefit. [NIRC, Sec, Baa] If the beneficiary is Hewlett Packard, can it deduct the insurance premiums from its gross income? A: No. The law provides that in computing the taxable income, no deduction is allowed in respect, to premiums paid on life insurance policy covering the life of an employee of the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy. in this case, Hewlett Packard is both the taxpayer/insurer and the beneficiary of the policy. Henoe, it cannot deduct the premiums from, its taxable income. /NIRC, Sec. 36(A)(4)} Will the proceeds of the insurance policy form part of the gross income of Hewlett Packard? ee ‘A: Life insurance proceeds are considered a mere return of capital; hence, it shall be excluded from gross income of Hewlett Packard. (MAMALATEO, supra at 212) tate the elements of a taxable partnership. (a) Agreement to contribute money, property or industry to a common fund; and (b) Intention to divide _ profits themselves, among Note: The sharing of retums does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right of interest in the property. There must be clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property. (Pascual v. CIR, G.R. No. L 78133, 1988) However, from the moment co-owners allowed not only the incomes from their respective shares of the inheritance but even the inherited propertios themselves to be used as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such incomes to a common fund and, in effect, forming an unregistered Partnership. (Ona v. CIR, G.R. No, L-19342, 1972) Q: State with reasons the tax treatment of the following in the preparation of annual income tax returns: a. Proceeds of life insurance received by a child as irrevocable beneficiary; b. 13” month pay and de minimis benefits; ©. Dividends received by a domestic corporation from: i, Another domestic corporation i. A foreign corporation d. interest on deposits with i. BPI Family Bank i. Local offshore banking unit of a foreign bank e. income realized irom sale of: Capital assets i. Ordinary assets. (@) The proceed fe insurance received by a child as irrevocable are not to be reported in the annual income tax return, because they are excluded form gross income. This kind of receipt does not fall within the definition of income — “any wealth which flows into thi taxpayer other than 2 mere return of capital Since insurance is compensatory in nature, the receipt is merely considered a return of capital. (NIRC, Sec. 32(B)(1)} (b) 13" month pay is excluded from the gross income for income tax purposes to the extent of P90,000. Any excess will be taxable, [NIRC, Sec. 32(B)(7)(e) as amended by RA No. 10963 increasing the threshold fram P30,000 to P82,000) De minimis benefits are non-taxable fringe benefits. They are not to he reported in the income tax return because they are exempt. They are also exempt from the imposition of fringe benefit tax. (NIAC, Sec. 33(C)] PAGE 16 OF 58ATENEO CENTRAL BAR OPERATIONS 20189. TAXATION LAW (c) Dividends received by a domestic corporation from another domestic corporation are not subject to income tax. [NIRC, Sec. 27(D)(4)] Dividends received by a domestic corporation from a foreign corporation are subject to income tax and shall form part of the gross income since a domestic corporation is taxable for its income from all sources within and without the Philippines. There is no law ‘exempting this type of dividend from income tax. [NIRC, Sec. 27(A)} N.B.: Dividends received by an individual (citizen and resident alien) from a domestic corporation is subject to a final withholding tax (FWT) rato of 10%. Cash and property dividends paid by a domestic corporation to non-resident alien individuals are subject to 20% FWT if engaged in trade or business in the Philippines and to 25% FWT if not otherwise engaged. (NIRC, Secs. 24(B)(2), 25(A)(2) & 25(6)] Interest on deposit with BP! Family Bank ‘earned by a citizen/resident alien is a passive income subject to 20% FWT. [NIRC, Sec (24(B)(1)) WK, however, a non-resident alien earns such interest income, then itis subject to 20% FWT ifthe alion is engaged in trade or business in the Philippines or 25% FWT if, otherwise, not engaged. (NIAC, Secs. 25(4)(2) & 25(8)] The interest on deposit with a local offshore banking unit of a foreign bank under the foreign currency deposit system is passive income subject to 15% FWT if it is earned by a resident citizer/alien. [NIRC, Sec. 24(8)(1) as amended by RA No. 10963] However, if the interest is eamed by a non- resident citizen/alien, then it is not subject to income tax. [NIC, Sec. 24(6)(1)] Both interest income items are not to be dectared as part of gross income in the income tax return Generally, income realized from the sale of capital assets are not to be reported in the income tax return as they are already subject to final taxes [i.e., 6% capital gains tax on real e property (for individuals), 6% CGT on land/buildings (for corporations) and 15% CGT on shares of stocks not sold in the stock exchange]. What are to be reported in the annual income tax return are the capital gains derived from the disposition of capital assets ‘other than real property or shares of stocks in ‘domestic corporations which are not subject to final taxes. Income realized from the sale of ordinary assets is taxable and the said income shall be declared in the annual income tax return. The income constitutes either income derived from the conduct of trade or business or a gain derived from dealings in property subject to 30% for corporations and to 20-35% for individuals, as the case may be. [NIRC, Secs. 32(3) and 39(A), as amended by RA No. 10963} Q: Differentiate capital assets from ordinary assets. A: CC kL) Definition a Properties of a | Assets that are used taxpayer other than | primarily inthe ordinary assets, such | ordinary course of as: ‘rade or business, © Stock and | such as: securities held by|* Stock in trade of taxpayers other | taxpayer | than dealers in|» Property — which securities Interest in partnership and joint venture = Goodwill ‘+ Real property not used in trade or business like ‘* Investment | property {NIRC, | Sec. 39 (A)(1)} PAGE 17 OF 58 would properly be included in an inventory of the taxpayer, ifon hand Merchandise inventory Depreciable assets used inthe trade/business Real property used in tradefbusiness INIRC, Sec. 39 AATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW Tax implications Percentage of | included in gross gains/iosses taken | income - subject to into account (applies | income tax. only to a taxpayer other than a | corporation} | + CA held for not more than 12 ‘months - 100% * CA held for more than 12 months — 50% [NIRC, Sec, | 39(B)] the basis of the capital gains tax (CGT) on sale of real property classified as capital assets? A: A final tax of 6% based on the gross selling price or the current fair market value (FMV) or the zonal value, whichever is the highest, is imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, The taxpayer is liable for capital gains tax even if he incurred a loss from the sale, [NIRC, Sec. 24(D)(1)) : What are the conditions for the exemption of capital gains tax on the sale by a natural person of his principal residence? A: a. The 6% capital gains tax due shall be deposited in an account with an authorized agent bank under an Escrow Agreement. It can only be released upon showing that the proceeds have been fully utilized within 18 months, b. The proceeds from the sale, exchange or disposition must be fully utilized in acquiring or constructing his new principal residence within 18 calendar months from date of its ‘ale, Proof must be submitted. ¢. The Commissioner has been duly notified, through a prescribed return, within thirty (30) days from the date of sale or disposition of the person's intention to avail of the tax exemption. * This has been modified by SEC. § of the TRAIN Law. d. The tax exemption may be availed of only ‘nce every 10 years. ©. The historical cost or adjusted basis of his old principal residence sold, exchanged disposed shall be carried over to the cost basis of his new principal residence. Note: If there is no full utilization of the proceeds of sale, exchange or disposition of his old principal residence, he shall be liable for deficiency capital gains tax of the utilized portion. (AR 13-1999 as amended by RR 14-2000) Q: What is the rule on capital gains from sales of shares of stock not traded in the stock exchange? : Capital gains tax of 15% shall be imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation EXCEPT shares sold or disposed through the stock exchange (which shall be taxed at 6/10 of 1% of gross selling price as stock transaction tax). [MIRC, Sec. 24(C), as amended by RA No. 10963] Q: Differentiate CGT on the sale of real property and CGT on gains derived from the sale of shares of stock. SALE OF co aad pag Bee Eeyore Real_property | Shares of slock located in the | ina domestic Philippines | corporation classified as | her than capital assets. | shares ited | and soldat the | Block exchange | Selling Price, | Net Capital Fair Market | Gains realized Value or Zonal | during the Value taxable year whichever is highest | | —_I PAGE 18 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW Rate ee 15% Tax Final Tax Final Tax Treatment : In expropriation cases, is CGT considered as consequential damage for purposes of ‘computing just compensation? ‘A: No. Capital gains tax cannot be considered as consequential damages for purposes _ of ‘computing the just compensation because it does notin any way impair or decrease the value of the property subject as a result of the expropriation Further, the liability for the payment of such CGT remains with the seller. (Republic of the Philippines v. Sps. Salvador, G.R. No. 205428, June 7, 2017) Q: Discuss the rules regarding basis of property for purpose of computing gains in dealings with property. A: rsa Erg ese) Purchase Cost of acquisition In Fair market value at the time of inheritance Gift ‘Same as ifit would be in the hands of the donor or the ® As amended by RA No. 10963. C5 (5) Basis - (a) The basis of the stock or securities received by the transferor upon the exchange specified inthe above exception shall be the same as the basis of the property, stock or securities exchanged, decreased by (1) the money received, and (2) the fair market value of the other property received, and increased by (a) the ‘amount treated as dividend of the shareholder and (b) the amount of any gain that was recognized on the exchange: Provided, Thal the property received as “boot” shall have as. basis its fair market value: Provided, further, That if as part of the consideration to the transferor, the transferee of property assumes a liability of the transferor or acquires form the latter property subject to a liabilly, such assumption or acauisition (in the amount of ‘the liability) shall, for Purposes of this paragraph, be treated as money received by the transferor on the exchange: Provided, finally, That ifthe transferor receives several kinds of stock or securities, the Commissioner is hereby authorized to allocate the basis among the several Classes of stocks or securities. (©) The basis ofthe property transferred in the hands of the transferee shall be the same as it would be in the hhands of the transferor increased by the amount of the gain recognized to the transferor on the transfer. last preceding owner by whom it was not acquired by gift, EXCEPT that if such basis is greater than the fair market value of the property at the time of the gift, for the purpose of determining loss, the basis shall be such ___|fairmarket value | Acquired for | Amount paid by the less than | transferee for the property adequate consideration Acquired in a|Basis as defined in transaction paragraph (C)(5) of this where gain/loss | Section 40, if the property is not | was acquired in a recognized transaction where gain or loss is not recognized under paragraph (C)(2) of this Section (NIRC, Sec. 40)* What constitutes the “improperly accumulated taxable income” (IAET)? The term means taxable income adjusted by: (1) Income exempt from tax: (2) Income excluded from gross income; (3) Income subject to final tax; and (©) Exchange of Property. -(1) General Rule.- Except a8 herein provided, upon the sale or exchange or property, the entire amount of the gain or loss, as the ‘case may be, shall be recognized (2) Exception. -No gain or loss shall be recognized ifin pursuance of a plan of merger or consolidation = (a) A corporation, which is a pary to a merger or ‘consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or consolidation; or b) A shareholder exchanges stock in corporation, which is a party to the merger or Consolidation, solely for the stock of another corporation also a party to the merger or consolidation; or (c) A security holder of a corporation, which is a party to the ‘merger or consolidation, exchanges his securities in such corporation, solely for stock or securities in such corporation, a party to the merger or consolidation, No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of Which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property, PAGE 19 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW (4) The amount of net operating loss carry- over (NOLCO) deducted; ‘And reduced by the sum of: (@) Dividends, actually or constructively paid; and (b) Income tax paid for the taxable year. INIRC, Sec. 29(0)} What is the “Immediacy Test” in the context ‘of determining improperly accumulated ‘earnings of a corporation? A: The immediacy Test is used to determine the "reasonable needs of business” in order to justify an accumulation of earnings. Under this test, the term "reasonable needs of the business” are hereby construed to mean the immediate needs of the business, including reasonably anticipated needs. The corporation should be able to prove an immediate need for the accumulation of the earings and profits, or the direct correlation of anticipated needs to such accumulation of profits. Otherwise, such accumulation would be deemed to be not for the reasonable needs of the business, and the penalty tax would apply. (Cyanamid Philippines v. CA, G.R. No. 108067, 2000) Note: Accumulating profits in excess of 100% of paid up capital (ie. EXCLUDING additional paid in capital) is prima facie evidence of unreasonable accumulation. (RR 2-2001) hat are excluded from gross income? 1, Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, 2. Amounts received by the insured as a return of premiums paid by him under life insurance, endowment or annuity contracts. 3. Value of property acquired by gift, bequest, devise or descent. 4. Amounts received, through accident or health insurance or Workmen's Compensation Act as compensation for personal injuries or sickness, plus the amounts of any damages received on whether by suit or agreement on account of such injuries or sickness, 5 Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. Retirement benefits received under Republic Act No. 7641, Miscellaneous items . Income from investments in the Philippines by foreign government. b. Income derived by Government or its Political Subdivisions. ~ ©. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, iterary, or civic achievement but only if: i. Recipient was selected without any action on his part to enter the contest or proceeding; and ii, Recipient is not required to render substantial future services as a condition to receive the prize or award. «All prizes to athletes in sports competitions whether held in the Philippines or abroad and sanctioned by their national sports associations, duly accredited by the Philippine Olympic ‘Committee (POC), e, 13th month pay and benefits. not exceeding 90,000: {. GSIS, SSS, Medicare and Pagibig contributions, and union dues of individuals. 9. Gains realized from the same or exchange oF retirement of bonds, debentures or other certificate of indebtedness with maturity of more than 5 years. h. Gains realized by the investor upon redemption of shares in a mutual fund company. [NIRC, Sec. 32(B), as amended by RA No. 10963] Q: Enumerate the De Minimis Benefits that are provided to qualified employees without any income tax implication to the latter. Is the ‘enumeration exclusive? Monetized unused vacation leave credits of private employees not exceeding 10 days Monetized value of vacation and sick leave credits paid to government employees; PAGE 20 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW 3. Medical cash allowance to dependents of employees, not exceeding 71,500 per ‘employee per semester or P250 per month; 4, Rice subsidy of P2,000 or one (1) sack of 50kg of rice per moth amounting to not more than 1,500; 5. Uniform and clothing allowance not exceeding 6,000 per annum; 6. Actual medical expenses not exceeding 10,000 per annum; 7. Laundry allowance not exceeding P300 per ‘month; 8, Annual achievement awards with an annual ‘monetary value not exceeding P10,000; 9. Gifts during Christmas and major anniversaries not exceeding P5,000 per annum; 10. Daily meal allowance for overtime work and night shift not exceeding 25% of the basis ‘minimum wage: 11. Benefits received by an employee by virtue of a collective bargaining agreement and productivity incentive schemes provided that the total monetary value received from both CBA and productivity incentive schemes =-combined does not exceed P10,000 per ‘employee per taxable year. (AR 3-98, as last amended by RR 11-2018) The enumeration Is exclusive. All other benefits given not included in the above enumeration shall hot be considered as “de minimis’ benefits, and hence, shail be subject to inoume tax as well as withholding tax on compensation income. Q: What is 2% Minimum Corporate Income Tax (merry? ‘A: 2% MCIT is imposed on the gross income of a domestic corporation beginning on the 4" taxable year immediately following the year in which such corporation commenced its business operations, when the 2% MCIT is greater than the tax computed for the taxable year using the 30% regular income tax rate. [NIRC, Sec. 27(E); NATIONAL INTERNAL REVENUE CODE (ANNOTATED), EUFROCINA —SACDALAN- CASASOLA, 2013 at 134] The imposition of 2% MCIT is a means to ensure that everyone will make some minimum, Contribution to the support of the public sector. Congress intended to put a stop on the practice of corporations which, while having large tumovers, report minimal or negative net income resulting in minimal or zero income taxes year in and year out, through under-deciaration of income or over- deduction of expenses. (Chamber of Real Estate and Builders Associations, Inc. v. Romulo, G.R. ‘No. 160756, 2010). Q: Under what conditions may a corporation be allowed to obtain relief from the 2% MCIT? A: The Secretary of Finance is authorized to suspend the imposition of MCIT on any Corporation which suffers losses on account of 1. Prolonged labor dispute; or 2. Force majeure; or 3. Legitimate business reverses. [NIRC, Sec. 27(6)) Q: Distinguish exclusions from deductions. ‘A: Exclusions pertain to the computation of gross income while deductions pertain to the computation of net income. (Secs. 32 & 34, NIFC) Exclusions from gross income are actually income received or eared by the taxpayer but is Not taxable as income because of the exemption provided for by law or by tax treaties, (SACDALAN-CASASOLA, supra at 241) Deductions from gross income are the expenses and other allowable deductions as provided for by law which are incurred for engaging trade or business or exercise of profession. (SACDALAN- CASASOLA, supra at 241) Q: B Company incurred an expense in the ‘conduct ofits business. The expense meets all the requisites provided for its deductibility, specifically: (1) the expense is ordinary and necessary; (2) itis paid or incurred within the taxable year, and (3) it is paid or incurred in carrying on a trade or business. The BIR disallowed the expenses on the ground that it was not subjected to the applicable withholding tax. Is the BIR correct? A: Yes. Section 34(K) of the NIRC provides that any amount paid or payable which is otherwise deductible from, or taken into account in computing gross income shall be allowed as a deduction only if tis shown that the tax required to be deducted or withheld therefrom has been paid to the BIR. [NIRC, Sec. 34(K)] PAGE 21 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW Q: What is the “expenditure method” of restructuring taxpayer's incomo? he expenditure method is done by deducting the aggregate yearly expenditures from the declared yearly income. The theory of this method is that when the amount of the money that a taxpayer spendberss during a given year exceeds his reported or declared income and the source of such money is unexplained, it may be inferred that, such expenditures represent unreported or undeclared income. (Bureau of Internal Revenue v. Court of Appeals, G.R. No. 197590. November 24, 2014) : What is the “all events test” in the claim for allowable deductions? The “all events test’ is used in order to determine when an accrual of income or expense is permitted. The accrual of income and expenses is permitted when the “all-events test” has been met, This test requires: 1. Fixing of a right to income or liability t0 pay; and The availability of the reasonable accuraie determination of such income or liability. Under the “all events test" in claiming deductions, the amount of deduction does not need to be determined exactly for as long as the same may be determined with reasonable accuracy, which implies something less than an exact or completely accurate amount. (CIR v. Isabela Cultural Corporation, G.R. No. 172231, 2007) What is tax arbitrage as applied to interest ‘as an allowable deduction? A: Tax arbitrage is a tax benefit on the part of the taxpayer through a difference on the tax rate on income and the corresponding rate of tax benefit, imposed on the taxpayer. In tax cases, back-to-back loan is used to take advantage of the lower tax rate on interest income and a higher rate of tax on interest expense deduction. (CASASOLA-SACDALAN, supra at 303) Under Section 34(B) of the NIRC, the taxpayer's allowable deduction for interest shall be reduced by thirty-three percent (33%) of the interest income. subjected to final tax. Q: What are the entitlements to deductions of each taxpayer? a: ors PEE Individuals with |» ttemized Deductions OR Gross income | + Optional Standard from Business | Deduction based on 40% or Practice of | of gross sales or receipts Profession | Corporations |= Itemized Deductions OR * Optional Standard Deduction based on 40% of gross income (NIFC, Sec. 34) Sec. 36 has already been repealed by TRAIN law, RA No 10963. Hence, there are no more deductions for basic and additional personal ‘exemptions and premium payments on health and hospitalization insurance. Q: What is the Net Operating Loss Carry-over (NOLCO)? When is it allowed? ‘he net operating loss of the business for any taxable year immediately preceding the current taxable year, which had not been previously offset ‘as deduction from gross income, shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss. Any net loss incurred, however, in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction, Net operating loss shall mean the excess of allowable deductions over gross income of the business in a taxable year. [NIRC, Sec. 34(D)(3)] Who are the taxpayers that are entitled to deduct the NOLCO from gross income? 1. Any individual engaged in trade or business of in the exercise of his profession; or 2. Domestic and resident foreign corporation subject to normal income tax. (NIRC, Sec. 34(D)(3)} Provided that NOLCO shail be allowed only if there. hhas been no substantial change in the ownership Of the business or enterprise in that — PAGE 22 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW 1. Not less than 75% in nominal value of outstanding issued shares, if the business is in the name of a corporation, is held, by or on behalf of the same persons; or 2. Notless than 75% of the paid-up capital of the corporation, if the business, is in the name of a corporation, is held by or on behalf of the same person. [NIRC, Sec. 34(0)(3)} @: Discuss the requirements for the deductibility of bad debts expense. A: The taxpayer should show the following: 1. There isa valid and subsisting debt; 2. The debt must be actually ascertained to be worthless and uncollectible during the taxable year; 3. The debt must be charged off during the taxable year; -4.qThe debt must arise from the business or trade of the taxpayer, and 5. The debt is indeed uncollectible even in the future. To prove its uncollectibility, the taxpayer must show that he exerted diligent efforts to collect the debts such as sending statement of accounts, sending of collection letters, giving the account to a lawyer for collection and filing a collection case in court. (Philippine Refining Company v. Court of Appeals, G.A. No. 118794, 1996). Q: Discuss the availability of OSD as deduction for general professional partnerships (GPPs). A: A GPP. or the partners comprising the partnership may avail of the OSD only onee, either by the GPP or the partners comprising the partnership. If the GPP avails of OSD, then the partners may not. (NIC, Sec. 34(L), as amended by RA No. 10963) Q; What is the “tax benefit” rule? A: The “tax benefit rule” states that the taxpayer is obliged to declare as taxable income the subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written-off and claimed as deduction from gross income. It also applies to taxes previously deducted from gross income but which were subsequently. refunded or credited. The taxpayer is also required to report as taxable income the subsequent tax refund or tax credit granted to the extent of the tax benefit of the taxpayer enjoyed when such taxes were previously claimed as deductions from income. NIRC, Secs. 34(C)(1) & 34(E)(1); MAMALATEO, supra at 276) Q: What exchanges? A: Tax-free exchanges refer to those instances defined in the NIRC that are not subject to income tax. In general, there are two (2) kinds: 1. Transfer to a controlled corporation; and, 2. Merger or consolidation, are tax-free or tax-deferred In the fist kind, no gain or loss shall be recognized ifthe propery is transferred to a corporation by a person in exchange for stock or unit of Participation in. such corporation of which as a resuit of such exchange said person, alone or together with others not exceeding four (4) persons, gains control of said corporation. Hence, not more than five (5) persons gain control in the corporation as a result of the exchange. (estate planning or transfer of a controlled corporation) In the second kind, no gain or loss shall be recognized if in pursuance of a plan of merger or consolidation (a) A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or consolidation; or, (property for stock) (b) A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock of another corporation; or, (stock for stock) (0) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely for stock or securities in another corporation, a party to the merger or consolidation. (security for stock) [NIRC, Sec. 40(C}(2) to 40(C)(6)] Note: The transaction is only exempt from income tax, not from VAT. (RR 10-2011) Q: P Co., a PEZA-registered entity subject to the 5% Gross Income Tax (GIT) and N Co., a PAGE 23 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW company subject to normal income tax, are associated enterprises. Both incurred common administrative expenses. N Co. (normal income tax) took a bigger share of the, common administrative expenses. The BIR disallowed the deduction and allocated the appropriate share of N thereof. Both objected on BIR’s authority to allocate the sharing of ‘expenses. Decide. A: The BIR has the authority to review controlled transactions among associated enterprises and to allocate or distribute their income and deductions. in order to determine the appropriate revenues and taxable income of the associated enterprises involved in controlled transactions. This is a transfer pricing issue where one associated enterprise, entilled to income tax exemptions, is being used to allocate income away from a company subject to regular income taxes. The arin’s length principle requires the transaction with a related party to be made under comparable conditions and circumstances as a transaction with an independent party. (RR 2.2013) : Discuss the irrevocability rule in relation to the carry-over or refund of excess income tax. Are there exceptions to this rule? in case a corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over has been made, such option shall be considered irrevocable for that taxable period and ‘no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. (NIC, Sec. 76) Note, however, that the Supreme Court stated that the when the taxpayer corporation permanently ceases operations before full utilization of the tax credits it opted to carry-over, it may be allowed to claim refund of such taxes. In such a case, the remaining tax credits can no longer be carried over and the irrevocably rule ceases to apply. (Systra Philippines, Inc. v. CIR, G.R. No. 176290, 2007; See footnote 23 of the MA) jscuss the substituted filing of income tax return. ‘A: Individual taxpayers receiving purely compensation income, regardless of amount, from only one employer in the Philippines for the calendar year, the income tax of which has been properly withheld by the said employer shall not be Fequired to file an annual ITR. The certificate of withholding filed by the respective employers, duly stamped ‘received’ by the BIR shall be tantamount to the substituted filing of income tax retums by said employees. (Sec. 51-A, New provision in the NIRC added by RA No. 10963) @: Discuss the contents of the income tax return for both individuals and corporations, except foreign corporations A: The income tax return (ITR) shall consist of a maximum of four (4) pages in paper form or electronic form and shall contain the following information: ‘a. Personal/corporate profile and information; b. Gross sales, receipts or income from services rendered, or conduct of trade or business, ‘except income subject to final tax as provided under this Code: ©. Allowable deductions under this Code; d. Taxable income as defined in Section 31 of this Code; and fe. Income tax due and payable. (NIRC, Sec. 52, as amended by RA No. 10963) Q: Is payment in installment allowed? Yes, when the tax due is in excess of Two thousand pesos (P2,000), the taxpayer other than, a corporation, may elect to pay the tax in two installments. The first installment shall be paid at the time the retum is filed and the second installment on or before October 15 following the close of the calendar year. (NIRC, Sec. 56, as amended by RA No. 10963) : Discuss when a declaration of income tax must be made and filed and when such estimated income must be paid. Every individual subject to income tax under Section 24 and 25(A) of this Title, who is receiving self-employment income, whether it constitutes his sole source of income or in combination with salaries, wages and other fixed or determinable income, shall make and file 2 dectaration of hic estimated income for the current taxable year on or before May 15 of the same taxable year. (NIRC, ‘Sec. 74 (A), as amended by RA No, 10963) PAGE 24 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW The amount of estimated income as defined in ‘Subsection (C) with respect to which a deciaration is required under Subsection (A) shall be paid in four (4) installments on the following dates: 1* installment — at the time of declaration 2° installment — August 15 30 installment ~ November 15 4M installment ~ May 15 of the following calendar year when the final adjusted income tax return is due to be fled (NIRC, Sec. 74 (B), as amended by RA No, 10963) Q: Who are not required to file income tax returns? AA: The following individuals shall not be required to file an income tax return: 2. Individuals whose taxable income does not exceed P250,000 (except those engaged in business or practice of profession) . Purely compensation income eamers Individuals whose sole income has already been subjected to final withholding tax 4. Minimum wage eamers (IRC, Sec. 74 (A), as amended by RA No. 10963) ESTATE TAX Q: What is the new estate tax rate? A: The rate is a flat 6% of the net estate. Q: When is an estate tax return required to be filed?® A 4. In all cases of transfers subject to estate tax; or 2. Where, regardless of the gross value, the estate consists of registered or registrable property such as real property, motor vehicle, shares of stocks or other similar property for which a clearance from the Bureau of Intemal Revenue (BIR) is required as a prerequisite for the transfer of ownership thereof in the name of the transferee. [NIRC, Sec. 90(A) as clarified in RMC No. 34-2013) ® This has been modified by SEC. 26 of the TRAIN Law. Notice of death is no longer required. ® This has been modified by SEC. 25 of the TRAIN Law. Time for fling is now 1 year from death Q: Where is an estate tax return filed, and the tax thereof paid? A: a. Authorized Agent Bank (AAB); or b. Revenue Collection Officer (RCO); or ©. Duly authorized Treasurer of the city or municipality in the Revenue District Office having jurisdiction over the place of domicile of the decedent at the time of his death, Q: When should the estate tax return be filed?® General Rule: Within one (1) year from the death of decedent, [NIRC, Sec. 90(8)] Exception: The CIR, in meritorious cases, grants an extension not exceeding 30 days for filing the return. [NIRC, Sec. 90(C)] Q: When should the estate tax be paid? ‘A: General Rule: At the time the return is filed by the executor, administrator or the heirs. [NIFC, Sec. 91(A)] Exception: The CIR, if he finds that the payment on the due date would impose undue hardship, may grant an extension: 1. Not to exceed 5 years in case the estate is settled judicially; 2. Not to exceed 2 years in case the estate is seltled extrajudicial. (NIRC, Sec. 91(8)] Note: Payment by installment is allowed if the available cash of the state is insufficient, in which case the total estate tax due may be paid within 2 years from the due date without penalty and interest. @: Enumerate the deductions from the gross estate.” A: The deductions from the gross estate are: 1. Ordinary deductions a. Expenses, Losses, Indebtedness, Taxes, etc. (E-L-+-T) i. Claims against the estate ii, Claims against insolvent persons ii, Unpaid morgage or indebtedness on property 7 This has been modified by SEC. 23 of the TRAIN Law, Funeral, judicial and medical expenses are no longer allowed as deductions, while the amounts for the standard deduction and family home has been increased PAGE 25 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW iv. Taxes ~ ‘2. It must be shown that th 1 a es dentors ore ineapable ct | b. Vanishing Deduction/Property Previously paying their indebtedness. | Taxed Unpaid T. The value of the decedent's | e. Tansler or public use Te gaee er |b itaost on te foro tnebtness | _undnnshed by the crpa 2. Special deductions (F-S-M-A) ‘on property | mortgage or indebtedness, | a. Family home of P10,000,000 should be included in the | b. Standard deduction of P5,000,000 gross estate. @._BrnuntroceNed by ter andes RAAD17 2 Unpaid morgage or indebtedness” was 2. Shure of suntving soouse Jn the conga contrasted bona fide and panne of pmo for an adequate and fl consideration in money oF Note: Nonresident allen can aval of (1) standard moneys wor Geductin ef PS00000; (2) proportion fo 4. n cave unpaid morgage is sive (iene. alowed Yo tess oF boing camo by rosie, eitzan) and @) vanishing sechetone verification must bo made (MIRC, Seo 96) iy ee ees benefiiay’ of the. 1oan jiscuss the conditions for the deductibility proceeds. If the loan is for of the above lems from gross estate Sconmadaton’ punoea (FR No. 22009) only, te vale of unpald | loan must be incudeo a 3 : \ | recnvabie ofthe ine Gains —— Te Taoay epee a} | there fe 2 loge pediment against the| "personal onigaton atthe | | b ome hea estate | deceased existing at the | receivable. said unpaid | ime of his death except cbigetonmotgoge | unpaid obligations incurred payable shall not be ppaent io is dat iowa ans deduct, 2. The liability was contracted Taxes: ‘Taxes must have accrued in goad’ fat and for as of the time of death ot | adeguate and ta tre decedent consideration mn money or 2. Taxes were unpaid as of moneys wor thetine of dest ang 3. The clam must be a debt 3.Texes will not include or elim whichis val focome tax upon income | and enforceable in courts; received after death, | and property taxes not | 4. The indebtedness must not accrued before his death, | have been condoned by Sr set ar ae oars the ereltoror ine aeion tanamisaion of the colect must not have cate prescribed. Losses 7. Losses must be incurred | 7. The value of the claims during the settlement of count agent the incohert thecatme scree a [peter ea 2.Lowees arose trom fies, corsa | ere ck barons slorms, shipwreck. oF catalan ater casualties, or trom PAGE 26 OF 58 robbery, theft. or embezzlement:ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW Blosses are not | compensated for by insurance or otherwise; 4 Losses claimed must not have been claimed as deduction from gross income for income tax purposes; and 5. Losses were incurred not later than the last day for the payment of the estate tax, The family home must be | the actual residential home of the decedent and his family at the time of his death as certified by the barangay captain: | 2.The total value of the family | “home must be included as | part of the gross estate; 3.Allowable deduction must be in an amount equivalent |: a.Current FMV of the family home as declared or included in the gross estate or » Extent of the decedent's interest. (whether conjugalicommunity or exclusive property), whichever is lower 4.The deduction does not exceed P10,000,000. Family home 7. Death — 2 Identity of property (the property with respect to which deduction is sought can be identified as the one received trom the prior decedent) | 3. nclusion of the property (the property must form part of the gross estate situated inthe Philippines of the prior decedent or was a taxable gift of the donor) 4, Previous taxation of Vanishing | deductions | property (Estate tax or donor's tax due thereon must have been paid) 5, No vanishing deduction ‘on the property was allowed to the estate of the prior decedent 1.The disposition isin the last will and testament; 2.Disposition should take effect after death; 3.In favor of the Government of the Philippines or any of its subdivisions; 4.Exclusively for purpose; and 5.The value of the property given is included in the | gross estate. Transfers for public use public Q: Can a bank allow withdrawal from a bank deposit which is known to it as having been maintained alone, or jointly with another, by a deceased person? A: Yes. The same withdrawal shall be allowed subject to a final withholding tax of six percent (6%). DONOR’S TAX Q: What is the new donor's tax rate? ‘A: The rate is a flat 6% of the gifts in excess of 250,000. @: A died leaving as his only heirs, his surviving spouse B, and three minor children, X, ¥ and Z. Since B does not want to participate in the distribution of the estate, she renounced her hereditary share in the estate. Is the renunciation subject to donor's tax? ‘A: No. The general renunciation by an heir, including the surviving spouse, as in the case of B, of her share in the hereditary estate left by the decedent is not subject to donor's tax. This is so because the general renunciation by B was not specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate (Sec. 11, RR 2-203) @: Supposing that instead of a general renunciation, B renounced her hereditary PAGE 27 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW share in A’s estate to X who is a special child, would the renunciation be subject to donor's tax? A: Yes, the renunciation in favor of X would be subject to donor's tax. This is so because the renunciation was specifically and categorically done in favor of X and identified heir to the exclusion or disadvantage of Y and Z. the other co heirs in the hereditary estate. (Sec. 17, RR 2- 2003) :numerate the exemptions from gross gifts (exempt from donor's tax).” A: 1. Gifts made to o for the use of the national Government or any entity created by any of its agencies which is not conducted for profit, for to any political subdivision of the said government 2. Gifts in favor of an Education and/or charitable, religious, cultural or social welfare corporation, institution, accredited NGO, trust or philanthropic organization or research institution or organization provided not more than 30% of said gifts will be used by such for administration purposes. [NIFC, Sec. 101(A)] \re all transfers for less than adequate and full consideration subject to donor’s tax? ‘A: No, The following are NOT subject to donor's tax despite the transfer being for less than adequate and full consideration: 1. transfers involving reat property classified as capital asset, 2. sale, exchange, or other transfer of property made in the ordinary course of business which is -- 1. a bona fide transaction 2. atarm’s length 3._and free from donative intent Are election campaign contributions ‘subject to Donor's tax? : Election campaign contributions to a candidate, political party or coalition of parties for campaign is not subject to donor's tax provided that the following requirements are complied with: (R-U) ® This has been modified by SEC. 30 of the TRAIN Law. a. Filing Returns of contributions with the COMELEC as required under the Omnibus Election Code and b. Utilizing the entire contribution to cover the ‘expenditure for electoral campaign. (AR No. 7-2011) Note: Any unutlized portion of such contribution forms part of the gross income of the recipient. VALUE-ADDED TAX ifferentiate “Input Tax” from “Output Tax” (CIR v. Benguet Corporation, G.R. No. 145559, July 14, 2006) Treas rer ii Represent the VAT | When that person or paid by a VAT-| entity sells his/its registered products or services, | person/entity in the | the VAT-registered course of his/its trade | taxpayer generally ‘or business on the | becomes liable for importation of goods or | 12% of the selling local purchases of | price as output VAT or goods or services from | output tax. a VAT-registered person. | VAT in connection with PURCHASE of goods and services. VAT on the SALE of taxable goods or services. What is the destination principle? A: As a general rule, the value-added tax (VAT) system uses the destination principle. It means that the destination of the goods determines the taxation or exemption from VAT. Goods and services are taxed only in the country where they are consumed. (CIR v. American Express Intl GR. No, 152609, 29 June 2005). As such, exports, are typically VAT zero-rated while imports are VAT-taxable What is the VAT treatment of the transactions involving PEZA-registered enterprises?? A: ® This has been modified by SEC. 31 & 33 of the TRAIN Law. PAGE 28 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW mg errs VAT = | 0% VAT. ‘SALE OF Paes 0% VAT. registered supplier from customs to registered enterprise non-VAT- registered supplier from customs territory to PEZA- registered enterprise VAT exempt | VAT exempt PEZA- 12% VAT | VAT-exempt if registered | imposed on | the service is enterprise to| buyer in | performed or buyer — from | addition to | rendered customs the import | within the territory | tax__and | ecozone. (loca customs | Same ale domestic [duties | applies to | sales) lease of | properties if | iocated in the | ecozone 12% var imposed on the PEZA. registered enterprise solr if the sevice is performed ouside or the property leased is located outside the ecozone Q: What are “deemed sale” transactions? A: (T-D-C?) 4. Transfer of goods or properties not in the ‘course of business (originally intended for sale Or for use in the course of business) 2. Property Dividends or Payment to creditors, (transfer to shareholders as share in the profits of VAT-registered persons or to Creditors in payment of debt) 3. Consignment of goods without the sale being made within 60 days 4, Retirement from or Cessation of business with respect to inventories of taxable goods existing during such retirement or cessation (Sec. 106(B), NIFC) : Are association dues, membership fees, and other assessment and charges collected by @ condominium corporation/homeowners’ association subject to VAT? ‘A: No (Section 109(1)(Y), NIRC as amended by TRAIN) Q: GHI Company filed an application for refund of unutilized input taxes allocated to its zero- rated sale of services to its foreign clients. In order to prove that its sales are VAT zero-rated, GHI presented as evidence the Official Receipts, Billing Statements, Memo Invoices- Receivable, Memo Invoices-Payable and Bank Statements. GHI argued that these documents show that the zero-rated sales were paid in foreign currency and duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Is GHI entitled to the VAT refund? A: GHI's claim should be denied on the ground that no evidence was presented to prove the fact that the foreign clients to whom GHI rendered services are clients doing business outside the Philippines. For VAT zero-rating of services rendered to non- resident foreign corporation under Section 108(B)((2) of the NIRC, it is not enough that the recipient of services be proven to be a foreign corporation, it must be proven to be a non- resident foreign corporation. For sale of services to be VAT zero-rated, the recipient of service must be doing business outside the PI es. The documents presented by GHI merely substantiated the existence of sales, receipt of foreign currency payments and inward remittance of the proceeds of such sales. There is no evidence that the clients were doing business outside the Philippines, PAGE 29 OF 58ATENEO CENTRAL BAR OPERATIONS 2018. TAXATION LAW (Accenture v. CIR, GR No. 190102, July 11, 2012) e) Sale of goods, | f) Services by ‘As such, the roquirement is to present both the supplies, and | agricultural contract Philippine SEC Certificate of Non-Fegistration as equipment and} growers and milling wellas proof of the nonresident entity receiving the fuel to persons | for others of palay services fact of doing business in the foreign engaged in| into rice, corn into jurisdiction such as the Articles of Incorporation in Intemational gts and sugarcane ‘such foreign country. shipping or | _into raw sugar international air |g) Medical, dental : Enumerate the VAT-exempt transactions transport hospital and. vis-é-vis the Zero-rated Transactions" operations, veterinary services A: except those Freres) 2, Sales to persons or | rendered by entities whose | _ professionals For Sale: (Sec. 106] a) Sale or importation | | exemption _under | fh) Educational (AV), NIRC) of agricutural and | | special laws and] services rendered marine food |_| international by private 41. Export Sales (IF | products in their agreements to which | educational | one) original state. the Philippines is a| institutions duly | a) Sale and actual | b) Sale oF importation signatory subjects | accredited by | © shipment of goods | — of feriizers; seeds, such sales to 0% raie | DEPED, — CHED, | from the | seedlings and (effectively zero-rated | and TESDA” and | | Philippines to a| fingertings; fish, transactions) | those by} Foreign country | prawn, livestock governmental | 0) Sale of raw} and poultry feeds For Services: (Sec | educational | materials or |) Importation of 108 (8), NIRC) | _ institutions. packaging personal and |i) Services rendered materials ta) household effects 41. From processing, | pursuant to an Non-resident belonging to the manufacturing 0 | employee-employer buyer for delivery | residents of the repacking of goods, | relationship toa resident focal | Philippines a) For other persons | j) Services rendered export-oriented returning from doing business | by regional or area enterprise abroad outside the | headquarters ©) Sale of | raw | d) Importation of Philippines, established in the materials or | professional b) The goods are | Philippines (ROHQ, packaging instruments, toots of subsequently RHQ) materials to | _trade, occupation or exported, ) Transactions. which Export-oriented employment and ©) The services are} are exempt under enterprise whose | implements, paid for in| _intemational export sales | wearing apparel, acceptable foreign | agreements to exceed 70% of | domestic animals, currency and | which the total annual} and personal accounted for in} Philippines isa production household effects accordance with | signatory or under 4) Those that are | belonging to the rules and | special aws considered export | persons coming to regulations of the |!) Sales by agricultural sales under the | settle for the first BSP cooperatives duly ‘Omnibus time inthe registered with the Investment Code | Philippines 2. Services other than | Cooperative and other special | e) Services subject to processing Development “taws [percentage tax | [manufacturing _or| _Authonty 1 This has been modified by the TRAIN Law. PAGE 30 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW Tepacking of goods, rendered to a: a. Person engaged in business conducted outside the Philippines, or b. Non-resident Person not engaged in | business who is | outside the Philippines when | the services are | performed c. The consideration is paid in acceptable foreign currency and = accounted for in accordance with the rules and regulations of the BSP 3. Services rendered to persons or entities whose exemption under special laws or international agreements, to which the Philippines is a signatory, effectively subjects, such services to zero rate; 4, Services rendered topersons engaged in international shipping or intemational air transport operations, including leases of property for use thereof as long as the services shall be exclusively for international shipping ™ Provided, That beginning January 1, 2021, the VAT ‘exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale of real Gross recsipis from] [or air anspor lending activiies by |_| operations; credit or muti purpose 5. Services performed cooperatives duly by subcontractors registered with the ‘and/or contractors in Cooperative processing, Development converting, or Authority whose manufacturing goods lending is limited to for an enterprise members. whose export sales n)Sales by non exceed 70% of total agricultural, non annual production; electric and non credit cooperatives, 6. Transport of duly registered with passengers and the Cooperative cargo by domestic air Development and sea vessels from Authority the Philipines to a 0) Export sales by foreign country, and persons who are not VAT registered 7. Sale of power or p) Sales of real fuel generated properties not through renewable primarily held for sources of energy. sale to customers or held for lease in the ordinary course of trade or business or sales within the low- cost cap of below 4,919,500 for a residential lot_and 3,199,200 for a house and lot and other residential dwelling"! lease of a residential unit with ‘a monthly rental not exceeding P15,000. 1) Sale, importation, printing or Publication of books and any newspaper, magazine, review or bulletin which PAGE 31 OF 58 | ‘appears at regular intervals with fixed prices for subscription and sale and is not devoted principally to publication of paid advertisements s) Sale, importation, or lease of passenger or cargo vessels and aircraft 4) Sale, importation or lease of passenger or cargo vessels, and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; u) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations for use in their international shipping or air transport ‘operations, v) Services of bank, non-bank financial intermediaries performing quasi- banking functions w)Sale or lease of goods and services to senior citizens and persons with disability x) Transfer of property pursuant to Section property ullized for socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings with selling price of not more than Two million pesos (P2,000,000)ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW ] 40(C\(2) of the | | wire | y) Association dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations; 2) Sale of gold to the Bangko Sentral ng Pilipinas (BSP) aa) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension bb) Sale or lease of goods or properties or the performance of services other than the | transactions. | mentioned in the | preceding | paragraphs, the | gross annual | sales andor | receipts donot exceed ‘the amount of Three Million Pesos (P 3,000,000) Which of the above zero-rated sales of goods and services shall be subject to 12% VAT and no longer considered as VAT zero- rated upon satisfaction of specified conditions? A: The following shall become VAT-taxable: a Sale of raw materials or packaging materials to a Non-resident buyer for delivery to a resident local export-oriented enterprise b. Sale of raw materials or packaging materials to Export-oriented enterprise ‘whose export sales exceed ©. Those that are considered export sales under the Omnibus investment Code and other special laws 4. Processing, manufacturing or repacking of goods, i. For other persons doing business Outside the Philippines, il, The goods are subsequently exported, i The services are paid for in acceptable foreign currency and fe. Services performed by subcontractors and/or contractors in processing, ‘converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production; Q: Under what conditions will these sales be subject to 12% VAT? rhe following are the conditions laid down by law: 1. Successful establishment and implementation of enhanced VAT refund system that grants tax refunds within 90 days from filing: 2. All pending VAT refunds as of December 31 2017 shall be fully paid in cash by December 31, 2019; and ‘5% of the total value of VAT collection of the BIR and BOc shall be aulomatically appropriated for the purposes of funding VAT claims. Q: Are gross receipts derived from admission tickets in showing motion pictures, films or movies also subject to VAT? : No. Although the enumeration of services subject to VAT under Section 108 of the 1997 Tax Code is not exhaustive, those included in the ‘enumeration are the “lease of motion picture films, films, tapes and discs.” This, however, is not the same as the showing or exhibition of motion pictures or films. Hence, since the showing or exhibition of motion pictures or films is not in the enumeration, such is not a VAT-taxable transaction. The intent of the legislature is not to impose VAT on persons already covered by the amusement tax. (CIR v. SM Prime Holdinas, GR No. 183505, February 26, 2010) Q: ABC Company is a health care provider with the primary purpose of operating a health care PAGE 82 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW delivery system or a health maintenance ‘organization to take care of the sick and disabled persons enrolled in the health care plan. It merely provides and arranges for the provision of pre-need health care services to its members for a fixed prepaid fee for a specified period of time. Is ABC VAT-exempt under Section 109 (1) of the NIRC? A: No. Section 109 (I) of the NIRC contemplates the exemption from VAT of taxpayers engaged in the performance of medical, dental, hospital, and veterinary services. As ABC Company does not actually provide medical andlor hospital services, but merely arranges for the same, its services are NOT VAT-exempt. (CIR v. Philippine Health Care Providers, Inc., G.R. No. 168129, April 24, 2007) Q: Are pawnshop business operators subject toVAT? ‘A: No. For purposes of determining tax liability, Pawnshops are treated as non-bank financial intermediaries. Beginning 2004 up to the present, by virtue of RA. No. 9238, non-bank financial intermediaries are no longer liable for VAT, but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be. In First Planters Pawnshop, the Court ruled on the VAT liability of awnshops, it held that petitioner, a pawnshop, is nonbank financial intermediary subject to 10% VAT for the tax years 1996 to 2002. However, with the levy, assessment and collection of VAT from rnonbank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on nonbank financial intermediaries starting January 1, 2003, petitioner is able for 10% VAT for said tax year. But beginning 2004, itis no longer subject to VAT but only to percentage tax. (TFS, Incorporated v. ‘Commissioner of interal Revenue, G.R. No. 166829, Apr. 19, 2010) Q: Is the sale of e-books and e-journals appearing at regular intervals with fixed prices for subscription and sale Principally to _ public: advertisements subject to VAT? A: No, The terms “book.” ‘newspaper, “magazine,” “review” and “bulletin” shall refer to printed materials in hard copies and do not include those in digital or electronic format or computerized versions (RMC No. 75-2012) ‘A bought two adjacent condominium units which he intended to combine so as to fit his family. Each unit has a gross selling price of 2 million, The two units were separately documented. After 2 years, A decided to sell the two units. A contends that the units are ‘exempt from VAT as the gross selling price did not exceeding 2.5 million. Is A correct? A: No. By virtue of the amendment introduced by RR 13-2012 (October 12, 2012), the sale of real properties subject to VAT shall include the sale, transfer, or disposal within a 12-month period of two or more adjacent residential lots, house and lots, or other residential dwellings in favor of a buyer. Such adjacent real properties although covered by separate titles and/or separate tax declarations, when sold to one and the same buyer, whether covered by one or separate deeds of conveyance, shall be presumed as a sale of one residential lot, house and lot or residential dwelling. : Mr. H owns and leases several units in a condominium near a University. State the VAT implications of the following: a. Mr. H imposes a uniform rate of P12,000 monthly rentals per unit for students; b. Fornon-students, Mr. H leases out his units for P16,000. A: a. VAT Exempt. The gross receipts from rentals not exceeding P15,000 per month per unit shall be exempt from VAT regardless of agareaate gross receipts. b. It depends. The gross receipts from rentals ‘exceeding 15,000 shall be subject to VAT if the aggregate annual gross receipts from said units exceed P3,00,000. Otherwise, it shall be subject to other percentage tax. Q: Is the sale of power plants pursuant to the privatization of assets subject to VAT? A: No. The sale of the power plants is not subject to VAT if the sale was made pursuant to the mandate to privatize assets, and was not undertaken in the course of trade or business. In selling the power plants, the company tasked to sell was merely exercising a governmental function for which it was created. The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function PAGE 33 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW mandated by law to privatize NPC generation assets. It cannot also be considered as an incidental transaction that is subject to VAT since they were already owned by PSALM and not NPC. (Power Sector Assets and Liabilities Management Corporation vs. Commissioner of Internal Revenue G.R. No. 198146, August 8, 2017) Q: Should the amounts that an HMO earmarked and eventually paid to the medical service providers form part of its gross receipts for VAT purposes? ‘A: No. AS a presumption, an HMO is allowed to establish that a portion of the membership fees Feceived does not actually compensate it but rather, some other person instead, which in this case are the medical service provides. The VAT is a tax on the value added by the performance of the service by the taxpayer. Iti, thus, this service and the value charged thereof by the taxpayer that is taxable under the NIRC. (Medicard Philiopine Ine. v. CIR, G.R. No. 222743, April 05, 2017) : What are the requirements for a claim for VAT refund? : A claim for refund or tax credit for unutlized input VAT may be allowed only if the following requisites concur, namely 1. The taxpayer is VAT-registered 2. The taxpayer is engaged in zero-rated or effectively zero-rated sales; 3, The input taxes are due or paid; 4, The input taxes are not transi taxes; 5. The input taxes have not been applied against output taxes during and in the succeeding quarters; 6. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales; and 7. The claim is filed within two years after the close of the taxable quarter when such sales were made. (Luzon Hydro Corporation v. CIR, GR No. 188260, November 13, 2013) nal input an a claim for refund of the full input VAT relating to importation of dump trucks be made when the taxpayer treated such as capital goods? (, the claim will not prosper. The law requires *7This has been modified by SEC. 36 of the TRAIN Law. that the related input VAT be properly amortized over the estimated useful life of the capital goods in the taxpayer's subsidiary ledger, Here, the claim for refund is for the full amount of the input VAT on the importation, rather than for an amortized amount, thus the claim must fail (Taganito Mining Corporation v. CIR, G.R. No. 201195, November 26, 2014). Claims for refund ‘on input VAT arising from purchase of capital goods no longer has any legal basis in the Tax Code. @: State the rules on prescriptive periods Wolving the claim for refund of input VAT. "2 ‘A: The Supreme Court provided the following rules (on prescriptive periods involving VAT: 1. An administrative claim must be filed with the CIR within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. 2. The CIR has 90 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 90-day period may extend beyond the two-year period from the filing of the administrative claim ifthe claim is filed in the tater part of the two-year period. if the 90-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction, 3. A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s, decision denying the administrative claim OR from the expiration of the 90-day period without any action from the CIR. 4. All taxpayers, however, can rely on BIR Ruling No. DA-489- 03 from the time of its issuance on 10 December 2003 up to its reversal in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional '90+30 day periods. (CIR v. San Roque Power Corporation, G.R. No. 187485, TRAIN amended 120 days to 90 days) : Do claimants of refund for input VAT need to wait for the 90-day waiting period to lapse before it may file an appeal to the CTA? A: Yes. A taxpayer's failure to comply with the prescribed 90-day period would render the petition PAGE 34 OF 58ATENEO CENTRAL BAR OPERATIONS 2018, TAXATION LAW premature and is violative of the principle on exhaustion of administrative remedies. Effectively there is no “decision” of the CIR to be reviewed by the CTA. (Harte-Hanks Philippines v. CIR, G.R. ‘No. 205721, November 7, 2016, TRAIN amended 120 days to 90 days). Note that the only exception to this rule isi the claim fas within the exception period as specified in BIR Ruling No. DA-489-03. Q: Is the date of issuance of BIR ruling confirming tax exemption status of taxpayer a proper reckoning point of prescriptive period? ‘A: No, the claim for refund must be filed within two (2) years from the date of payment of the tax. A. BIR Ruling cannot be used as reckoning point for prescriptive period because such ruling is not the ‘operative act from which an entitlement of refund is determined. (CIR v. Meralco, G.R. No. 181459, June 9, 2014) Q: When can a taxpayer file for a judicial claim for refund of unutilized input VAT? ‘A: Judicial claim — Within 30 days from denial of claim or from the lapse of the 90-day period Q: Can tax credits still be granted as a result of, a successful claim for VAT refund? ‘A: No. The law has deleted tax credits and now only allows tax refunds. Q: What information should be contained in the VAT invoice or VAT official receipt? A: 1. A statement that the seller is a VAT- registered person, followed by his taxpayer's identification number (TIN); 2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax, provided that: ‘a. The amount of the tax shall be shown as a separate item in the invoice or receipt: b._ Ifthe sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed prominently on the invoice or receipt; ©. Ifthe sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt d. If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT- exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero- rated components, and the calculation of the value-added tax on each portion of the sale shall be shown on the invoice or receipt. 3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and 4, In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of the purchaser, customer or client, (see Section 4.113-1(B), RR 16-2005) Q: Is there a difference between an invoice and official receipt for purposes of substantiation? A: Yes. Only a VAT invoice might be presented to substantiate a sale of goods or properties, while only a VAT receipt could substantiate a sale of services. Hence, VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used alternatively (Kepco Philippines v. CIR, G.R. No. 181858, November 24, 2010; AT&T Communications Services Phils., Inc. v. CIR, G.R. No. 185969, November 19, 2014; Nippon Express (Philippines) Corporation v. CIR, G.R. No. 185666, February 4, 2015; Northen Mindanao Power Corporation v. CIR, G.R. No. 185115, February 18, 2015) Q: What are the consequences of issuing erroneous VAT invoices or VAT official receipts? A: 1. If person who is not VAT-registered issues ‘an invoice of receipt showing his TIN, followed by the word “VAT. the erroneous issuance shall result to the following a. TheNon-VAT person shall be lable to the: i. Percentage taxes applicable ji, VAT due on the transactions without the benefit of any input tax credit PAGE 35 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW ii, 80% surcharge as penalty b. The VAT shall, if the other requisite information required is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser. 2. if a VAT-tegistered person issues a VAT invoice or VAT official receipt for a VAT- exempt transaction, but fails_to_display ‘prominently on the invoice or receipt the term “VAT-exempt Sale, "the issuer shall be liable to account for the VAT imposed. The purchaser shall be entitled to claim an input tax credit on said purchase. (Sec. 113 (D), NIFC) What is the effect of non-compliance with the documentary and evidentiary requirements for a VAT refund claim? A: (PERLAS-BERNABE) In J.R.A Philippines v. Commissioner of Internal Revenue (G.R. No. 177127, October 11, 2010), the Supreme Court held that failure to comply with the invoicing requirements provides sufficient ground to deny a ciaim for tax refund or tax credit. For a claim for tax refund or tax credit, the applicant must, prove not only entitlement to the claim but also compliance with all the documentary and evidentiary requirements therefor. Q: Is the absence of the word “zero-rated” on the invoices/receipts fatal to a claim for credit/refund of input VAT? A: (PERLAS-BERNABE) Yes. Failure to print the word "zero-rated’ in the invoices/receipts is fatal to ‘a claim for creditirefund of input VAT on zero-rated sales. Section 4.108-1 of RR 7-95 requires the printing of the word "zero-rated” on the invoices covering zero-rated sales. In Panasonic v. CIR, the SC ruled that RR 7-95 proceeds from the rule- making authority granted to the Secretary of Finance under Section 245 of the 1977 NIRC (PD 1158) for the efficient enforcement of the tax code and of course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. The appearance of the word "zero- rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect, Further, the printing of the word "zero-rated” on the. invoice helps segregate sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, Panasonic has been unable to substantiate its claim for refund. {note: RA 9337 amended the 1997 NIRC on Nov. 1, 2005. It made RR 7-95 a part of the tax code] (J-R.A. Philippines, Inc. v. CIR, GR No. 177127, October 11, 2010). Taxpayer rendered incoming telecommunication services for non-resident foreign telecommunication companies. On account of these zero-rated sales, taxpayer filed an appiication for refund for the unutilized input taxes allocated to such sales. However, its VAT invoices and official receipts did not contain the printed word ‘‘zero-rated.” Will its claim prosper? No, The Court will deny the claim on the ground that the taxpayer failed to imprint the word “zero-rated” on the face of its VAT invoices or receipts, in violation of Revenue Regulations No. 7-95. The absence of the word "zero-raied” on the invoices ana receipts of a taxpayer will result in the denial of the claim for tax refund. (Eastern Telecommunications v. CIR, GR No. 168856, August 29, 2012; See also. Eastern Telecommunications Philippines, Inc. v. CIR, G.R. No. 183531, March 25, 2015; Miramar Fish Company Inc. v. CIR, G.R. No. 185432, June 4, 2014) @: ABC Corporation filed a claim for refund of tunutilized input taxes. The BIR contends that ABC failed to comply with the VAT invoicing requirements as the words “zero-rated” was merely stamped and not pre-printed. Is the BIR’s contention correct? ‘A: No. In Commissioner of Internal Revenue v. Toledo Power Company (GR No. 183860, January 20, 2014), the Supreme Court held that the words, ‘zero-rated” appeared on the VAT invoices/official receipts presented by the Respondent in support of its refund claim. Although the same was ‘merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word "zero-rated” was required merely to distinguish sales subject to 12% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the PAGE 36 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW other VAT provisions of the Tax Code. REMEDIES IN INTERNAL REVENUE TAXES Q: What are the powers of the Commi ioner of Internal Revenue? A: @: The powers of the CIR are the following: 41. Interpret tax laws; 2. Decide (assessmentirefund) cases; 3. Obtain information, summon or examine or take testimony, 4. Examine returns; 5. Make findings based on best evidence obtainable if taxpayer fails to submit required documents; 6. Conduct inventory-taking, surveillance, prescribe presumptive gross sales and receipts; 7. Terminate taxable period — when taxpayer is: 41. Retiring from business 2. Intending to leave the country 3. Remove property 4. Doing acts to obstruct collection 8. Prescribe real property valves; 9. Inquire into bank deposits; 10. Accredit and register tax agents; and 11. Prescribe additional documentary and procedural requirements, Which of the powers of the Commissioner of Internal Revenue CANNOT be delegated? a a making assessments of 1, Recommend rules and regulations to the Department of Finance; 2. Issue rulings of first impressions and revoke rulings; 3. Compromise or abate under Sec. 204; a) NOTE: 500,000 or less may be made by Regional Evaluation Board 4. Issue and reassign officers where articles subject to excise taxes are produced or kept. What are the prescriptive periods for internal revenue taxes? A a Three (3) years from the last day within which to file a return or from the time when the return, was actually filed, whichever is later (Sec. 203, NIRC): Ten (10) years from discovery of failure to file the tax retum or discovery of falsity or fraud in the return (Sec. 222(a), NIC); or Within the period agreed upon between the ‘government and the taxpayer where there is a waiver of the prescriptive period of the assessment. (Sec. 222(b), NIC) Note that a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC There is prima facie evidence of a false return if there is a substantial underdeclaration of taxable sales, receipt, or income. Failure to report sales, 's, or income in an amount exceeding 30% of what is declared in the returns constitute substantial underdeclaration. (CIR v. Asalus Corporation, G.R. No. 221590, Feb. 22, 2017) ‘May the period of assessment be extended? A: Yes. Before the expiration of the 3-year prescriptive period, both the CIR and the taxpayer may agree in writing to extend the period of assessment. The period so agreed upon may be further extended by subsequent written agreement made before the expiration ofthe period previously agreed upon. (Section 222(b), NIRC) Q: What are the requirements of a vaiid waiver of the statute of limitations? A: To be valid and binding, a waiver must comply with the following requirements: a The waiver shall be executed before the expiration of period to assess or collect taxes, Thedate of execution shall be specifically indicated in the waiver. ‘The waiver shall be signed by the taxpayer himself or his duly authorized representative. The taxpayer is charged with the burden of ensuring that the waiver is validly executed by its authorized representative. The authority of the taxpayer's representative who participated in the audit or investigation shall not be thereafter contested to invalidate the waiver. The expiry date of the period agreed upon to assessicollect the tax after the regular 3-year Period of prescription should be indicated. (RMO No, 14-2016) PAGE 37 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW The general rule is that a defective waiver cannot extend the prescriptive period. However, take note that when the taxpayer is also guilty of causing defects in the waiver (ie., in bad faith), the waiver shall still be considered valid and shall thus serve to extend the period to assess andlor collect. (CIR v. Next Mobile, Inc., G.R. No. 212825, 2015) One of the requirements for a valid waiver is that it be executed in three (3) copies. The original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the office accepting the waiver. The failure of the BIR to provide the office accepting the waiver with the third copy will invalidate the waiver and thus, will not extend the prescriptive period. (CIR v. Philippine Daily Inquirer, G.R. No, 213493, Mar. 22,2017) In CIR v. Transitions Optical Philippines, Inc., two (2) waivers were supposedly executed by the Parties extending the prescriptive periods for assessment. The CTA declared the waivers defective for non-compliance with the requirements for the proper execution of a waiver. ‘The Court ruied that while the BIR was at fault when it accepted respondent's waiver despite their non-compliance, respondent's acts also show its implied admission of the validity of the waivers. Respondent never raised the invalidity at the earliest opportunity and did not dispute the CIR's assertion that the former repeatedly failed to comply with its notices. But, even as respondent is estopped from questioning the validity of the waivers, the assessment is nonetheless void because it was served beyond the supposedly extended period. (CIR v. Transitions Optical Philippines, Inc., G.R. No, 227544, Nov. 22, 2017) ABC Bank executed two (2) Waivers of the Defense of Prescription covering internal revenue taxes due for the years 2012 and 2013, extending the period of the BIR to assess up to December 31, 2017. A Formal Letter of Demand was issued by the BIR which was protested by ABC Bank. ABC received another Formal Letter of Demand with a reduced assessment which was paid by ABC on the same day except for two other taxes. ABC argues that the waivers it executed were not valid because it was not signed or conformed to by the CIR. Are the walvers valid? A: Yes. Partial payment of the assessment issued within the extended period to assess as provided in the Waiver of Defense of Prescription is an implied admission of the validity of the waiver. (RCBC v. CIR, GR No. 170257, September 7, 2011). Note though that in the case of CIR vs. Standard Chartered Bank (July 29, 2015) the Court ruled that although respondent paid the deficiency WTC and FWT assessments, it did not waive the defense of prescription as regards the remaining tax deficiencies, it being on record that respondent continued to raise the issue of prescription in its Pre-Trial Brief filed, Joint Stipulations of Facts and Issues, direct testimonies of its witness, and Memorandum filed. The Court added that “Even the CIR did not consider such payment of respondent as a waiver of the defense of prescription, but merely raised the issue of estoppel in ils Motion for Reconsideration of the aforesaid decision. From the conduct of both parties, there can be no estoppel in this case.” @: When is the running of the period of prescription suspended? is suspended when: (P-R-C, N-O) 1, The CIR was Prohibited from making the assessment or beginning distraintlevy or a proceeding in court for sixty (60) days thereafter; 2. Taxpayer requests Reinvestigation which is granted by the CIR;(China Bank Corporation v. CIR, G.R. No, 172509, February 4, 2015). Note that the term “granted” has been interpreted in several cases as “acted upon”. 3. Taxpayer Cannot be located in address;(C/R. \. BASF Coating, G.R. No. 198677, November 26, 2014) 4, A warrant of distraint and levy is served (not only issued) and No property could be found: 5. Taxpayer is Out of the Philippines. (Sec. 223, NIRC) Q: Give the instances when the civil penalties and interests are imposed. ‘A: Civil Penalties Esa oo) Ea PAGE 38 OF 58ATENEO CENTRAL BAR OPERATIONS 2018. ‘TAXATION LAW 1 Failure to file a return 1 Willful negiect to fle and pay tax due | thereturn within the thereon Period prescribed; 2.Filing with | 2. False or fraudulent unauthorized retum is willfully revenue office; made (Sec. 248, Failure to pay| NIRC) deficiency tax win time prescribed in assessment notice; 4.Failure to pay full or part of the amount shown in ITR required to be filed or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment (Sec. 248, NIRC) Interest’? which is now at double the legal interest rate Pe When there is any deficiency in the tax | Eon 1, Failure to pay the amount of tax due on duet shall be | any return required to assessed from the | be fled Gate prescribed forits| 2. Failure to pay the payment unt the | amount of tax due for payment thereof | which no retum is (Section 249 (A) and (8), NIRC) required Failure to pay a deficiency tax or surcharge or interest thereon Note: It shall be assessed the due date from appearing on the notice and demand of the CIR until the payment thereof or upon issuance of a notice of _—_ demand. (Section 249 (C), NIRC) *® This has been modified by SEC. 75 ofthe TRAIN Law, Interest rate is now double the legal interest rate for loans and forbearance which is 12%. Can both the deficiency and delinquency interests be imposed at the same time? ‘A: No, The law provides that “in no case shall the deficiency and delinquency interest prescribed x x x be imposed simultaneously’ : Is payment prior to protest required? : General rule: No prior payment of assessed internal revenue tax is required when protested or disputed. Exception: When there are several issues involved but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues. No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said Undisputed issues. (RF No. 12.99) Q: What is the difference between a request for reinvestigation and a request for reconsideration? A: ory etessr fear Fe tog Olona Plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. Plea for reinvestigation of the assessment on the basis of the newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. Ttmay involve a question of fact or law or both, Wmay involve a question of fact or law or both, This does not toll the running of the Statute of Limitations for the BIR to exercise its power to collect. (RR No. 18-2013) It tolls the running of the Statute of Limitations for the BIR to exercise its power to collect. (RR No. 18- 2013) Q: What are the remedies available to a taxpayer in case of denial of protest or inaction by either the his duly authorized representative A PAGE 39 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW 1. Ifthe protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest. 2. Ifthe protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest. 3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period, To further clarify the three options: A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. What are the remedies available to a taxpayer in case of the inaction of the CiR on the protested assessment? At The taxpayer has 2 options, ether: File a Petition for Review with the CTA within 30 days after the expiration of the 180-day period; or 2. Await the final decision of the CIR in the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of the copy of such decision. Note: These options are mutually exclusive and resort to one bars the application of the other. (Lascona Land v. Cif, GR No. 171251, March 5, 2012) |: What is the difference between Preliminary Assessment Notice, Final Assessment Notice and Final Decision on Disputed Assessment? A 1s @ communication Tesued by The] Regional Assessment Division or by the Commissioner of his duly authorized representative informing the taxpayer who has been auclted of the findings of the Revenue Officer following the review and evaluation ofthese findings It shall be in writing and shall show in detail the facts and the law, rules and regulations or jurisprudence on which the proposed assessment is based; otherwise, the assessment is void. (Sec. 228, NIRC; BR No. 18-13) It is a declaration of deficiency taxes | issued to a taxpayer who fails to respond to a PAN within the prescribed period, or whose reply is found to be without merit. Like the PAN, shall be in writing and shall show in detail the facts and the law, rules land regulations or jurisprudence on which the proposed assessment is based; oterwise, the assessment is void. (AMC No. 18-13) it indicates the decision of the Commissioner of Internal Revenue or his duly authorized representative and it shall state the facts and the law, rules and regulations or jurisprudence on which the decision is based; otherwise, it is void. (RMC No. 18-13) Note that a void FDDA does not ipso facto render the assessment void. An assessment becomes a disputed assessment after a taxpayer has filed its protest to the assessment in the administrative level. Thereafter, the CIR either issues a decision on the disputed assessment or fails to act on it ands therefore considered deined. ‘The taxpayer may then appeal the decision on the disputed assessment or the inaction of the CIR. As such the FDDA is not the only means that the final tax liability of a taxpayer is fixed, which may then be appealed by the taxpayer. Inaction of the CIR may likewise result in the finality of the tax liability as it is deemed a denial of the protest. Clearly, a decision of the CIR an a disputed assessment differs from the assessment itself. Hence, the invalidity of one does not necessarily result to the invalidity of the other, unless the law or regulations otherwise provide. Failure of the FDDA to reflect PAGE 40 OF 58ATENEO CENTRAL BAR OPERATIONS 2019. TAXATION LAW the facts and law on which itis based will make the decision void. It, however, does not extend to the nulification of the entire assessment. (CIR v. Liquigaz Philippines Corporation, G.R. No. 218534, Apr. 18, 2016) @: A Final Assessment Notice was issued by the BIR against taxpayer A. The assessment only contained a tabulation of the deficiencies and nothing more. Is the assessment valid? ‘A: No. Under Section 228 of the NIRC, the taxpayer shall be informed in writing of the law and facts on which the assessment was made otherwise the assessment is void. (GIR v. United Salvage and Towage (Phils.), Inc., G.R. 197515, July 2, 2014). Note: However, there is substantial compliance when factual and legal basis can be found in a series of correspondence between the taxpayer and the BIR, and not in the FAN/FLD (Samar-1 Electric Cooperative v. BIR, G.R. No. 193100, December 10, 2014). Q: What is the effect if the PAN was not issued AA: Ifthe PAN is not issued before the FAN and the taxpayer only received the latter, itis tantamount to denial of due process. The taxpayer must be Informed of the facts and laws upon which the assessment is made. It is not merely a formal requirement but a substantive one. However, the law recognizes several exceptions wherein the PAN need not be issued. (CIR v. Metro Star, GR No, 185371, Dec. 8, 2010) Q: What are the exceptions to the issuance of, PAN? A 1. Mathematical error 2. Discrepancy between tax withheld and tax actually remitted 3. When taxpayer opting for a refund or a TCC carried over and automatically applied excess credits against tax liabilities of the succeeding taxable quarters or yearis Non-payment of excise tax 5. Transfer by exempt person of tax-free articles to non-exempt persons Q: What acts of the BIR Commissioner are considered denials of protest which may serve as a basis for appeal to the Court of Tax Appeals? A Filing by the BIR of a civil suit for collection of the deficiency tax is considered a denial of the request for reconsideration. (CIR v. Union Shipping Corporation, GR No. L-66160, May 21, 1990) 2. An indication to the taxpayer by the Commissioner ‘in clear and unequivocal language’ of his final denial on the issuance of the warrant of distraint and levy. The subject of appeal is the final decision, not the warrant of distraint. (Advertising Associates Inc. v. CA, G.R. No, L-59758, Dec. 26, 1984) 3. ABIR demand letter sent to the taxpayer after his protest of assessment notice is considered ‘as the final decision of the Commissioner on the protest. (CIR v. Ayala Securities, G.R. No. 1L-24985, March 31, 1976) 4, Aletter of the BIR Commissioner reiterating to a taxpayer his previous demand to pay an assessment is considered a denial of the request for reconsideration or protest and is appealable to the CTA. (CIR v. Isabela Cultural Corp., G.R. No. 135210, July 11, 2001) 5, Final notice before seizure considered as Commissioners decision on taxpayer's, request for reconsideration, when the taxpayer received no other response. (CIR v. Isabela Cultural Corp, GR. No. 135210, July 11, 2001) Q: Allied Banking Corporation received from the BIR a PAN, which it timely disputed. In response, the BIR issued a Formal Letter of Demand with Assessment Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review with the CTA. The CTA dismissed the Petition stating that it is neither the assessment nor the formal demand letter itself that is appealable before it, but the decision of the CIR on the disputed assessment. Can the Formal Letter of Demand be construed as the final decision of the CIR appealable to the CTA under RA No. 9282? ‘A: Yes, this is considered an exception to the general rule on exhaustion of administrative remedies. The CIR is considered estopped from claiming the same principle. The tenor of the demand letter is clear that that CIR had already made a final decision and that the remedy of the Petitioner was to appeal the same within thirty (30) days of receipt. This can be gleaned from the use PAGE 41 OF 58ATENEO CENTRAL BAR OPERATIONS 20189. TAXATION LAW of the terms “final decision” and “appeal” which were deemed unequivocal language pointing to the finality of the decision. While the Court cited the rules relative to (a) protesting the FAN and not the PAN and (b) counting the 30-day period to appeal to the CTA from receipt of the decision of the CIR and not issuance of the assessment, this particular case was deemed a clear exception in View of the CIR's own actions. (Allied Banking Corporation v. CIR, GR No. 175097, February 5, 2010) Q: Cana protest on pre-assessment notices be filed directly to the CTA via petition for review? : Generally, no. The protest should be first done by filing a request for reconsideration before the CIR. Ifthe request is denied, that’s the time when the taxpayer may appeal the case before the CTA. ‘An exception to this rule is when the wording of the notice makes it appear that the notice is the final decision of the CIR, such as in the case of Allied Banking v. CIR. (Allied Banking Corporation v. CIR, G.R. No. 175097, February 5, 2010) Q: A and B are engaged in importation of textile. B is 100% owned by A. The District Collector of the Port of Manila issued an assessment against A. Collector of Customs (COC) made a demand on A on November 25, 1998. On July 2, 1999, the COC made a final demand upon both A and B. B filed a protest arguing that it is not a party liable for the assessed taxes. COC denied the protest on July 12, 1999. On July 30, 1999, B appealed to CTA. COC responded that CTA has no jurisdiction since the appeal was filed beyond the 30-day reglementary period. Is the COC correct? ‘A: No, the reglementary period should be counted {rom July 12, 1999 because it was on this date that the COC has denied the protest of B. The final demand made on November 25, 1998 did not bind B as it was addressed only to A. (COC v. Ollink International Corporation, G.R. No. 161759, July 2, 2014), Q: May a withholding agent file a claim for tax refund? A: Generally, the person entitled to claim a tax refund is the taxpayer. However, if the taxpayer does not file the claim, the withholding agent may file the same. Awithholding agent has a legal right to file a claim for refund based on the following reasons: (a) He is considered a taxpayer, as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount withheld be finally found to be less than the amount that should have been withheld, (b) As an agent of the taxpayer, his authority to file the income tax return and remit the tax withheld to the government includes the authority to file a claim for refund and to bring an action for recovery of such claim. Note: White the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer under the principle of unjust enrichment. (CIR v. Smart Communications, G.R Nos. 179045-46, August 25, 2010) What are the requisites for claim for tax credit or refund of a creditable withholding tax? 1. Claim must be filed within the two-year prescriptive period from date of payment of the tax 2. Mt must be shown on the retum that the income received was deciared as part of gross income 3. The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld. (Banco Filipino v. CA, GR No. 185682, March 27, 2007; CIR v. Team (Philippines) Operations Corporation, G.R. No. 179260, April 2, 2014; See also CIR v. PNB, G.R. No. 180290, September 29, 2014) Q: What are the prescriptive periods for filing claims for refund (both under general claims for refund and VAT refund)? internal Revenue Taxes Refund, in General CT aay et ag ea PAGE 42 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW Administrative Claim (NIRC, | BIR Sec. 204) Within 2 years from payment of tax Judicial Claim (NIRC, Sec. | CTA 228) IfBIR decides on the claim for refund, TP must file an appeal with the CTA, whichever is earlier between: [1] within 30. days from receipt of the decision, or [2] within the 2-year Period under Sec. 229 of the NIRC If there is an inaction on the BIR’s part re: need not wait for a decision and must fle an appeal with the CTAwhen the 2-year period is about to lapse. Failure to appeal bars recovery (Gibbs v. CIR, GR. No. L-13453, 1960) VAT Refund Administrative Claim BIR Pane area Within 2 years from the close of the taxable quarter when the sales were made (CIR v. Mirant Pagbilao Corp., GR. 172129, 2008) claim for refund, TP | Within 30 days from | denial of claim or from the lapse of the 90-day period without any action from the BIR Judicial Claim | CTA : Can deficiency VAT be offset against claims for refunds or tax credits of input tax under Sec. 112, of the NIRC? ‘A: No, a claim for tax refund or credit under Section 112 of the NIRC where the issue to be resolved is whether a taxpayer is entitled to a refund or credit of its unutilized input VAT for the taxable year cannot be subject to compensation. It would be unfair to allow the CIR to use a claim for refund under Section 112 of the NIRC as a means to assess a taxpayer for any deficiency VAT, especially if the period to assess had already prescribed. The courts have no assessment powers, and therefore, cannot issue assessments against taxpayers. Offsetting was allowed only in ‘cases of claim for tax refund of erroneously or ilegally collected taxes under Section 229 because the determination of the taxpayer's liability is intertwined with the resolution of the claim for tax refund (Commissioner of Intemal Revenue, vs. Toledo Power Company, G.R. No. 196415, December 2, 2015). Q: May a criminal action proceed against the taxpayer without an assessment? A: Yes. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade taxes. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. (Ungab vs. Cusi, 97 ‘SCRA 877 (1980), CIR vs. PASCOR Realty, 309 SCRA 402 (1999), Adamson vs. CA, 588 SCRA 27 (2009) Q: Is the presentation of a Certificate of Creditable Tax Withheld at source (BIR Forms No. 2307) necessary to prove the fact of withholding, even if the tax returns and other ‘supporting evidence already tend to prove the fact of withholding? PAGE 43 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW A: No. While it may be necessary to prove that the taxpayer did not use the claimed creditable withholding tax to pay for hisfits tax liabilities, there is no basis in law or jurisprudence to say that BIR Form No. 2307 is the only evidence that may be adduced to prove such non-use. The submission of BIR Form 2307 is to prove the fact of withholding of the excess creditable withholding tax being claimed for refund. The probative value of BIR Form 2307, which is basically a statement showing the amount paid for the subject transaction and the amount of tax withheld therefrom, is to establish only the fact of withholding of the claimed creditable withholding tax. There is nothing in BIR Form No. 2307, which would establish either utilization or non-utilization, as the case may be, of the creditable withholding tax. (Philippine National Bank v. CIR, G.R. No. 206019, March 18, 2015) Is an assessment of tax deficiency required in a criminal prosecution for tax evasion? ‘A: No. Tax evasion is deemed complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or al of the tax. Corollarily, an assessment of the tax deficiency is not required in a criminal prosecution for tax evasion. However, although a deficiency assessment is not necessary, the fact that a tax is due must first be proved before one can be prosecuted for tax evasion, (Bureau of Internal Revenue v. Court of Appeals, G.R. No. 197590. November 24, 2014) : What is the rule on best evidence obtainable under Section 6 (B) of the Tax Code? A: The CIR may use the best evidence obtainable to issue an assessment under the following circumstances: * the records requested from the taxpayer are not forthcoming either because the records are lost or the taxpayer refuses to submit such records; and + the records submitted are false, incomplete or erroneous (RMC 23-00) Q: Who has the jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the Regional Trial Court (RTC) in a local tax case? AA: The Court of Tax Appeals has jurisdiction Section 1, Article VIII of the 1987 Constitution provides that judicial power shall be vested in one ‘Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. On the strength of the above constitutional Provisions, it can be faitly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. I, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.City of Manila v, Grecia-Cuerdo, G.R. No. 175723, Feb. 4, 2014) An action directly brought in the RTC ostensibly to demand reconveyance of property sold upon forfeiture for nonpayment of a tax assessment is to be dismissed for failure of the plaintiff to claim for refund or credit with the CIR. The failure to resort to administrative remedies rendered the assessment final. Despite assailing the supposedly illegal confiscation of his property to satisly his tax liabilities, Alcantara was really challenging the assessment and collection of taxes made against him for being in violation of his Tight to due process. As such, the complaint concemed the validity of the assessment and eventual collection of taxes by the BIR. His judicial recourse thus suffered from fatal prematurity because doing so rendered the assessment final (Alcantara v. BIR, G.R. No. 192536, Mar. 15, 2017) Q: Based on the Tax Amnesty Law of 2007 and corresponding BIR implementing rules (RR No. 15-06), when is an application for tax abatement deemed approved? A: An application for tax abatement is deemed approved only upon the issuance of a termination letter by the BIR. (Asiatrust Development Bank Ine. v. CIR, G.R. No. 201530, April 19, 2017) PAGE 44 OF 58ATENEO CENTRAL BAR OPERATIONS 2019, TAXATION LAW : Is a letter of termination is necessary in abatement cases? A: Yes. RR No. 15-06 prescribes the guidelines on the implementation of the one-time administrative abatement of all penalties/surcharges and interest on delinquent accounts and assessments. Sec 4 provides that a taxpayer may avail of the program by 1, Paying 100% of the basic tax assessment with an accredited agent bank or in its absence, the revenue collection’ deputized treasurer of the RDO. 2. Penalties / surcharge and interest shall be cancelled by the concemed BIR Office following existing rules and procedures. 3. The docket of the case shall be forwarded to the Office of the Commissioner, thru the Deputy Commissioner for Operations Group for the issuance of a Termination letter. Without a termination letter, @ tax assessment cannot be considered closed and terminated. Asiatrust failed to present such letter to the BIR, (Asiatrust Development Bank v CIR, G.R. Nos. 201530 & 201680-81, April 19, 2017) Q: Is a prior MR/ Motion for new trial necessary for the CTA En Banc to take cognizance of an appeal? A: Yes, Section 1, Rule 8 of the Revised Rules of the CTA stales: “the petition for review of 2 decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.” (Asiatrust Development Bank v CIR, G.R. Nos. 201530 & 201680-81, April 19, 2017) Q: Under dispute is the VAT assessment made by the BIR against the sale of properties made by a GOCC. The latter paid the tax under protest. and subsequently filed with the Department of Justice a petition for adjudication of dispute. Are tax assessment disputes solely between government agencies and offices, including GOCCs, fall under the jurisdiction of the Secretary of Justice? A: Yes, Under PD 242, all disputes and claims solely between government agencies and offices, including GOCCs, shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel, depending on the issues and government agencies involved. (Power Sector Assets and Liabilities Management Corporation vs. Commissioner of Internal Revenue G.R. No. 198146. August 8, 2017) PAGE 45 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW ‘COURT OF TAX APPEALS Q: What is the juris A n of the Court of Tax Appeals? EI EI) by appeal revenue taxes, fees or other administered by the BIR 2. Inaction by the GIR in cases involving 2. Disputed assessments | thereto, | Code Exclusive original or appellate jurisdiction to review 1. Decisions of the CIR in cases involving disputed assessments, refunds of intemal charges, penalties in relation thereto, or other matters arising under the 1997 Tax Code or other laws b. Refunds of internal revenue taxes, fees fr other charges or penalties in relation Other matters arising under the Tax 4. Other laws administered by the BIR where the Tax Code or other applicable law provides a specific period for action 1 offenses: ‘a. PiMor more Original Jurisdiction Jurisdiction Exclusive jurisdiction over cases involving criminal 4, All criminal offenses arising from the Tax Code or other laws administered by the BIR where the principal amount of taxes and fees, exclusive of charges and penalties claimed is | b. PIM or less or where there is no specified amount claimed ~ Appellate Exclusive jurisdiction over tax collection cases 4. Tax collection cases involving final executory assessments for taxes, amount of taxes and fees, charges and penalties claimed is ‘a. P1M or more — Original Jurisdiction them within their re jurisdiction spective charges and penalties, where the principal exclusive of 2. Appellate jurisdiction over appeals from the | judgments, resolutions or orders of the RTC | in tax collection cases originally decides by tertitorial Exclusive appellate jurisdiction to review by appeal: Decisions or resolutions reconsideration or new trial: 1. Of the CTA Division in the exercise of its | exclusive appellate jurisdiction a. over tax collection cases decided by | the RTC in the exercise of their | original jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and penalties is less than P1M; b, over cases involving criminal offenses arising from violations of the Tax Code and other laws administers by the BIR. ‘on motions for 2. Of the CTA Division in the exercise of is exclusive and origina jurisdiction over tx collection cases: . over cases invohving criminal offenses arising from violations ofthe Tax Code | and other as administers by the BIR. | 3. Ofthe RTC inthe exercise of her appellate jurisdiction 2. over tax collection cases b._ over criminal offenses. {[Sec. 7, RA 9262, Rule 4, Sec. 1, AM. No. 05-11-07-CTA, GUIDE NOTES AND CASES ON THE GENERAL PRINCIPLES OF TAXATION AND THE ORGANIZATION OF THE B.A. LILY K. GRUBA (2016)) PAGE 46 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW Q: When is there an automatic review by the Secretary of Finance on customs cases? A: Decisions of the Commissioner of Customs which are adverse to the Government under Section 1128 of the Customs Modernization and Tariff Act shall be elevated to the Secretary of Finance for automatic review. (See Sec. 1128, CMTA and Sec. 7, RA 9282) Q: AB was assessed for income tax deficiency. AB failed to file a protest and thus the said assessment has become final and unappealable. Thereafter, AB filed a petition for review to the CTA arguing that the right of the CIR to collect the assessed tax has prescribed. The CIR contends that the CTA has no jurisdiction because when the law says that the CTA has jurisdiction over “other matters” it presupposes that the tax assessment has not become final and unappealable. Is the CIR’s contention correct? ‘A: No. The fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. The validity, however, of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR. to collect the validly assessed tax has prescribed This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide. (Commissioner of Internal Revenue v. Hambrecht & Quist Philippines, Inc, GR No. 169225, ‘November 17, 2010) Q: Does the CTA have jurisdiction over matters. involving the constitutionality of regulations issued by the BIR? : Yes. The CTA has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of the Commissioner of Internal Revenue. The CTA is of the same level as the Court of Appeals and possesses “all the inherent powers of a Court of Justice.” (BDO v. Republic, G.R. No. 198756, 2016) NOTE: The BDO ruling overtumned the SC’s pronouncement in British American Tobacco (G.R. No. 163583, 2008), stating that the regular courts have jurisdiction to rule upon the constitutionality of a tax law or a regulation issued by the BIR. Q: Is an adverse ruling of the Secretary of Finance in the exercise of its power of review appealable to the Court of Tax Appeals? ‘At Yes. Review by the Secretary of Finance Pursuant to Section 4 of the NIRC, as amended, of a BIR Ruling is appealable to the Court of Tax Appeals. The Court opined the Court of Tax Appeals, albeit impliedly, has jurisdiction over the appeal from the Secretary of Finance's review of rulings of the CIR as “other matters” arising under the NIRC or other laws administered by the BIR. (Phillppine American Life and General Insurance Company v. The Secretary of Finance and Commissioner of Internal Revenue, G.A. No. 210987, November 24, 2014; Banco de Oro v. Republic, G.R. No. G.R. No. 198756, January 13, 2015) @: The CIR denied the protest made by a domestic corporation regarding tax deficiency assessment for taxable year 2010. The corporation appealed said decision before the CTA through a Petition for Review with Motion to Suspend Collection of Tax. The CTA issued a resolution requiring the corporation to issue a bond amounting to P4.47 billion equivalent to the deficiency assessment for income tax and VAT. The corporation’s financial statements and independent auditor's report revealed that its total equity for the years 2012 and 2013 amounted only to P955 million and P916 million, respectively. Did the CTA commit grave abuse of discretion in requiring such amount of bond despite the corporation’s net worth but equivalent to the deficiency assessment? A: Yes. Generally, Section 11 of RANo. 1125, as amended, provides that the CTA may order the suspension of the collection of taxes provided that the taxpayer either: (1) deposits the amount claimed: or (2) files a surety bond for not more than double the amount. However, although the imposition of surety bond is within the authority of the Courts, it bbhooved the authorities to consider other factors recognized by the law itself towards suspending the collection of the assessment, and to ascertain whether there were grounds to suspend the collection of the deficiency assessment on the ground that such collection PAGE 47 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW would jeopardize the interests of the taxpayer such as when it would practically deny to the petitioner the meaningful opportunity to contest the validity of the assessments, and would likely even impoverish it as to force it out of business. The Court reiterated the established principle that the Power to tax is not the power to destroy, (Tridharma Marketing Corporation v. CTA, G.R No. 215950, June 20, 2016) Q: The City of Manila assessed ABC Co. and DEF Co., together with their other sister ‘companies, increased rates of business taxes for the year 2003 and the 1st to 3rd quarters of 2004. The companies filed under protest and later filed an application for refund with the ATC, which it granted. City of Manila filed a petition for review with the CTA, after the latter granted its request for extension of time to file the petition for review. May the 30-day period provided by law within which to appeal decisions of the RTC to the CTA be extended? Az Yes. RA 9282 states that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Such rule provides that the Petition for Review of an adverse judgment or final order of the RTC must be filed with the Court of Appeals within: (1) The original 15-day period from receipt of the judgment or final order to be appealed; (2) An extended period of 15 days from the lapse of the original period; and (3) Only for the most compelling reasons, another extended period not to exceed 15 days from the lapse of the first extended period. (Sec. 11, RA 9282) Following by analogy, the 30-day original period for fling a Petition for Review with the CTA may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days. Q: Can a motion for reconsideration be filed on. the amended decision of the court in division? ‘es. A motion for reconsideration filed on the amended decision of the Court in Division is not a second motion for recon: proscribed under the CTA Rules, in relation to the 1997 Rules of Civil Procedure, as amended. (Mirant (Navotas 1!) Corporation v. CIR, CTA EB Case No. 783, July 18, 2012) Is a prior motion for reconsideration A: Yes. The mandatory provisions of the Revised Rules of the CTA require that “the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.” "The word "must" clearly indicates the mandatory, not merely directory, nature of a requirement.” Before the CTA En Banc could take cognizance of, the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concemed CTA division. (Commissioner of Customs v. Marina Sales, inc., G.R. No. 183868, Novernber 22, 2010) ‘an a taxpayer appeal a decision of the CTA division to the Supreme Court? lo, The Supreme Court is without jurisdiction to review decisions rendered by a division of the CTA. The exclusive appellate jurisdiction over the said case is vested in the CTA En Banc. With the enactment of RA 9282, which took effect on 23 April 2004, it elevated the rank of the CTA to the level of a collegiate court, making it a co- equal body of the Court of Appeals. (Duty Free Philippines v. BIR, G.R. No. 197228, October 8, 2014) Q: What is the status of the findings and conclusions of the CTA? ‘A: The findings and conclusions of the CTA are accorded the highest respect and will not be lightly sel aside because by its very nature, itis dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject. (Edison (Bataan) Cogeneration Corporation vs. Commissioner of Internal Revenue G.R. No. 201665. August 30, 2017) @: What court has jurisdiction to review decisions or resolutions issued by the | of the Court of Tax Appeals? PAGE 48 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW ‘A: CTA En Banc. Jurisdiction to review decisions or resolutions issued by the Divisions of the CTA isino longer with the CA but with the CTA En Bane. This rule is embodied in Section 11 of RA 9282, which provides that: "A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA En banc.” (TFS, Incorporated v. Commissioner of _ Internal Revenue, G.R. No. 166829, Apr. 19, 2010) LOCAL GOVERNMENT TAXATION Q: What are the fundamental principles of local government taxation? A: (U-E-P-S-P) a. Uniformity b. Taxes, fees, charges and other impositions ‘shall be Equitable and based on ability to pay for public purposes not unjust, excessive ‘oppressive or confiscatory, no contrary to law, public policy, national economic policy, of in restraint of trade cc. The levy and collection shall not be left to any Private person dThiures Solely to the local govemment unit levying the tax e. The Progressivity principle must be observed. Q: What are the requisites of a valid local tax ordinance? A: (C-U-P-P-U-G) 1, Itmust not contravene the Constitution or any statute It must not be Unfair or oppressive It must not be Partial or discriminatory It must not Prohibit but may regulate trade It must not be Unreasonable It must be General and consistent with public policy (Magtajas v. Pryce Properties, GR No. 111097, July 20, 1994) Q: What must be complied with under the provisions of the LGC for a valid local tax ordinance? A: (H-P) 1. Public Hearing is required with quorum, voting and approval and/or veto requirements complied with (Sec. 188, LGC) 2. Publication of ordinance within 10 days from approval for 3 consecutive days in an Newspaper of general circulation and/or posting in at least 2 conspicuous and publicly accessible places (Sec. 188, LGC) : What is the situs of local business taxes as stated in Section 150 of the LGC? A: 1. Section 150(a) — a. If there is branchisales office in the municipality or city where the sale or transaction is made, the tax shall accrue and shall be paid where such branch or sales outlet is located. b. If there is no branch/sales office in the city or municipality where the sale or transaction is made, the sale shall be recorded in the principal office and the taxes shall accrue and shall be paid to such city or municipality (where the principal office is located) ry ee Yes | Branch! Nene _—_| sales office | Principal No | office None Note: An office may be considered a sales office (1) if the office only accepts orders but does not issue sales invoice; (2) ifthe office does not accept orders but issues sales invoices or (3) if the office accepts orders and issues sales invoices (BLGF Opinion dated January 15, 2007) 2. Section 150(b) ~The following sales allocation shall apply to manufacturers with factories, plants and plantations, ete. a. If the plantation and factory are located in the same place i. 30% of all sales recorded in the principal office shall be taxable by the city or municipality where principal office is located ii, 70% shall be taxable by the city or ‘municipality where the factory, project office, plant or plantation is located b. If the plantation and factory are not located in the same place, the 70% above shall be divided as follows: i. 60% to the city or municipality where the factory is located PAGE 49 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW ji, 40% to the city or municipality where the plantation is located Cnr) factory, ete. rrr ra Lr) reo ead ee) ‘Yes 30% 70% No 30% | The 70% above shall be divided: | 1. Factory ~ 60% | 2. Plantation — | 40% If two or more factories, etc = 70% is prorated Note: Section 150(b) is only resorted to if there is no branch or sales office. In addition, the allocation shall be applied irrespective of whether or not the sales are made in the locality where the factory, plant or plantation is located. : What are the limitations on the taxing power of LGUs? A: As provided in Section 133, LGUs cannot impose the following: a. Income tax (except on bank and financial entities) ost Estate and Donors taxes Customs Duties Taxes on goods Passing through the LGU Taxes on Agricultural and aquatic products sold by marginal farmers and fisherman ‘Taxes on BOL-registered enterprises Excise taxes on articles under the Tax Code and taxes on petroleum products i. VAT and Percentage tax j. Taxes on gross receipts of Transportation contractors k. Taxes on premium paid by way of Reinsurance Taxes on Registration of motor vehicles m. Taxes on Philippine products actually Exported fn. Taxes on Countryside and Barangay Business Enterprises and cooperatives ©. Taxes and fees on the National Government ‘As provided in Section 186, LGUs cannot impose taxes that are specifically enumerated or taxed under the provisions of the Tax Code. Q: What are the taxing powers of the following LGUs? {a) Provinces; (b) Municipalities; (c) Cities; and (d) Barangays At [(@)Provinces 7 Expressly provided in the Codes] 1. Local Transfer Tax (Section 135, LGC) | 2. Business Tax on Printing and Publication (Section 136 LGC) | 3. Local Franchise Tax (Section 137, Lec) 4. Tax on Sand, Gravel and Other Quarry Resources (Section 138, LGC) | 5. Professional Tax (Section 139, LGC) 6. Amusement Tax (Section 140, LGC) 7. Tax on Route Delivery Truck or Vans | (Section 141, LGC) (©) Municipaiities ‘A municipality may levy on those taxes, fees and charges not otherwise levied by provinces (see Section 142, LGC) Expressly provided in the Code: 1. Local Business Tax (Section 143, LGC) 2, Fees on business and occupation (Section 146, LGC) 3. Fees on sealing and licensing of weights and measures (Section 148, Lec) 4, Fishery Rentals, Fees and charges (Section 149, LGC) (©) Cities They may levy taxes which the province and municipality may impose. The tax rates, fees, land charges which the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rales of professional and amusement taxes (see Section 151, LGC) (@) Barangays 1. Taxes oF stores with fixed business | establishments (gross receipts of 50,000 or less for cities, P30,000 for municipalities) PAGE 50 OF 58ATENEO CENTRAL, BAR OPERATIONS 2019 TAXATION LAW 2 Service fees for use of barangay: owned properties and services rendered Barangay clearance 4. Other fees and charges for (a) commercial breeding of fighting cocks, cockpits and cockfighting; (b) on places of recreation with admission fees; and (6) billboards, signboards and outdoor advertisements | Common only to Cities and Municipalities — | 1 Community tax [Common to all LGUs 1. Service fees and charges for services | rendered | 2. Public utity charges |__ 3. Toll fees or charges @:-The National Power Corporation (NPC) received a notice of franchise tax delinquency for the years 2001 to 2003 from the Province of Bataan. The Province based its assessment on NPC's sale of electricity that it generated from the two power plants in Bataan, The NPC denied its liability and alleged that it had ceased to be liable for franchise tax after the Congress enacted the Electric Power Industry Act (EPIRA) that took effect on June 26, 2001. The new law relieved NPC of the function of generating and supplying electricity beginning that year. The province, however, proceeded to levy on the facilities for the satisfaction of the assessment. Is NPC liable to pay the franchise tax? ‘A: No. By the operation of EPIRA, NPC ceased to own and operate the business in Bataan subject to local franchise. Its electric transmission function was transferred to the National Transmission Corporation (TRANSCO). Also, the generation assets, including the plants in Bataan, and all liabilities were transferred to and assumed by, the Power Sector Assets and Liabilities Management Corporation (PSALM). Since the local franchise tax is imposed on the privilege of operating a franchise, such tax is not a liability of the NPC, The province cannot likewise levy on the subject facilities to satisfy the judgment as they are now owned by TRANSCO and PSALM Corp. (National Power Corporation v. Provincial Government of Bataan, et al., G.R. No. 180654, April 21, 2014) Q: What are the remedies available to the taxpayer prior to assessment? A: (C-D) a. Administrative: To question _the Constitutionality or legality of tax ordinances or revenue measures on appeal (Sec. 187, LGC) b. Judicial: Petition for Declaratory relief as and ‘when applicable (Rule 63, FOC) @: Outline the process on how an appeal involving questions of constitutionality or legality of tax ordinances. AS 1. Appeal to Secretary of Justice within 30 days from effectivity of tax ordinance or revenue measure; 2. The Secretary of Justice has 60 days from receipt of appeal to decide but an appeal does, not suspend the effectivity of the ordinance: 3. Within 30 days from the Secretary of Justice's, decision or ater 60 days of inaction, an appeal may be filed with the RTC. (Sec 186, LGC) : Is compliance with the 30-60-30 day period rule mandatory? ‘A: Yes. In Reyes v. CA (December 10, 1999), the Secretary of Justice dismissed an appeal assailing the constitutionality of the tax ordinances of the Municipality of San Juan on the ground that it was filed out of time. The Supreme Court ruled that compliance with the three separated periods is mandatory. The failure of the petitioners in the case to appeal to the Secretary within 30 days from the date of effectivity is fatal to their cause @: On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No. 9503-2005 imposing a tax on the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users at ten percent (10%) of the annual rental income derived from such lease or rental. The City Council, in a letter dated 15 March 2005, informed Cagayan Electric Power and Light Company, Inc. (CEPALCO), through its President and Chief Operation Manager, Ms. Consuelo G. Tion, of the passage of the subject ordinance. On September 30, 2005, appellant CEPALCO, purportedly on pure questions of law, filed a petition for declaratory relief assailing the PAGE 51 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW ity of Ordinance No. 9503-2005 before the Regional Trial Court. The Court ruled that CEPALCO failed to exhaust administrative remedies. Section 5 of sald ordinance provided that the "Ordinance shall take effect after 15 days following its publication in a focal newspaper of general circulation for at least three (3) consecutive issues.” Gold Star Daily Published Ordinance No. 9503-2005 on 1 to 3 February 2005. Ordinance No. 9503-2005 thus took effect on 19 February 2005. CEPALCO filed its petition for declaratory relief before the Regional Trial Court on 30 September 2005, clearly beyond the 30-day period provided in Section 187. CEPALCO did not file anything before the Secretary of Justice, Thus, the Court found that CEPALCO ignored the mandatory nature of the statutory periods. Citing Reyes v. Court of Appeals (G.A. 118233, December 10, 1999), the court states that failure to appeal to the Secretary of Justice within the statutory period of 30 days from the effectivity of the ordinance is fatal to one’s cause, However, in this case, the court relaxed the application of the rule in view of more. substantive matters. (Cagayan Electric Power and Light Co. v. City of Cagayan de Oro, G.R. 191761, November 14, 2012) Is payment under protest required before a party may appeal to the Secretary of Justice? A: No. As held in Jardine Davies insurance v. Aliposa (G.R. No, 118900, February 27, 2003), prior payment under protest is not required when the taxpayer is questioning the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax (as opposed to questioning the increase or decrease in the tax to be paid). Q: May courts issue an injunction to restrain LGUs from collecting locat taxes? ‘A: YES, There is no express provision in the Local Government Code that prohibits the courts from issuing injunction to restrain the collection of local taxes. Nevertheless, given that the collection of taxes is the lifeblood of government, the courts must exercise extreme caution before issuing injunctions that will restrain the collection of taxes (Angoles City v. Angeles City Electric Corporation, GR. No, 166134, June 29, 2010) : Taxpayer ABC successfully obtained a final and executory court judgment granting its request for local tax refund or tax credit. Must ABC file for a writ of execution before it can avail the same tax refund or credit? ‘A: No. Section 252(c) of the Local Government Code provides that “in the event that the protest is. finally decided in favor of the taxpayer, the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liabilty. Accordingly, the local government unit has two ways of satisfying the judgment: (1) to pay the taxpayer as tax refund: or (2) to issue a tax credit cortiicate. The issuance of a writ of execution is superfluous because the judgment is not one for a specific sum of money susceptible of execution. Instead, of moving forthe issuance of a wrt of execution, the taxpayer should request for the approval of the local government unit in implementing the tax refund or tax credit whichever is appropriate. It could not have been the intention of the law to burden the taxpayer with ‘going through the process of execution under the Rules of Civil Procedure before it may be aliowed to avail its tax creait as affimed by a court judgment. if at al, the local government unit may be allowed to verify documents and information relative tothe grant of the tax refund or tax credit (Coca-Cola Bottlers Philippines v. City of Manila, et al, GR. No. 197561, Apnl 7, 2014) Q: X City enacted a new tax ordinance to replace its old one which was enacted in 1990 (before the LGC was passed into law). In the new tax ordinance, retailers are now taxed differently from manufacturers. It likewise provided for a new tax base and tax rate for retailers which is in accordance with the LGC. ‘A group retailers filed a case saying that the new tax ordinance is violative of Section 191 of the LGC which provides for the authority of LGUs to adjust rates of tax ordinances. They Claim that the new tax ordinance imposes an increase in their tax rates for more than what Section 191 allows. Will the case prosper? No, Firstly, Section 191 of the LGC presupposes that the following requirements are present for it to apply, to wit i) there is 2 tax ordinance that already imposes a tax in accordance with the provisions of the LGC; andi.) there is @ second tax ordinance thal _made adjustment on the tax rate fixed by the first tax PAGE 52 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW ordinance. These two requisites were not met in this case. ‘The first requirement was not met since the old tax. ordinance of X City was enacted before the LGC came into law. Thus, the assailed new ordinance was actually the first to impose the tax on retailers in accordance with the provisions of the LGC. As to the second requirement, the new tax ordinance: (second ordinance) imposed the new tax base and the new tax rate as provided by the LGC for retailers. Section 191 contemplates a situation where there is already an existing tax as authorized under the LGC and only a change in the tax rate would be effected Secondly, Section 191 of the LGC will not apply because with the assailed tax ordinance, there is No outright or unilateral increase of tax to speak of. ‘The resulting increase in the tax rate for retailers was merely incidental, Thirdly, it must be pointed out that the limitation under Section 191 of the LGC was provided to guard against possible abuse of the LGU's power to-tax- In this case, however, strictly speaking, the new tax rate for petitioners as retailers under the assailed ordinance is not a case where there was an imposition of a new tax rate, rather there is merely a rectification of an erroneous classification of taxpayers and tax rales, ie, of grouping retailers and wholesalers in one category, and their corresponding rates. (Mindanao Shopping Destination Corporation et. al. vs. Hon. Rodrigo Duterte, in his capacity as Mayor of Davao City, G.R. No. 211093. June 6, 2017) Q: What authority is given to the Secretary of Justice with respect to review of tax ordinances? A: The Secretary of Justice can declare an ‘ordinance void for not having followed the requirements of the law but he cannot replace it with his own law or he cannot say that is unwise Ii Dron v. Lim (G.R. No. 112497, August 4 1994), then Secretary of Justice Drilon set aside the Manila Revenue Code on two grounds, namely the inclusion of certain ulra vires provisions and its non-compliance with the prescribed procedure in its enactment. In ruling that the act of then Secretary Drilon was proper, the Supreme Court noted that when the Secretary alters or modifies or sets aside a tax ordinance, he is not allowed to substitute his own judgment for the judgment of the LGU that enacted the measure. In the said case, Secretary Drilon only exercised supervision and not control Q: Is a corporation with no business operation. in a city still able for business tax? A: No. A corporation with no business operation, and is merely an investor in another corporation, is not liable for local business tax. (Orleyte Company (Philippine Branch) vs. City of Makati and Dulce P. Cruz, in her capacity as Treasurer of Makati, CTA AC No. 80, November 14, 2012) Q: What are the penalties in case of Taxpayer's failure to pay local government taxes and real property taxes? A: Sree ae ey eras Tax (Sec. 168) Imposed by the ‘Sanggunian 25% surcharge of the | In case of failure to | amount of taxes, fees | pay the basic real or charges not paid on | property tax or any time AND ‘other tax levied under this Title, the taxpayer shall be subject to the | payment of interest at 2% per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid. But in no case shall the total interest | onthe unpaid ‘amount _or_ portion thereof exceed 36 months, Comers (ee) Tniereat nol exceeding 2% per month of the Umpald taxes, fees, or | charges including | surcharges uni such amounts fully pld but inno case shall the PAGE 53 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW total_interest_on the unpaid amount — or portion thereof exceed 36months. REAL PROPERTY TAXATION Whois liable to pay for real property taxes? AA: In real estate taxation, the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner, (National Grid Corporation of the Philippines vs. Central Board of Assessment Appeals (CTA EB No. 801, January 29, 2013) Is there an additional levy on real property besides real property taxes? A: Yes, on top of the real property tax rate, the province, city or Metro Manila municipality, may levy an annual tax of 1% of the assessed value for the Special Education Fund (SEF). (Sec. 235, LGC} Q: May a province, city, or a municipality within the Metropolitan Manila Area impose an additional levy on real property for the special ‘education fund at the rate of less than 1%? A: Yes. Section 235 of the Local Government Code provides that a province or city, or a municipality within the Metropolitan Manila Area, ‘may levy and collect an annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax. This section uses a permissive language, and is unqualified. There is likewise no limiting qualifier to the articulated rate of 1% which unequivocally indicates that any and all special education fund collections must be at such rate. Also, upholding the lower rate imposed by the local government Unit is consistent with the purpose of fiscal autonomy and with the —_jurisprudentially established preference for weighing the scales in favor of local autonomy. (Demaala v. Commission on Audit, G.R. No. 199752, February 17, 2015) Q: What are the properties exempt from RPT? (CLP-RW) a. All real property owned by duly registered Cooperatives b. Charitable institutions, churches, parsonages, (or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings or improvements actually, directly, and exclusively used for religious, charitable or educational purposes &. Machinery and equipment used for Pollution control and environmental protection (includes infrastructure) 4d. Real property owned by the Republic or any of its political subdivisions (except when beneficial use has been granted to a taxable person) fe. All machineries and equipment actually, directly and exclusively used by local Water districts and GOCCs engaged in supply and distribution of water and/or generation and transmission of electric power (Sec 234, LGC) Q: Is the Philippine Reclamation Authority (PRA) a GOCC and, as such, liabie for RPT? A: No. In Philippine Reclamation Authority v. City of Paranaque (G.R. No. 191109, July 18, 2012), the Supreme Court ruled that PRA is not a GOCC. Much like the MIAA, PPA, UP, PFDA, GSIS and BSP, itis considered a government instrumentality exercising corporate powers but which are not considered GOCCs as they are neither a stock (for not having the authority to distribute dividends), not a non-stock corporation (for not having members) corporation. In addition, the Constitution likewise provides that a GOCC is cteated under two conditions: (a) established for a common good and (b) meets the test of economic Viability. While the first testis complied with, the PRA was undoubtedly not created to engage in economic or commercial activities as itis the only entity engaged in reclamation which was described as essentially a public service. Thus, PRA\s not liable for RPT. PAGE 54 OF 58ATENEO CENTRAL BAR OPERATIONS 2018 TAXATION LAW @: ABC Company owned two parcels of land in Pasig City. Portions of the properties are leased to different business establishments. Being part of ill gotten wealth of the Marcoses, the owner of ABC voluntarily surrendered ABC Company to the Republic through the PCGG. Now, Pasig City seeks to impose RPT on the properties of ABC. Are the properties of ABC liable for RPT? A: It depends. In Pasig City v. Republic (G.R. No. 185023, August 24, 2071), the Supreme Court held that the portions of the properties not leased to taxable entities are exempt from RPT while the Portions leased to taxable entities are subject to RPT. Q: What are the remedies available to the LGU for the collection of RPT? A: 1. Administrative action thru levy of real property a. Distraint of personal property b. Lien on property subject to tax cc. Levy on real property tax 2. Judicial action (Sec. 256, LGC) Note:-The foregoing remedies are concurrent and simultaneous. (MERALCO v. Barlis, G.R. No. 114281, May 18, 2001) Q: Enumerate the proces: assessment. A: 1. Pay the tax under protest and annotation of “paid under protest in receipt 2. File written protest with local treasurer within 30 days from payment of the tax 3. Treasurer to decide within 60 days from receipt of the protest (Sec. 252, LGC) 4. From treasurer's decision or inaction, appeal to the LBAA within 60 days (Sec 226, LGC) 5. LBAA to decide within 120 days 6. Appeal LBAA decision to CBAA within 30 days from receipt of adverse decision 7. CBAA appealable to CTA en banc within 30 days from receipt of the adverse decision of the CBA 8. Appeal to SC within 15 days from receipt of adverse decision of CTA contesting a RPT Note: In (4), ifthe treasurer's decision is in favor of the taxpayer, he may now apply for a tax refund or tax credit Q: Is payment a pre-requisite to protest an assessment for RPT? ‘A: General rule: Yes. Section 262 of the LGC provides that no protest shall be entertained Unless the taxpayer first pays the tax. Exception: Prior payment under protest is applicable only if the issue is anchored on the correctness, reasonableness or excessiveness of assessment, all of which are considered questions of fact Prior payment under protest is not required when. the taxpayer is questioning the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax as opposed to questioning the increase/decrease in the tax to be paid. (Jardine Davies Insurance Brokers, Inc. v. Aliposa, GR No. 118900, February 27, 2003) Q: X, a registered cooperative, owned and leased agricultural land to Corp. Y, a corporation engaged in palm oil plantation, which also built roads on the same land. In Addition, Corp. Y was also using road ‘equipment and mini haulers. Is RPT due on the land, roads, and equipment? A: RPT is not due on the land and roads but RPT is due on the machineries. ‘The LGC is clear that all real property owned by registered cooperatives are exempt from RPT without distinction on its actual use. The roads built are also exempt from RPT since the same became permanent improvements on the exempt lands by right of accession, However, the equipment are deemed subject to RPT given that as an entity engaged in palm oi Plantation and which harvests trees for il Conversion through its miling plant, transportation is an indispensable part ofits operations. Thus, the same is deemed to satisfy the requirement of items that ‘are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity for the same to be covered by RPT under the definition of “machinery” in the LGC. (Provincial Assessor of Agusan del Sure v. Filipinas Palm Oil Plantation, Inc, G.R. No. 183416, October 05, 2016) PAGE 55 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW TARIFF AND CUSTOMS CODE Q: When does importation begin and when, does it end? ‘A: Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines, with intention to untoad therein, Importation is deemed terminated when: (a) The duties, taxes and other charges due upon the goods have been paid or secured to be paid, at the port of entry unless the goods are free from duties, taxes and other charges and legal permit for withdrawal has been granted; or (b)In case the goods are deemed free of duties, taxes and other charges, the goods have legally left the jurisdiction of the Bureau. (Sec. 103, CMTA) Q: Who has jurisdiction to hear and determine questions touching on the seizure and forfelture of dutiable goods? A: The CoC sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and, determine all questions touching on the seizure and forfeiture of dutiable goods. As held in Subic Bay Metropolitan Authority v. Rodriguez (G.R. No. 160270, April 23, 2010), the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and the Fegular courts cannot interfere with his exercise thereof or enjoin or interfere with it. The regular courts are precluded from assuming cognizance over such matters even through petitions for certiorari, prohibition, or mandamus. The RTC must defer to the exclusive original jurisdiction of the BOC in such proceedings. This is known as the doctrine of primary jurisdiction. Q: Are abandoned goods, property? A: No. As general rule, abandoned goods ARE NOT GOVERNMENT PROPERTY and the importer has the right: 1) To rectaim the goods atter payment of the duty and tax, and all other charges (and expenses) government 2) On the sales proceeds after the duty and tax, ‘and all other charges and expenses are deducted (Sec. 1129 and Sec. 1130, CMTA). : Where shall proceeds from public auction sales be deposited? All proceeds from public auction sales after deduction of the charges and expenses, and subject to the claim of the owner or importer of an impliedly abandoned goods, shall be deposited in an account to be known as Forfeiture Fund. (Sec 1151, CMTA). : Are De Minimis Importations subject to duties? : No duties and taxes shall be collected on goods with an FOB or FCA value of ten thousand pesos (P10,000.00) or below. The Secretary of Finance shall adjust the de minimis value as provided herein, every three (3) years after the effectivity of this Act. (See 423, CMTA) De Minimis Value ~ The value of goods for which no duty of tax is collected. Goods with De Minimis Value are considered importations of negligible amount and entilled lo immediate release. (Sec 3.2 CAO 02-2016). Q: A shipment of raw cane sugar arrived at the Port of lloilo. The Director of the Customs and Intelligence & Investigation Service (CIIS) issued an Alert Order on the shipment for lack of Clean Report Findings (CRF). A Warrant of Seizure and Detention (WSD) was recommended against the shipment for violation of Sec. 2530(f) of the Tariff and Customs Code [Sec. 1113(f) of the CMTA]. Does the mere lack of CRF constitute a violation of the Tariff and Customs Code? io. For there to be a violation of Sec. 2530(f) of the Tariff and Customs Code (Sec. 1113(f) of the CMTA\, it must be proven that fraud has been committed or there was bad faith on the part of the importericonsignee to evade payment of duties due and demandable. (Commissioner of v. New Frontier Sugar Corporation, G.R. No. 163055, June 11, 2014) May the BOC subject any shipment to automatic seizure without a warrant of seizure and detention (WSD). PAGE 56 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW A: No. A Warrant of Seizure and Detention (WSD) is a condition precedent, before any seizure proceeding can be formally initiated. (COC v. New Frontier Sugar Corporation, G.R. No. 163055, 2014) @: May an importer whose goods are seized ile an action in the regular courts for injunction and damages against the BOC to have his goods released? A: No. Primary jurisdiction is with the Collector of Customs. From the moment imported goods are actually in the possession or control of the Customs authorities, even if no warrant for seizure or detention had previously been issued by the Collector of Customs in connection with the seizure and forfeiture proceedings, the BOC acquires exclusive jurisdiction over such imported goods for the purpose of enforcing the customs laws, subject to appeal to the Court of Tax Appeals whose decisions are appealable to the Supreme Court. (SBMA v. Rodriguez, G.R. No. 160270, 2010) Q: After the lapse of 1-year from the date of final_payment of duties, as provided in the Tariffs and Customs Code of the Philippines, can the BOC still demand deficiency duties from the taxpayer? A: (DEL CASTILLO) NO, provided the taxpayer did not commit fraud in its dealings. The attendance of fraud would remove the case from the ambit of the slalute of limitations, and would consequently allow the government to exercise its power to assess and collect duties even beyond the 1-year prescriptive period. (Pilipinas Shell Petroleum Corporation v. Commissioner of Customs, G.R. No. 195876, June 19, 2017) @: Within what period must the Bureau of Customs claim deficiency customs duties? A: In the absence of fraud, the entry and corresponding payment of duties made by a taxpayer becomes final and conclusive upon all parties after one (1) year from the date of the payment of duties in accordance with Sec, 1603 of the TCP. (Pilipinas Shell Petroleum Corporation v. Commissioner of Customs, G.R. No. 195876, December 05, 2016) Special Discussion on the case of CIR v. San Roque; Taganito Mining Corporation v. CIR; Philex Mining Corporation v. CIR (GR. Nos. 187485, 196113, 197156; February 12, 2013) BACKGROUND * Decided under the 1997 NIRC, as amended © Applied Section 112(A) as the period to file administrative claim ‘© Applied Section 112(C) as the period to file judicial claim SAN ROQUE DOCTRINES 1. The Atlas doctrine does not interpret, expressly or impliedly, the 120+30 day periods. ‘* In fact, Section 106(b) of the Tax Code of 1977, as amended, which was the law cited by the Court as the applicable law did not yet provide for the 30-day period for the taxpayer to appeal to the CTA from the decision or inaction of the CIR + Thus, the Atlas doctrine cannot be invoked by anyone to disregard ‘compliance with the 30-day mandatory and jurisdictional period 2. Upheld the Mirant doctrine — verba legis approach ‘+ The two-year prescriptive period for filing ‘an administrative claim should be counted from the “close of the taxable quarter when the sales were made" as expressly stated in the law, which means the last day of the taxable quarter. + The taxpayer may apply with the ‘Commissioner for a refund or credit “within 2 years”, which means at anytime within two years. + Upheld the Aichi doctrine + Compliance with the 120+30 day period is mandatory and jurisdictional + Failure to comply with the 120-day waiting period violates the doctrine of exhaustion of administrative remedies and renders a petition for review filed with the CTA premature and without cause of action with the effect that CTA does not acquire jurisdiction over the taxpayer's petition 3. The law does not make the 120+30 day periods optional just because the law uses the word “may”. The word “may” simply PAGE 57 OF 58ATENEO CENTRAL BAR OPERATIONS 2019 TAXATION LAW means that the taxpayer may or may not appeal the decision of the CIR within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period. 4. BIR Ruling No. DA-489-03 (December 10, 2003) + “Taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.” ‘+ Exception to the 120 days mandatory waiting period + Only allowed premature filing of a judicial claim (i.e. non-exhaustion of the 4120 day period for the CIR to act on the administrative claim) + It does not allow late filing of a judicial claim (ie. fled after the lapse of the 30- ay period following the expiration of the 120-day period) 5, All taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by the Supreme Court in Aichi on October 6, 2010, where this Court held that the 120430 day periods are mandatory and jurisdictional. 6. On the period to file administrative claims * Applied Mirent and Aichi doctrines prospectively 7. On the period to file judicial claims + Strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before, during or after the effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on Dec. 10, 2003 to Oct. 6, 2010 when the Aichi doctrine was adopted which again reinstated the 120+30 day periods as mandatory and jurisdictional ore] Before June 8, 2007 Verba Legis | | Rue: 2-year | period should be | counted from the close of taxable quarter when the sales were made From, To Atlas Doctrine — June 8,| September | 2-year period 2007 11, 2008 should be counted from the date of fling of the retum and payment of the output VAT Mirant Doctrine = Verba Legis Rule: 2-year | | period should be | Sounted trom the | close of taxable | auarter when the | | sales wore made | After September 17, 2008 rr) ry Doctrine Before December 10, | 120+30-day period | 2003 is mandatory and jurisdictional I From To BIR Ruling No. DA- | | | December | October |489-03: 120+20. | 10,2003 | 6,2010 | day period merely | permissive not | jurisdictional | ‘ier Oaaber6, 2010 | Aichi Doctine ——] | 120+30-day period | | is mandatory and | | jurisdictional PAGE 58 OF 58