University of Santo Tomas Faculty of Civil Law
TAXATION LAW Pre-week Notes 2017 ACADEMICS COMMITTEE SECRETARY GENERAL: CAMILLE ANGELICA B. GONZALES EXECUTIVE COMMITTEE: EMNIE VALERIE B. DURAN, IRVIN L. PALANCA, MARIELLA A. MARASIGAN , LARA NICOLE T. GONZALES
T AXATION L AW COMMITTEE COMMITTEE HEAD: DARDECS N. VILLANUEVA SUBJECT HEADS: JOYCE ANN MENDOZA AND LARA NICOLE T. GONZALES MEMBERS : CLEA CONSTANTINA FERNANDEZ, KARMELA KATE SALVADOR, STEPHANIE RUBI, KRISTIAN FABON, REALYN CANCINO , ELAINE CARINGAL
ATTY . AL CONRAD B. ESPALDON ADVISER
UST LAW PRE-WEEK LAW PRE-WEEK NOTES 2017 a. Are the reclaimed properties registered in the name of LLL subject to real property tax? b. Will your answer be the same in (a) if from 2010 to the present time, LLL is leasing portions of the reclaimed properties for the establishment and use of popular fast-food restaurants J Burgers, G Pizza, and K Chicken? (2015 BAR)
QUESTIONS WITH THE SAME TOPIC ASKED IN 2015 AND 2016 BAR EXAMINATIONS E XAMINATIONS a. Explain the procedure for claiming refunds or tax credits of input VAT for zero-rated or effectively zero-rated sales under Sec. 112 of the Tax Code from the filing of an application with the CIR up to the CTA. b. Explain the procedure for claiming refunds of tax erroneously or illegally collected under Sec. 229 of the Tax Code from the filing of the claim for refunds with the CIR up to the CTA. (2016 BAR)
a.
In order to be entitled to a refund/tax credit of excess input VAT attribute to zero-rated or effectively zerorated sales, the following requisites must be complied with: 1.
2.
3.
4.
The claim for refund must be filed with the Commissioner within 2 years counted from the last day of the quarter when the zero-rated sale was made (Sec 112, NIRC); The claim for refund must be accompanied by a statement under oath that all documents to support the claim has been submitted at the time of filing of the claim for refund (RMC 54-14); The Commissioner must decide on the claim within 120 days from date filing and the adverse decision is appealable to the CTA within 30 days from receipt (Sec. 112, NIRC; CIR v. Aichi Forging of Asia, Inc., 632 SCRA 442 [2010]); If no decision is made within the 120 days period, there is a deemed denial or adverse decision which is appealable to the CTA within 30 days from the lapse of the 120 days period (Sec. 112, NIRC; Sec. 7(a)(1), RA 1125 as amended by RA 9282).
Alternative Answer
NO. LLL is an instrumentality of the national government which cannot be taxed by local government units. LLL is not a GOCC taxable for real property taxes (City of LapuLapu v. PEZA, GR No. 184203, November 26, 2014). 2014) . b.
The procedure for claiming refunds of tax erroneously or illegally collected are the following: 1.
2.
3.
The reclaimed properties are not subject to real property tax because LLL is a government instrumentality. Under the law, real property owned by the Republic of the Philippines is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person (Sec. ( Sec. 234, LGC ). ). When the title of the real property is transferred to LLL, the Republic remains the owner of the real property. Thus, such arrangement does not result in the loss of the tax exemption. (Republic of the Philippines, represented by The Philippine Reclamation Authority v. City of Paranaque, 677 SCRA 246 [2012]).
NO. As a rule, properties owned by the Republic of the Philippines are exempt from real property tax except when beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. When LLL leased out portions of the reclaimed properties to taxable entities, such as popular fast food restaurants, the reclaimed properties are subject to real property tax (Sec. 234(a), LGC; GSIS v. City Treasurer and City Assessor of the City of Manila, 2009). 2009).
Differentiate between double taxation in the strict sense and in a broad sense and give an example of each (2015 BAR).
A written claim for refund must be filed with the Commissioner within two years from date of payment of the tax (Sec. 204, NIRC); A decision of the Commissioner denying the claim, is appealable to the CTA within 30 days from receipt thereof or within two years from date of payment, whichever comes first (Sec. 229, NIRC; Sec 7(a)(1), RA 1125 as amended by RA 9282); If no decision is made by the Commissioner, the aggrieved taxpayer must consider the inaction as a denial and appeal to the CTA must be filed before the lapse of two years counted from date of payment (Sec. 229, NIRC).
Double taxation in the strict sense (direct duplicate taxation) pertains to the direct double taxation. This means that the taxpayer is taxed twice by the same taxing authority, within the same taxing jurisdiction, for the same property and for the same purpose . Example: Imposition of final withholding tax on cash dividends and requiring the taxpayer to declare this taxpaid income in his income tax returns. On the other hand, double taxation in the broad sense pertains to indirect double taxation. This extends to all cases in which there is a burden of two or more impositions. It is a double taxation other than those covered by direct double taxation (CIR v. Solidbank Corp, 436 SCRA 416 [2003]). [2003]). Example: Subjecting the interest income of banks on their deposits with other banks to the 5% gross receipt tax (GRT) despite of the same income having been subjected to 20% final withholding tax (FWT), is only a case of indirect double taxation. The GRT is a tax on the privilege of engaging in business while the FWT is a tax on privilege of earning income. (CIR v. Bank of Commerce, 459 SCRA 638 [2005]). [2005]) .
LLL is a government instrumentality created by Executive Order to be primarily responsible for integrating and directing all reclamation projects for the National Government. It was not organized as a stock or a non-stock corporation, nor was it intended to operate commercially and compete in the private market. By virtue of its mandate, LLL reclaimed several portions of the foreshore and offshore areas of the Manila Bay, some of which were within the territorial jurisdiction of Q City. Certificates of title to the reclaimed properties in Q City were issued in the name of LLL in 2008. In 2014, Q City issued Warrants of Levy on said reclaimed properties of LLL based on the assessment for delinquent property taxes for the years 2010 to 2013.
What are de minimis benefits and how are these taxed? Give three (3) examples of de minimis benefits. (2015 BAR)
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UST LAW PRE-WEEK LAW PRE-WEEK NOTES 2017 a. Are the reclaimed properties registered in the name of LLL subject to real property tax? b. Will your answer be the same in (a) if from 2010 to the present time, LLL is leasing portions of the reclaimed properties for the establishment and use of popular fast-food restaurants J Burgers, G Pizza, and K Chicken? (2015 BAR)
QUESTIONS WITH THE SAME TOPIC ASKED IN 2015 AND 2016 BAR EXAMINATIONS E XAMINATIONS a. Explain the procedure for claiming refunds or tax credits of input VAT for zero-rated or effectively zero-rated sales under Sec. 112 of the Tax Code from the filing of an application with the CIR up to the CTA. b. Explain the procedure for claiming refunds of tax erroneously or illegally collected under Sec. 229 of the Tax Code from the filing of the claim for refunds with the CIR up to the CTA. (2016 BAR)
a.
In order to be entitled to a refund/tax credit of excess input VAT attribute to zero-rated or effectively zerorated sales, the following requisites must be complied with: 1.
2.
3.
4.
The claim for refund must be filed with the Commissioner within 2 years counted from the last day of the quarter when the zero-rated sale was made (Sec 112, NIRC); The claim for refund must be accompanied by a statement under oath that all documents to support the claim has been submitted at the time of filing of the claim for refund (RMC 54-14); The Commissioner must decide on the claim within 120 days from date filing and the adverse decision is appealable to the CTA within 30 days from receipt (Sec. 112, NIRC; CIR v. Aichi Forging of Asia, Inc., 632 SCRA 442 [2010]); If no decision is made within the 120 days period, there is a deemed denial or adverse decision which is appealable to the CTA within 30 days from the lapse of the 120 days period (Sec. 112, NIRC; Sec. 7(a)(1), RA 1125 as amended by RA 9282).
Alternative Answer
NO. LLL is an instrumentality of the national government which cannot be taxed by local government units. LLL is not a GOCC taxable for real property taxes (City of LapuLapu v. PEZA, GR No. 184203, November 26, 2014). 2014) . b.
The procedure for claiming refunds of tax erroneously or illegally collected are the following: 1.
2.
3.
The reclaimed properties are not subject to real property tax because LLL is a government instrumentality. Under the law, real property owned by the Republic of the Philippines is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person (Sec. ( Sec. 234, LGC ). ). When the title of the real property is transferred to LLL, the Republic remains the owner of the real property. Thus, such arrangement does not result in the loss of the tax exemption. (Republic of the Philippines, represented by The Philippine Reclamation Authority v. City of Paranaque, 677 SCRA 246 [2012]).
NO. As a rule, properties owned by the Republic of the Philippines are exempt from real property tax except when beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. When LLL leased out portions of the reclaimed properties to taxable entities, such as popular fast food restaurants, the reclaimed properties are subject to real property tax (Sec. 234(a), LGC; GSIS v. City Treasurer and City Assessor of the City of Manila, 2009). 2009).
Differentiate between double taxation in the strict sense and in a broad sense and give an example of each (2015 BAR).
A written claim for refund must be filed with the Commissioner within two years from date of payment of the tax (Sec. 204, NIRC); A decision of the Commissioner denying the claim, is appealable to the CTA within 30 days from receipt thereof or within two years from date of payment, whichever comes first (Sec. 229, NIRC; Sec 7(a)(1), RA 1125 as amended by RA 9282); If no decision is made by the Commissioner, the aggrieved taxpayer must consider the inaction as a denial and appeal to the CTA must be filed before the lapse of two years counted from date of payment (Sec. 229, NIRC).
Double taxation in the strict sense (direct duplicate taxation) pertains to the direct double taxation. This means that the taxpayer is taxed twice by the same taxing authority, within the same taxing jurisdiction, for the same property and for the same purpose . Example: Imposition of final withholding tax on cash dividends and requiring the taxpayer to declare this taxpaid income in his income tax returns. On the other hand, double taxation in the broad sense pertains to indirect double taxation. This extends to all cases in which there is a burden of two or more impositions. It is a double taxation other than those covered by direct double taxation (CIR v. Solidbank Corp, 436 SCRA 416 [2003]). [2003]). Example: Subjecting the interest income of banks on their deposits with other banks to the 5% gross receipt tax (GRT) despite of the same income having been subjected to 20% final withholding tax (FWT), is only a case of indirect double taxation. The GRT is a tax on the privilege of engaging in business while the FWT is a tax on privilege of earning income. (CIR v. Bank of Commerce, 459 SCRA 638 [2005]). [2005]) .
LLL is a government instrumentality created by Executive Order to be primarily responsible for integrating and directing all reclamation projects for the National Government. It was not organized as a stock or a non-stock corporation, nor was it intended to operate commercially and compete in the private market. By virtue of its mandate, LLL reclaimed several portions of the foreshore and offshore areas of the Manila Bay, some of which were within the territorial jurisdiction of Q City. Certificates of title to the reclaimed properties in Q City were issued in the name of LLL in 2008. In 2014, Q City issued Warrants of Levy on said reclaimed properties of LLL based on the assessment for delinquent property taxes for the years 2010 to 2013.
What are de minimis benefits and how are these taxed? Give three (3) examples of de minimis benefits. (2015 BAR)
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TAXATION LAW De minimis benefits are facilities and privileges furnished or offered by an employer to his employees, which are not considered compensation subject to income tax and consequently to withholding tax, if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as means of promoting the health, goodwill, contentment, or efficiency of his employees. If received by rank-and-file employees, they are exempt from income tax on wages, if received by supervisory or managerial employees, they are exempt from the fringe benefit tax (RR ( RR No. 2-98, as amended by RR No. 8-2000). 8-2000).
the City Assessors amounting to P2,500,000 because it is higher than the FMV determined by the CIR (Sec. 102 in relation to Sec. 88(B), NIRC).
Briefly explain the following doctrines: lifeblood doctrine; necessity theory; benefits received principle; and, doctrine of symbiotic relationship. (2016 BAR)
The following shall be considered as de minimis benefits:
The following doctrines, explained:
1. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year; 2. Monetized value of vacation and sick leave credits paid to government officials and employees; 3. Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; 4. Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to not more than P1,500; 5. Uniform and clothing allowance not exceeding P5,000 per annum; 6. Actual medical assistance not exceeding P10,000 per annum; 7. Laundry allowance not exceeding P300 per month; 8. Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10, 000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; 9. Gifts given during Christmas and major anniversary celebrations not exceeding P5, 000 per employee per annum; 10.Daily 10. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis; 11.Benefits 11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total annual monetary value received from both CBA and productivity schemes combined do not exceed P10, 000 per employee per taxable year.
PART I: GENERAL PRINCIPLES OF TAXATION
Lifeblood doctrine doctrine - Without revenue raised from taxation, the government will not survive, resulting in detriment society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it (CIR v. Algue, Inc. 158 SCRA 9 [1988]). Necessity theory - The exercise of the power to tax emanates from necessity, because without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people (CIR v. Bank of Philippine Islands, 521 SCRA 373 [2007]). Benefits received principle principle - Taxpayers receive benefits from taxes through the protection the state affords to them. For the protection they get arises their obligation to support the government through payment of taxes (CIR v. Algue, Inc. 158 SCRA 9 [1988]). Doctrine of symbiotic relationship relationship - Taxation arises because of the reciprocal relation of protection and support between the state and taxpayers. The state gives protection and for it to continue giving protection, it must be supported by the taxpayers in the form of taxes (CIR v. Algue, Inc. 158 SCRA 9 [1988]).
Explain the principles of a sound tax system. (2015 BAR) The principles of a sound tax system are the foll owing: a. Fiscal adequacy which means that the sources of revenue should be sufficient to meet the demands of public expenditures; b. Equality or theoretical justice which justice which means that the tax burden should be proportionate to the t axpayer’s axpayer’s ability to pay (this is the so-called ability to pay principle); and c. Administrative feasibility which which means that the tax law should be capable of convenience, just and effective administration.
Mr. L owned several parcels of land and he donated a parcel each to his two children. Mr. L acquired both parcels of land in 1975 for P200, 000.00. At the time of donation, the fair market value of the two parcels of land, as determined by the CIR, was P2, 300, 000.00; while the fair market value of the same properties as shown in the schedule of values prepared by the City Assessors was P2, 500, 000.00. What is the proper valuation of Mr. L's gifts to his children for purposes of computing donor's tax? (2015 BAR)
May legislative bodies enact laws to raise revenues in the absence of constitutional provisions granting said body the power of tax? Explain. (2005 BAR) YES. The constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the government, but instead merely constitute a limitation upon a power which would otherwise be practically without limit.
The valuation of Mr. L’s gift to his children is the fair market value (FMV) of the property at the time of donation. The FMV is the higher of the FMV as determined by the Commissioner or the FMV as shown in the schedule of values fixed by the provincial or city assessors. In this case, for the purpose of computing donor’s tax, the proper valuation is the value prepared by
Moreover, it is inherent in nature, being an attribute of sovereignty. There is, thus, no need for a constitutional grant for the State to exercise this power.
The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted to non-stock, non-profit educational institutions such that the
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UST LAW PRE-WEEK LAW PRE-WEEK NOTES 2017 revenues and income they derived from their assets, or from any of their activities conducted for profit, are taxable even if these revenues and income are used for educational purposes. Is he correct?
Lucky is HSC and not Rainier. It issued an assessment for deficiency income tax in the amount of P79 million against Lucky. Lucky argues that it resorted to tax avoidance or a tax saving device, which is allowed by the NIRC and BIR rules since it paid the correct taxes based on its sale to Rainier. R ainier. On the other hand, Rainier and HSC also paid the prescribed taxes arising from the sale by Rainier to HSC. Is the BIR correct in assessing taxes on Lucky? Explain. (2016 BAR)
NO. The income, revenues and assets of non-stock, nonprofit educational institutions proved to have been used, directly and exclusively for educational purposes are exempt from duties and taxes. Under Article XIV, Section 4 (3) 1 of the 1987 Constitution, it refers to two kinds of educational institutions: (1) nonstock, non-profit educational institutions and (2) proprietary educational institutions. There is a marked distinction between the treatment of two kinds of institutions. The tax exemption granted to non-stock, non-profit educational institutions is conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes. While tax exemptions may also be granted to proprietary educational institutions, these exemptions may be subject to limitations imposed by Congress.
YES. The sale of the property by Lucky to Rainer and consequently the sale by Rainer to HSC being prompted more on the mitigation of tax liabilities than fo r legitimate business purposes, therefore, constitutes tax evasion. The real buyer from Lucky is HSC as evidenced by the direct receipt of payments by the former from the latter where the latter recorded “other investments – Lucky Building.” The scheme of resorting to a two-step transaction in selling the property to the ultimate buyer in order to escape paying higher taxes is considered as outside of those lawful means allowed in mitigating tax liabilities which makes Lucky criminally and civilly liable. Hence, the BIR is correct in assessing taxes on Lucky (CIR v. Estate of Benigno P. Toda, Jr., 438 SCRA 290 [2004]).
Further, a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30, a proprietary educational institution is covered by Section 27. Section 30 provides that exempt organizations shall not be taxed on income received by them a s such. Section 27 (B), on the other hand, states that a proprietary educational institution is entitled only to th e reduced rate of 10% corporate income tax. The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit and (2) its gross income from unrelated trade, business or activity does not exceed 50% of its total gross income. Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to non-stock, non-profit educational institutions.
May the collection of taxes be barred by prescription? (2001 BAR) YES. The collection of taxes may be barred by prescription. The prescriptive periods for collection of taxes are governed by the tax law imposing the tax. However, if the tax law does not provide for prescription, the right of the government to collect taxes becomes imprescriptible. Distinguish a direct from an indirect tax. Give examples (1994, 2000, 2001, 2006 BAR).
Thus, the Court ruled that the last paragraph 2 of Section 30 of the Tax Code is without force and effect for being contrary to the Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational institutions used, directly and exclusively for educational purpose (CIR vs. De La Salle University, G.R. No. 196596, November 9, 2016, J. Brion).
Direct taxes are demanded from the very person who, as intended, should pay the tax which he cannot shift to another. Income tax, estate and donor's tax are considered as direct taxes. Indirect taxes, on the other hand, are demanded in the first instance from one person with the expectation that he can shift the burden to someone else, not as a tax but as a part of the purchase price. Value-added tax, excise tax, other percentage taxes are indirect taxes.
Lucky V Corporation (Lucky) owns a 10-storey building on a 2,000-square meter lot in the City of Makati. It sold the lot and building to Rainier for P80 million. One month after, Rainier sold the lot and building to Healthy Smoke Company (HSC) for P200 million. Lucky filed its annual tax return and decl ared its gain from the sale of the lot and building in the amount of P750, 000.00.
How to determine if a tax is direct or indirect It is direct taxes when the impact or liability for the payment of tax as well as incidence or burden of tax falls on the same person. On the other hand, it is indirect taxes when the impact or liability for the payment of tax falls on one person but the incidence or burden thereof can be shifted or passed to another.
An investigation investig ation conducted conduc ted by b y the BIR revealed that two months prior to the sale of the properties to Rainier, Lucky received P40 million from HSC and n ot from Rainier. Said amount of P40 million was debited by HSC and reflected in its trial balance as "other inv. - Lucky Bldg." The month after, another P40 million was reflected in HSC's trial balance as "other inv. Lucky Bldg." The BIR concluded that there is tax evasion since the real buyer of the properties of
NOTE: In indirect taxation, a distinction is made between the liability for the tax and burden of the tax: The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the seller's liability but merely the burden of the VAT (Diaz v.
1 All revenues and assets of non-stock, non-profit educational institutions used, directly, and exclusively for educational purposes shall be exempt from taxes and duties . Xxx Proprietary educational institutions, institutions, including those cooperatively owned, may
2 Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income shall be subject to tax imposed under this Code. (emphasis supplied)
likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment. (emphasis supplied)
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TAXATION LAW 142 of the Tax Code. Is there double taxation in prohibited sense when excise specific tax is imposed on stemmed leaf tobacco and again on the finished product of which stemmed leaf tobacco is a raw material?
The Secretary of Finance, G.R. No. 193007, July 19, 2011) . Where the burden of the tax is shifted to the purchaser, the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased, which constitutes a part of the purchase price. (Silkair v. CIR, G.R. No. 166482, January 25, 2012).
NONE. In this case, there is no double taxation in the prohibited sense despite the fact that they are paying the specific tax on the raw material and on the finished product in which the raw material was a part, because the specific tax is imposed by explicit provisions of the NIRC on two different articles or products: (1) on the stemmed leaf tobacco; and (2) on cigar or cigarette (La Suerte Cigar & Cigarette Factory v. CA, G.R. No. 125346, November 11, 2014).
DOUBLE TAXATION Explain the concept of double taxation. (2016 BAR) Double taxation occurs when the same subject or object of taxation is taxed twice when it should be taxed but once. Double taxation is prohibited when it is an imposition of taxes on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, with the same kind or character of a tax (84 C.J.S. 131-132). It is permissible if taxes are of different nature or character, or the two taxes are imposed by different taxing authorities (Villanueva v. City of Iloilo, 26 SCRA 578 [1968]).
EXEMPTION FROM TAX Why are tax exemptions strictly construed against the taxpayer? (1996 BAR) Tax exemptions are strictly construed against the taxpayer because such provisions are highly disfavored and may almost be said to be odious to the law (Manila Electric Company vs. Vera, 67 SCRA351). The exception contained in the tax statutes must be strictly construed against the one claiming the exemption because the law does not look with favor on tax exemptions they being contrary to the life-blood theory which is the underlying basis for taxes.
The City of Manila assessed and collected taxes from taxpayers pursuant to Sec. 15 (Tax on Wholesalers, Distributors, or Dealers) and Sec. 17 (Tax on Retailers) of the Revenue Code of Manila (Ordinance No. 7794). At the same time, the City of Manila imposed additional taxes upon the taxpayers pursuant to Sec. 21 of the Revenue Code of Manila, which imposes tax on a person who sold goods and services in the course of trade or business based on a certain percentage of his gross sales or receipts in the preceding calendar year, as a condition for the renewal of their respective business licenses for the year 1999. Is there double taxation?
As an incentive for investors, a law was passed giving newly established companies in certain economic zone exemption from all taxes, duties, fees, imposts and other charges for a period of three years. ABC Corp. was organized and was granted such incentive. In the course of business, ABC Corp. purchased mechanical equipment from XYZ Inc. Normally, the sale is subject to a sales tax. XYZ Inc. claims, however, that since it sold the equipment to ABC Corp. which is tax exempt, XYZ should not be liable to pay the sales tax. Is this claim tenable? (2004 BAR)
YES. All the elements of double taxation concurred upon the City of Manila’s assessment on and collection from the petitioners of taxes pursuant to Sec. 21 of the Revenue Code of Manila. Firstly, because Sec. 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and services in the course of trade or business based on a certain percentage of his gross sales or receipts in the preceding calendar year, while Sec. 15 an d Sec. 17 likewise imposed the tax on a person who sold goods and services in the course of trade or business but only identified such person with particularity, namely, the wholesaler, distributor or dealer (Sec. 15), and the retailer (Sec. 17), all the taxes — being imposed on the privilege of doing business in the City of Manila in order to make the taxpayers contribute to the city’s revenues — were imposed on the same subject matter and for the same purpose. Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the same jurisdiction in the same taxing period (i.e., per calendar year). Thirdly, the taxes were all in the nature of local business taxes.
NO. Exemption from taxes is personal in nature and covers only taxes for which the taxpayer-grantee is directly liable. The sales tax is a tax on the seller who is not exempt from taxes. Since XYZ Inc. is directly liable for the sales tax and no tax exemption privilege is ever given to him, therefore, its claim that the sale is tax exempt is not tenable. A tax exemption is construed in strictissimi Juris and it cannot be permitted to exist upon vague implications (Asiatic Petroleum Co., Ltd. V. Llanes, 49 Phil 466 [1926]). Philippine National Railways (PNR) operates the rail transport of passengers and goods by providing train stations and freight customer facilities from Tutuban, Manila to the Bicol Province. As the operator of the railroad transit, PNR administers the land, improvements and equipment within its main station in Tutuban, Manila.
In fine, the imposition of the tax under Section 21 constituted double taxation, and the taxes collected pursuant thereto must be refunded (Nursery Care Corporation v. Acevedo, 731 SCRA 280, G.R. No. 180651, July 30, 2014, J. Bersamin).
Invoking Section 193 of the Local Government Code (LGC) expressly withdrawing the tax exemption privileges of government-owned and controlled corporations upon the effectivity of the C ode in 1992, the City Government of Manila issued Final Notices of Real Estate Tax Deficiency in the amount of P624, 000, 000.00 for the taxable years 2006 to 2010. On the other hand, PNR, seeking refuge under the
Under the Sin Tax Law, stemmed leaf tobacco, a partially prepared tobacco, is subject to an excise tax for each kilo thereof. On the other hand, cigars and cigarettes, of which stemmed leaf tobacco is a raw material, are also subjected to specific tax under Sec.
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UST LAW PRE-WEEK NOTES 2017 principle that the government cannot tax itself, insisted that the PNR lands and buildings are owned by the Republic.
corporate income tax (PAGCOR vs. BIR, GR No. 172087, March 15, 2011, J. Peralta).
PAGCOR argues that the withdrawal of its exemption from corporate income tax has the effect of changing the main consideration and inducement for the transactions of private parties with it; thus, the amendatory provision is violative of the nonimpairment clause of the Constitution. Is PAGCOR’s contention tenable?
Is the PNR exempt from real property tax? Explain your answer. (2016 BAR) YES. The exercise of the taxing power of LGUs is subject to the limitations enumerated in Sec. 133 of the LGC. Under Sec. 133(o)3 of the LGC, LGUs have no power to tax instrumentalities of the national government like the PNR. Thus, PNR is not liable to pay real property tax except those portions which are leased to private persons or entities. Moreover, the properties of PNR are owned by the Republic of the Philippines and thus exempt f rom real property tax (Sec. 234, LGC).
NO. As regards franchises, Section 11, Article XII of the Constitution provides that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.
What is the taxable treatment of Government-Owned and Controlled Corporations (GOCC)?
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines. Under Section 11, Article XII of the Constitution, PAGCORs franchise is subject to amendment, alteration or repeal by Congress such as th e amendment under Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of R.A. N o. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR from corporate income tax, which may affect any benefits to PAGCORs transactions with private parties, is not violative of the non-impairment clause of the Constitution (PAGCOR vs. BIR, GR No. 172087, March 15, 2011, J. Peralta).
GOCCs perform proprietary functions; hence they are subject to taxation. However, certain corporations have been granted exemption under the Tax Code of 1997, as amended, to wit: 1. 2. 3. 4.
Government Service Insurance System (GSIS) Social Security System (SSS) Philippine Health Insurance Corporation (PHIC) Philippine Charity Sweepstakes Office (PCSO)
PAGCOR was created on January 1, 1977 and its charter provides for the exemption from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross revenue.
In view of the withdrawal of its tax privilege, is PAGCOR’s income tax liability applicable to all types of its income?
On January 1, 1998, Tax Code of 1997 took effect. It provides, among others, that GOCCs shall pay corporate income tax, except PAGCOR, GSIS, SSS, PHIC and PCSO. Subsequently, the law was amended to exclude PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax.
NO. PAGCOR’s income is classified into two: (1) income from its operations conducted under its Franchise (income from gaming operations); and (2) income from its operation of necessary and related services (income from other related services).
Consequently, PAGCOR assails the amendment for being unconstitutional, as it is violative of its right to equal protection of the laws under Section 1, Article III of the Constitution. Is PAGCOR’s contention tenable?
Under its charter, P.D. 1869, PAGCOR is subject to income tax only with respect to its income from other related services, while income from gaming operations is subject to the five percent (5%) franchise tax only (PAGCOR vs. BIR, GR No. 215427, December 10, 2014, J. Peralta).
NO. PAGCOR cannot find support in the equal protection clause of the Constitution. The exemption of PAGCOR from paying corporate income tax was not based on a classification showing substantial distinctions which make for real differences, but the exemption was granted upon the request of PAGCOR that it be exempt from the payment of corporate income tax. A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of corporate income tax was due to the acquiescence of the Committee on Ways on Means to the request of PAGCOR that it be exempt from such tax.
On 8 April 2009, PAGCOR granted to Bloomberry Resorts and Hotels, Inc. a license to establish and operate an integrated resort and casino complex at the Entertainment City, project site of PAGCOR. Thus, being one of its licensees, Bloomberry only pays PAGCOR license fees, in lieu of all taxes, consistent with the PAGCOR Charter (P.D. No. 1869) providing for the exemption from taxes of persons or entities contracting with PAGCOR in casino operations. However, when the Tax Code was amended to exclude PAGCOR from the enumeration of GOCCs exempt from paying corporate income tax, BIR issued RMC No. 33-2013, which is being assailed by Bloomberry as invalid, stating among others that
With the amendment of the Tax Code, PAGCOR has been excluded from the enumeration of GOCCs that are e xempt from paying corporate income tax. It is the legislative intent that PAGCOR be subject to the payment of 3 “SEC. 133. Common Limitations on the Taxing Powers of Local
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.” (Emphasis supplied)
Government Units. — Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx
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TAXATION LAW PAGCOR's contractees and licensees are subject to income tax under the Tax Code.
In a citizen’s suit, the interest of the petitioner assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that the law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained of (Francisco, Jr. v. Nagmamalasakit na mga Manananggol ng mga Manggagawang Pilipino, Inc., 415 SCRA 44, G.R. No. 160262, November 10, 2003).
Is the assailed RMC subjecting the contractees and licensees of PAGCOR to income tax valid considering that PAGCOR Charter grants tax exemptions to such contractees and licensees? NO. Section 13 of the PAGCOR Charter states that payment of the 5% franchise tax by PAGCOR and its contractees and licensees exempts them from payment of any other taxes, including corporate income tax. Said provision was neither amended nor repealed by any subsequent laws (i.e. Section 1 of R.A. No. 9337); hence, it is still in effect.
PART II: NATIONAL TAXATION
Thus, like PAGCOR, its contractees and licensees remain exempted from the payment of corporate income tax and other taxes. As the PAGCOR Charter states in unequivocal terms that exemptions granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the PAGCOR or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted, so it must be that all contractees and licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos.
INCOME TAXATION What is the concept of “income from whatever source”? Under Sec. 32 (A) of the NIRC, gross income means all income derived from whatever source. It includes all income not expressly excluded or exempted from the class of taxable income, irrespective of the voluntary or involuntary action of the taxpayer in producing the income. Therefore, the source is immaterial – whether derived from illegal, legal, or immoral sources, it is taxable.
Sure Arrival Airways (SAA) is a foreign corporation, organized under the laws of the Republic of Nigeria. Its commercial airplanes do not operate within Philippine territory, or service passengers embarking from Philippine airports. The firm is represented in the Philippines by its general agent, Narotel. SAA sells airplane tickets through Narotel, and these tickets are serviced by SAA airplanes outside the Philippines. The total sales of airplane tickets transacted by Narotel for SAA in 2012 amounted to P10, 000, 000.00. The Commissioner of Internal Revenue (CIR) assessed SAA deficiency income taxes at the rate of 30% on its taxable income, finding that SAA's airline ticket sales constituted income derived from sources within the Philippines.
However, the contractees and licensees, like PAGCOR, shall be liable for corporate income tax for income derived from "other related services" (Bloomberry Resorts and Hotels, Inc. vs. BIR, G.R. No. 212530, August 10, 2016, J. Perez).
TAXPAYER’S SUIT What is a taxpayer’s suit? It is a case where the act complained of directly involves the illegal disbursement of public funds collected through taxation.
What are the requisites of a taxp ayer’s suit?
SAA filed a protest on the ground that the alleged deficiency income taxes should be considered as income derived exclusively from sources outside the Philippines since SAA only serviced passengers outside Philippine territory. It, thus, asserted that the imposition of such income taxes violated the principle of territoriality in taxation. Is the theory of SAA tenable? Explain. (2016 BAR)
1. Public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and 2. The petitioner is directly affected by the alleged act.
NOTE: A taxpayer’s suit would fail if what are alleged to be illegally disposed of are object which were acquired from private sources (Joya, et al. v. PCGG, et al., G.R. No. 96541, August 24, 1993).
NO. The activity which gives rise to the income is the sale of ticket in the Philippines, hence, the income from sale of tickets is an income derived from Philippines sources which is subject to the Philippine income tax. Accordingly, there is no violation of the principle of territoriality in taxation (Air Canada v. CIR, 778 SCRA 131, [2016]).
Distinguish taxpayer’s suit from a citizen’s suit In the case of a taxpayer’s suit, plaintiff is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law
What is Tax Benefit Rule or Equitable Doctrine of Tax Benefit? It is a principle that if a taxpayer recovers a loss or expense that was deducted in a previous year, the recovery must
6
UST LAW PRE-WEEK NOTES 2017 be included in the current year's gross income to the extent that it was previously deducted.
Filipinos under the Dual Citizenship Law so that they will be encouraged to come home and invest their money in our country.
What are the instances where tax benefit rule applies?
Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing match held in 2013, he won prize money in United States (US) dollars equivalent to P300, 000, 000.
1. Recovery of bad debts – The recovery of bad debts previously allowed as deduction in the preceding year or years shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction.
a. b.
If the taxpayer did not benefit from deduction of the bad debt written-off because it did not result in any reduction of his income tax in the year of such deduction as in the case where the result of the taxpayer’s business operation was a net loss even without deduction of the bad debts written-off, his subsequent recovery thereof shall be treated as a mere recovery or a return of capital, hence, not treated as receipt of realized taxable income.
c.
a.
2. Receipt of tax refunds or credit – If a taxpayer receives tax credit certificate or refund for erroneously paid tax which was claimed as a deduction from his gross income that resulted in a lower net taxable income or a higher net operating loss that was carried over to the succeeding taxable year, he realizes taxable income that must be included in his income tax return in the year of receipt.
b.
The foregoing principle does not apply to tax credits or refunds of the following taxes since these are not deductible from gross income: a. b. c. d.
Income tax; Estate tax; Donor’s tax; and Special assessments.
c.
Patrick is a successful businessman in the United States and he is a sole proprietor of a supermarket which has gross sales of $10 million and an annual income of $3 million. He went to the Philippines on a visit and, in a party, he saw Atty. Agaton who boasts of being a tax expert. Patrick asks Atty. Agaton: if he (Patrick) decides to reacquire his Philippine citizenship under RA 9225, establish residence in this country, and open a supermarket in Makati City, will the BIR tax him on the income he earns from his U.S. business? If you were Atty. Agaton, what advice will you give Patrick? (2016 BAR)
Is the prize money paid to and received by Mr. A in the US taxable in the Philippines? Why? May Mr. A's prize money qualify as an exclusion from his gross income? Why? The US already imposed and withheld income taxes from Mr. A's prize money. How may Mr. A use or apply the income taxes he paid on his prize money to the US when he computes his income tax liability in the Philippines for 2013? (2015 BAR) YES. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines (Sec. 23 A, NIRC). Mr. A, being a resident citizen, is taxable on the prize he received in United States. NO. All prizes and awards granted to athletes in local and international sports competitions and tournaments, whether held in the Philippines or abroad, and sanctioned by their national sports associations are excluded from gross income. The exclusion find application only to amateur athletes where the prize was given in an event sanctioned by the appropriate national sports association affiliated with the Philippine Olympic Committee and not to professional athletes like Mr. A. Therefore, the prize money would not qualify as an exclusion from Mr. A’s gross income (Sec. 32 B [7] [d], NIRC). Mr. A has the option to claim foreign income tax either as a deduction from gross income or as a tax credit. The option of Mr. A is mutually exclusive. If the option of Mr. A is a deduction from gross income, the income tax on his prize money imposed in US is included among the itemized deductions of the taxpayer. If Mr. A signifies in his return his desire to avail of the tax credit, he will be allowed a credit on his tax due an amount equivalent to the income tax paid or incurred in US during the taxable year but not to exceed the limitation prescribed by law (Sec. 34 [C][1][b], NIRC).
BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In June 2015, its Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholders?
I will advise Patrick that once he re-acquires his Philippine citizenship and establishes his residence in this country, his income tax classification would then be a ‘resident citizen’. A res ident citizen is taxable on all his income, whether derived within or without the Philippines; accordingly, the income he earns from his business abroad will now be subject to the Philippine income tax (Sec. 23, NIRC).
a. A resident citizen b. Non-resident alien engaged in trade or business c. Non-resident alien not engaged in trade or business d. Domestic corporation e. Non-resident foreign corporation (2015 BAR)
Alternative Answer If Patrick becomes a dual citizen under RA 9225 in our country, he shall be allowed to acquire real properties and engage himself in business here just like an o rdinary Filipino without renouncing his foreign citizenship. In addition, his income abroad will not be taxed here. These are among the incentives we have extended to former
a.
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A final withholding tax of 10% shall be imposed upon cash dividends actually or constructively received by a resident citizen from BBB, Inc. [Sec. 24(b)(2), NIRC].
TAXATION LAW b.
c.
d.
e.
A final withholding tax of 20% shall be imposed upon cash dividends actually or constructively received by a non-resident alien engaged in trade or business from BBB, Inc [Sec. 24(a)(2), NIRC]. A final withholding tax equal to 25% of the entire income received from all sources within the Philippines, including the cash dividends received from BBB, Inc [Sec. 25(b), NIRC]. Dividends received by a domestic corporation from another domestic corporation, such as BBB, Inc., shall not be subject to tax [Sec. 27(d)(4), NIRC]. Dividends received by a non-resident foreign corporation from a domestic corporation are generally subject to an income tax of 30% to be withheld at source [Sec. 28 (b)(1), NIRC]. However, a final withholding tax of 15% is imposed on the amount of cash dividends received from a domestic corporation like BBB, Inc. if the tax sparing rule applies [Sec. 28(B)(5)(b), NIRC]. Pursuant to this rule, the lower rate of tax would apply if the country in which the non-resident foreign corporation is domiciled would allow as a tax credit against the tax due from it, taxes deemed paid in the Philippines of 15% representing the difference between the regular income tax rate and the preferential rate.
than the regular corporate income tax o the corporation (Sec. 27(A) and (E), NIRC; RR No. 998).
Methods of Accounting Distinguish cash method from accrual method of accounting. In cash method , income is recognized only upon actual or constructive receipt of cash payments or property but no deductions are allowed from the cash income unless actually disbursed through an actual or constructive payment in cash or property. Meanwhile, in accrual method , income is recognized in the period it is earned, regardless of whether it has been received or not. In the same manner, expenses are accounted for in the period they are incurred and not in the period they are paid (Domondon, 2013). Amounts of income accrue where the right to receive them become fixed, where there is created an enforceable liability. Similarly, liabilities are accrued when fixed and determinable in amount, without regard to indeterminacy merely of time of payment (CIR v. Isabela Cultural Corp., G.R. No. 172231, 2007).
KKK Corp. secured its Certificate of Incorporation from the Securities and Exchange Commission on June 3, 2013. It commenced business operations on August 12, 2013. In April 2014, Ms. J, an employee of KKK Corp. in charge of preparing the annual income tax return of the corporation for 2013, got confused on whether she should prepare payment for the regular corporate income tax or the minimum corporate income tax.
Does the law provide for specific method of accounting to be employed by the taxpayer? As a general rule, the law does not provide for a specific method of accounting to be employed by the taxpayer. The law only authorizes the CIR to employ particular method of accounting of income where: a. The taxpayer does not employ a method for computing income, or b. The taxpayer’s method for accounting does not clearly reflect the income (Domondon, 2015, citing Sec. 43 of Tax Code).
a. As Ms. J's supervisor, what will be your advice? b. What are the distinctions between regular corporate income tax and minimum corporate income tax (MCIT)? (2015 BAR) a.
b.
Isabela Cultural Corporation (ICC) incurred professional fees for legal and auditing services that pertain to the 1984 and 1985. ICC did not claim deductions for said expenses in 1984 and 1985 since the cost of the services was not yet determinable at that time. It claimed deductions only in 1986 when ICC received the billing statements for said services. BIR, however, contends that since ICC is using the accrual method of accounting, the expenses for the professional services that accrued in 1984 and 1985, should have been declared as deductions from income during the said years and the failure of ICC to do so bars it from claiming said expenses as deduction for the taxable year 1986. Decide.
As Ms. J’s supervisor, I will advise that KKK Corp. should prepare payment for the regular corporate income tax and not the MCIT. Under the Tax Code, MCIT is only applicable beginning the 4th taxable year following the commencement of business operation [Sec. 27(e)(1), NIRC]. The distinctions between regular corporate income tax and the minimum corporate income tax are the following: 1. As to taxpayer: Regular corporate income tax applies to all corporate taxpayers while minimum corporate income tax applies to domestic corporations and resident foreign corporations. 2. As to tax rate: Regular corporate income tax is 30% while minimum corporate income tax is 2%. 3. As to tax base: Regular corporate income tax is based on the net taxable income while minimum corporate income tax is based on gross income. 4. As to period of applicability: Regular corporate income tax is applicable once the corporation commenced its business operation, while minimum corporate income tax is applicable beginning on the 4th taxable year following the commencement of business operations. 5. As to imposition: The minimum corporate income tax is imposed whenever it is greater
The expenses should have been claimed as deductions in 1984 and1985. For a taxpayer using the accrual method, the accrual of income and expense is permitted when the all-events test has been met. The all-events test requires the right to income or liability be fixed, and the amount of such income or liability be determined with reasonable accuracy. However, the test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. The amount of liability does not have to be determined exactly; it must be determined with "reasonable accuracy."
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UST LAW PRE-WEEK NOTES 2017 The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably be expected to have known, at the closing of its books for the taxable year. From the nature of the claimed deductions and the span of time during which the firm was retained, ICC can be expected to have reasonably known the retainer fees charged by the firm as well as the compensation for its legal services. The failure to determine the exact amount of the expense during the taxable year when they could have been claimed as deductions cannot thus be attributed solely to the delayed billing of these liabilities by the firm. For one, ICC, in the exercise of due diligence could have inquired into the amount of their obligation to the firm, especially so that it is using the accrual method of accounting. For another, it could have reasonably determined the amount of legal and retainer fees owing to its familiarity with the rates charged by their long time legal consultant (CIR v. Isabela Cultural Corp., G.R. No. 172231, 2007).
corporation which are not traded in the stock exchange (NIRC, Sec. 24 [C]):
Not over ₱100K …..……………….………..……5% On any amount in excess of ₱100K ……10% 2. From Sale of Real Properties / Land and/or Buildings in the Philippines4 – capital gain derived is subject to 6% capital gains tax based on the gross selling price or current fair market value, whichever is higher . No loss is recognized because gain is presumed. Gains from sale to the government of real property classified as capital asset: The taxpayer has the option to either: a. Include as part of gross income subject allowable deductions and personal exemptions, then subject to the schedular tax (not available to a corporate taxpayer); or b. Subject to final tax of 6% on capital gains ( Sec. 24 [D], NIRC ).
Income from Dealings in Property Distinguish “capital asset” from “ordinary asset .” (2003 BAR)
3. From Sale of Other Capital Assets – the rules on capital gains and losses apply in the determination of the amount to be included in gross income subject to the graduated rates of 5 - 32% for individuals and the normal corporate income tax of 30% for corporations, and not subject to capital gains tax.
Ordinary assets refer to properties held by the taxpayer used in connection with his trade or business which includes the following: [SOUR] a. Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; b. Property held by the taxpayer primarily for sale to customers in the Ordinary course of trade or business; c. Property Used in the trade or business of a character which is subject to the allowance for depreciation provided in the NIRC; and d. Real property used in trade or business of the taxpayer.
State with reason the tax treatment of the following in the preparation of annual income tax returns: Income realized from sale of: a. b.
Capital assets; and Ordinary assets. (2005 BAR)
a.
Generally, income realized from the sale of capital assets are not reported in the income tax return as they are already subject to final taxes (capital gains tax on real property and shares of stocks not traded 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 tax. Income realized from sale of ordinary assets is part of Gross Income, included in the Income Tax Return (NIRC, Sec. 32 A [3]).
Capital assets, on the other hand, include property held by the taxpayer (whether or not co nnected with his trade or business) other than ordinary assets [SOUR] above.
What is the difference between capital gains and ordinary gains? (1995 BAR) Capital gains are gains realized from the sale or exchange of capital assets, while ordinary gains refer to gains realized from the sale or disposition of ordinary assets.
b.
Discuss the tax treatment of capital gains and losses.
NOTE: Ordinary assets and capital assets are subject to different rules. There are special rules that apply only to capital transactions, to wit:
1. Capital gains from Sale of Stocks of Corporations
1. 2. 3.
a. Stocks Traded in the Stock Exchange – subject to stock transaction tax of ½ of 1% on its gross selling price (Percentage Tax). b. Stocks Not Traded in the Stock Exchange – subject to Capital Gains Tax.
Holding period rule Capital loss limitation Net capital loss carry-over (NELCO)
What is Holding Period Rule? Where the taxpayer held the capital asset sold for more than 12 months, the gain derived therefrom is taxable only to the extent of 50%. Consequently, if the taxpayer held the capital asset sold for a year or less, the whole gain shall be taxable. The same also applies to capital loss.
The holding period notwithstanding, a final tax at the rates prescribed below is imposed upon the net capital gains realized during the taxable year from the sale, barter or exchange or other disposition of shares of stock in a domestic 4 The Tax Code speaks of real property with respect to individual taxpayers, estate and trust but only speaks of land a nd/or building with respect to domestic corporations.
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TAXATION LAW It is a form of tax avoidance since the taxpayer can exploit it in order to reduce his tax due (NIRC, Sec. 39 [B]).
As to who can avail
Only individual taxpayers can avail of the holding period rule. It is not allowed to corporations.
As to period of carry-over
NOTE: Holding period does not find application in the case of disposition of: 1. 2.
shares of stock, and real property considered as capital asset, whether the seller is an individual, trust, estate or a private corporation.
Losses from sale or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges [NIRC, Sec. 39 (C)].
As to nature
Thus, capital loss is deductible only to the extent of capital gain. The taxpayer can only deduct capital loss from capital gain. If there is no capital gain, then no deduction is allowed because you cannot deduct capital loss from ordinary gain.
As to kind of tax As to rate
Where the capital loss limitation rule will NOT apply:
b. c.
d.
Can be availed of by individual and corporate taxpayer Allows carryover of operating loss in 3 succeeding taxable years or in case of mining companies 5 years
As to tax implication, distinguish shares of stocks not listed and traded through stock exchange from those listed and traded through stock exchange. (2008, 2011 BAR)
What is Capital Loss Limitation Rule?
a.
Can be availed of by individual taxpayer only May be carried over only in the next succeeding taxable year
If a bank or trust company incorporated under the laws of the Philippines, a substantial part of whose business is the receipt of deposits, sells any bond, debenture, note or certificate or other evidence of indebtedness issued by any corporation, with interest coupons or in registered form, any losses resulting from such sale shall not be subject to the above limitations and shall not be included in determining the applicability of such limitation to other losses (NIRC, Sec. 39 [C]).
As to tax base
NOT listed and traded Income
Listed and traded Business
Capital gains tax Not over ₱ 100,000 = 5% In excess of ₱ 100,000 = 10% Net capital gain
Percentage tax ½ of 1%
Gross selling price
What is the tax treatment on sale or disposition of real property located in the Philippines treated as capital asset? A final tax of 6% shall be imposed based on the higher amount between:
What is Net Loss Carry Over (NELCO) rule?
1. The gross selling price; or 2. Whichever is higher between the current fair market value as determined by: 3. a. Zonal Value – prescribed zonal value of real properties as determined by the CIR; or b. Assessed Value – the fair market value as shown in the schedule of values of the Provincial and City assessors (NIRC, Sec. 24 D [1]).
If any taxpayer, other than a corporation, sustains in any taxable year a net capital loss, such loss (in an amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for not more than 12 months (NIRC, Sec. 39 [D]). Rules with regard to NELCO:
NOTE: Actual gain or loss is immaterial since there is a conclusive presumption of gain. Also, the above rule shall apply only to domestic corporations, since foreign corporations (RFC and NRFC) cannot own properties in the Philippines.
1. NELCO is allowed only to individuals, including estates and trusts. 2. The net loss carry-over shall not exceed the net income for the year sustained and is deductible only for the succeeding year. 3. The capital assets must not be real property or stocks listed and traded in the stock exchange. 4. Capital asset must be held for not more than 12 months.
What if the real property, which is a capital asset, is not located in the Philippines? Gains realized from the sale, exchange or other disposition of real property, not located in the Philippines by resident citizens or domestic corporations shall be subject to ordinary income taxation (RR 7-2003, Sec. 4. [F]) but subject to foreign tax credits.
Distinguish NELCO from Net Operating Loss Carry Over (NOLCO) BASIS As to source
NELCO Arises from capital transactions meaning involving capital asset
NOLCO Arises from ordinary transactions meaning involving ordinary asset
Such income may be exempt in case of non-resident citizens, alien individuals and foreign corporations (RR 7 2003, Sec. 4. [F]).
Hopeful Corporation obtained a loan from Generous Bank and executed a mortgage on its real property to
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UST LAW PRE-WEEK NOTES 2017 secure the loan. When Hopeful Corporation failed to pay the loan, Generous Bank extrajudicially foreclosed the mortgage on the property and acquired the same as the highest bidder. A month after the foreclosure, Hopeful Corporation exercised its right of redemption and was able to redeem the property. Is Generous Bank liable to pay capital gain s tax as a result of the foreclosure sale? Explain. (2014 BAR)
Distinguish "Exclusion from Gross Income" from "Deductions from Gross Income." Give an example of each. (2001 BAR) Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income, for purposes of c omputing the taxpayer’s taxable income, due to the following reasons: (1) It is exempted by the fundamental law; (2) I t is exempted by statute; and (3) It does not come within t he definition of income (Sec. 61, RR No. 2).
NO. In a foreclosure of a real estate mortgage, the capital gains tax accrues only after the lapse of the redemption period because it is only then that there exists a transfer of property. Thus, if the right to redeem the foreclosed property was exercised by the mortgagor before the expiration of the redemption period, as in this case, the foreclosure is not a taxable event (See RR No. 4-99; Supreme Transliner, Inc. v. BPI Family Savings Bank, Inc. G.R. No. 165617, February 25, 2011).
Deductions from gross income, on the other hand, are th e amounts, which the law allows to be deducted from gross income in order to arrive at net income. Exclusions pertain to the computation of gross income, while deductions pertain to the computation of net income.
What is principal residence?
Exclusions are something received or earned by the taxpayer which do not form part of gross income while deductions are something spent or paid in earning gross income.
Principal residence refers to the dwelling house, including the land on which it is situated, where the individual and members of his family reside, and whenever absent, the said individual intends to return. Actual occupancy is not considered interrupted or abandoned by reason of temporary absence due to travel or studies or work abroad or such other similar circumstances (RR No. 14-00).
Example of an exclusion from gross income is proceeds of life insurance received by the beneficiary upon the death of the insured which is not an income or 13th month pay of an employee not exceeding P30, 000 (now at P82, 000) which is an income not recognized for tax purposes. Example of a deduction is business rental.
Is sale of principal residence by an individual subject to capital gains tax? (2015 BAR)
Deductions from Gross Income
A sale of principal residence by an individual is exempt from capital gains tax provided the following requisites are present:
To be entitled to claim a tax deduction, the taxpayer must competently establish the factual and documentary bases of its claim. (H. Tambunting Pawnshop vs. CIR, G.R. No. 173373, July 29, 2013, J. Bersamin).
1. Sale or disposition of the old actual principal residence; 2. By a citizen or resident alien; 3. Proceeds from which is fully utilized in acquiring or constructing a new principal residence within 18 calendar months from the date of sale o r disposition; 4. Notify the CIR within 30 days from the date of sale or disposition through a prescribed return of his intention to avail the tax exemption; 5. Can be availed of once every 10 years; 6. The historical cost or adjusted basis of his old principal residence shall be carried over to the cost basis of his new principal residence; 7. If there is no full utilization, the portion of the gains presumed to have been realized shall be subject to capital gains tax; and 8. The 6% capital gains tax due shall be deposited with an authorized agent bank subject to release upon certification by the RDO that the proceeds of the sale have been utilized (R.R. No. 14-00).
What is the “Matching Concept ” of deductibility? This posits that the deductions must, as a general rule, “match” the income, i.e. helped earn the income (Domondon, 2013). Ordinary and necessary expenses must have been paid or incurred during the taxable year for it to be deductible from gross income. Further, the deduction shall be taken for the taxable year in which 'paid or accrued' or 'paid or incurred.' Otherwise, the expenses are barred as deductions in subsequent years (CIR v. Isabela Cultural Corporation, G.R. No. 172231, February 12, 2007).
Distinguish Allowable Deductions from Personal Exemptions. Give an example of an allowable deduction and another example for personal exemption. (2001 BAR) The distinction between allowable deductions and personal exemptions are as follows:
If the taxpayer constructed a new residence and then sold his old house, is the transaction subject t o capital gains tax?
a. As to amount — Allowable deductions generally refer to actual expenses incurred in the pursuit of trade, business or practice of profession while personal exemptions are arbitrary amounts allowed by law. b. As to nature — Allowable deductions constitute business expenses while personal exemptions pertain to personal expenses. c. As to purpose — Deductions are allowed to enable the taxpayer to recoup his cost of doing business while
YES. Exemption from capital gains tax does not find application since the law is clear that the proceeds should be used in acquiring or constructing a new principal residence. Thus, the old residence should first be sold before acquiring or constructing the new residence. Exclusions from Gross Income
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TAXATION LAW personal exemptions are allowed to cover personal, family and living expenses. d. As to claimants — Allowable deductions can be claimed by all taxpayers, corporate or otherwise, while personal exemptions can be claimed only by individual taxpayers.
d.
Tambunting did not discharge its burden of substantiating its claim for deductions due to the inadequacy of its documentary support of its claim. Its reliance on withholding tax returns, cash vouchers, lessor’s certifications, and the contracts of lease was futile because such documents had scant probative value. The law required Tambunting to support its claim for deductions with the corresponding official receipts issued by the service providers concerned.
Tambunting was assessed for deficiency income tax as a result of disallowance of deductions from gross income on the ground that Tambunting had not substantiated them by sufficient evidence. Tambunting argues against the assessment that: 1.
2.
It had been able to point out the provisions of law authorizing the deductions, and that the provisions of Section 34 (A)(1)(b) of the 1997 Tax Code, governing the types of evidence to prove a claim for deduction of expenses, were applicable because the law took effect during the pendency of the case in the CTA; It proved its entitlement to the deductions through all the documentary and testimonial evidence presented in court, namely: a) Loss on auction sales - subasta books and rematado; b) Business expenses - withholding tax returns, cash vouchers, lessor’s certifications, and the contracts of lease; c) Loss due to fire and theft - certification from the Bureau of Fire Protection, the certification from the Police Station, accounting entry for the losses, and list of properties lost.
c) Loss due to fire and theft - The documents submitted to support the claim were not enough. What were required were for Tambunting to submit the sworn declaration of loss mandated by RR 12-77. Its failure to do so was prejudicial to the claim because the sworn declaration of loss was necessary to forewarn the BIR that it had suffered a loss whose extent it would be claiming as a deduction of its tax liability, and thus enable the BIR to conduct its own investigation of the incident leading to the loss. Indeed, the documents Tambunting submitted to the BIR could not serve the purpose of their submission without the sworn declaration of loss (H. Tambunting Pawnshop vs. CIR, G.R. No. 173373, July 29, 2013, J. Bersamin).
Congress issued a law allowing a 20% discount on the purchases of senior citizens from, among others, recreation centers. This 20% discount can then be used by the sellers as a "tax credit." At the initiative of BIR, however, RA No. 9257 was enacted amending the treatment of the 20% discount as a "tax deduction." Equity Cinema filed a petition with the RTC claiming that RA 9257 is unconstitutional as it forcibly deprives sellers a part of the price without just compensation.
Rule on the above contentions by Tambunting. The contentions of Tambunting are without merit. First, the provisions of the 1997 Tax Code are not applicable because the transactions involved occurred prior to its effectivity. Instead, what governs is the provisions of P.D. 1158 or the 1977 Tax Code.
a. What is the effect of converting the 20% discount from a "tax credit" to a "tax deduction"? b. If you are the judge, how will you decide the case? Briefly explain your answer. (2016 BAR)
Second, tax deductions, being in the nature of tax exemptions, are to be construed in strictissimi juris against the taxpayer. Corollary to this rule is the principle that when a taxpayer claims a deduction, he must point to some specific provision of the statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the law allows. In this case, Tambunting failed to substantiate the deductions with sufficient evidence.
a. The effect of converting the 20% discount from a “tax credit” to a tax deduction” is that the tax benefit enjoyed by sellers of goods and services to senior citizens is effectively reduced. A tax credit reduces the tax liability while a tax deduction merely reduces the tax base. Under the tax credit scheme, the establishments are paid back 100% of the discount they give to senior citizens while under the tax deduction scheme, they are only paid back about 32% of the 20% discount granted to senior citizens.
a) Loss on auction sales - The subasta books were not the proper evidence of such losses from the auctions because they did not reflect the true amounts of the proceeds of the auctions due to certain items having been left unsold after the auctions. The rematado books did not also prove the amounts of capital because the figures reflected therein were only the amounts given to the pawnees.
b. I will decide in favor of the constitutionality of the law. The 20% discount as well as the deduction scheme is a valid exercise of the police power of the State (Manila Memorial Park Inc. v. Department of Social Welfare and Development, 711 SCRA 302 [2013]).
b) Business expenses - The requisites for the deductibility of ordinary and necessary trade or business expenses, like those paid for security and janitorial services, management and professional fees, and rental expenses, are that: a. b. c.
they must be supported by receipts, records or other pertinent papers.
Freezy Corporation, a domestic corporation engaged in the manufacture and sale of ice cream, made payments to an officer of Frosty Corporation, a competitor in the ice cream business, in exchange for said officer’s revelation of Frosty Corporation’s trade secrets. May Freezy Corporation claim the payment to the officer as deduction from its gross income? Explain. (2014 BAR)
the expenses must be ordinary and necessary; they must have been paid or incurred during the taxable year; they must have been paid or incurred in carrying on the trade or business of the taxpayer; and
12
UST LAW PRE-WEEK NOTES 2017 NO. Payments made in exchange for the revelation of a competit or’s trade secrets is considered as an expense which is against law, morals, good customs or public policy, which is not deductible (3M Philippines, Inc. v. CIR, G.R. No. 82833, September 26, 1988).
such ceilings prescribed by rules and regulations, are allowed as deduction from gross income. In this case, the expenses incurred were to entertain the investors of Golden Dragon; thus, the amount deductible for entertainment, amusements and recreation expenses is limited to the actual amount of paid or incurred but in no case shall the deduction exceed 0.50% of net sales for taxpayers engaged in the sale of goods or properties (Sec. 34(A)(1)(a)(iv), NIRC as implemented by RR No. 10-2002).
Also, the law will not allow the deduction of bribes, kickbacks and other similar payments. Applying the principle of ejusdem generis, payment made by Freezy Corporation would fall under “other similar payments” which are not allowed as deduction from gross income [Section 34(A)(1)(c), NIRC].
Henry, a U.S. naturalized citizen, went home to the Philippines to reacquire Philippine citizenship under RA 9225. His mother left him a lot and building in Makati City and he wants to make use of it in his trading business. Considering that he needs money for the business, he wants to sell his lot and building and make use of the consideration. However, the lot has sentimental value and he wants to reacquire it in the future. A friend of Henry told him of the "saleleaseback transaction" commonly used in the U.S., which is also used for tax reduction. Under said transaction, the lot owner sells his property to a buyer on the condition that he leases it back from the buyer. At the same time, the property owner is granted an option to repurchase the lot on or before an agreed date. Henry approaches you as a tax lawyer for advice.
Rakham operates the lending company that made a loan to Alfonso in the amount of P120, 000.00 subject of a promissory note which is due within one (1) ye ar from the note's issuance. Three years after the loan became due and upon information that Alfonso is nowhere to be found, Rakham asks you for advice on how to treat the obligation as "bad debt." Discuss the requisites for deductibility of a "bad debt?" (2016 BAR) I will advise Rakham that that the obligation of Alfonso may now be considered as bad debts for having met the yardstick of a debt which had become worthless. In order to be considered worthless, the taxpayers should establish that during the year from which a deduction is sought, a situation developed as a result of which it became evident the exercise of sound, o bjective business judgement that there remained no practical, but only vaguely theoretical prospect that the debt would ever be paid (Collector of Internal Revenue v. Goodrich International Rubber Co., 21 SCRA 1336 [1967]). A bad debt deductible if it complies with the following requisites:
Explain what tax benefits, if any, can be obtained by Henry and the buyer from the sale-leaseback transaction? (2016 BAR) Henry will be entitled to claim rental expense as a deduction from his gross income in the trading business. His lease payments plus interest would be substantially higher than the depreciation expense he may claim in computing his taxable income; hence, the lease would result in the additional benefit of increasing his additional tax deductions. The buyer will be deriving rental income from the property and be able to claim business deductions such as real property taxes, repairs and maintenance, depreciation and other expenses necessary for the renting out of the property.
a. There must be a valid and subsisting debt. b. The obligation is connected with the taxpayer’s trade or business and is not between related parties. c. There is an actual ascertainment that the debt is worthless. d. The debt is charged-off during the taxable year. A partial write-off is not allowed (PRC v. CA, 256 SCRA 667[1996]).
In 2012, Dr. K decided to return to his hometown to start his own practice. At the end of 2012, Dr. K found that he earned gross professional income in the amount of P1, 000, 000.00; while he incurred expenses amounting to P560, 000.00 constituting mostly of his office space rent, utilities, and miscellaneous expenses related to his medical practice. However, to Dr. K’s dismay, only P320, 000.00 of his expenses were duly covered by rec eipts. What are the options available for Dr. K so he could maximize the deductions from his gross income? (2015 BAR)
Peter is the Vice-President for Sales of Golden Dragon Realty Conglomerate, Inc. (Golden Dragon). A group of five (5) foreign investors visited the country for possible investment in the condominium units and subdivision lots of Golden Dragon. After a tour of the properties for sale, the investors were wined and dined by Peter at the posh Conrad's Hotel at the cost of P150, 000.00. Afterward, the investors were brought to a party in a videoke club which cost the company P200, 000.00 for food and drinks, and the amount of P80, 000.00 as tips for business p romotion officers. Expenses at Conrad's Hotel and the videoke club were receipted and submitted to support the deduction for representation and entertainment expenses. Decide if all the representation and entertainment expenses claimed by Golden Dragon are deductible. Explain. (2016 BAR)
Dr. K may opt to use the optional standard deduction (OSD) in lieu of the itemized deduction. OSD is a maximum of forty percent (40%) of gross receipts during the taxable year. Proof of actual expenses is not required, but Dr. K shall keep such records pertaining to his gross receipts.
Reasonable allowance for entertainment, amusement, and recreation expenses during the taxable year that are directly connected or related to the operation or conduct of the trade, business or profession, or that are directly related to or in furtherance of the conduct of his/her trade, business, or exercise of a profession not to exceed
Personal and Additional Deductions Mr. E and Ms. F are both employees of AAA Corp. They got married on February 14, 2011. On December 29, 2011, the couple gave birth to triplets. On June 25,
13
TAXATION LAW 2013, they had twins. What were the personal exemptions/deductions which Mr. E and Ms. F could claim in the following taxable years:
10-2008 implementing the provisions of R.A. 9504. Decide the following:
a. b. c.
a.
For 2010 For 2011 For 2013? (2015 BAR)
b. c.
a. For 2010, Mr. E and Ms. F are each entitled to personal exemptions of P50, 000 [Sec. 35(A), NIRC].
d. b. For 2011, Mr. E and Ms. F are each entitled to basic personal exemptions of P50, 000. In addition, Mr. E could claim additional exemptions for three (3) qualified dependent children in the amount of P25, 000 for each child [Sec. 35(B), NIRC]. c. For 2012, Mr. E and Ms. F are each entitled to basic personal exemptions of P50, 000. In addition, Mr. E. could claim additional exemptions for four (4) qualified dependent children in the amount of P25, 000 for each child [Sec. 35(B), NIRC].
a.
On 17 June 2008, R.A. 9504 was approved and signed into law. The law increased the basic personal exemption from P20, 000 for a single individual, P25, 000 for the head of the family, and P32, 000 for a married individual to P50, 000 for each individual. It also increased the additional exemption for each dependent not exceeding four from P8, 000 to P25, 000. Are the increased personal and additional exemptions applicable to the entire taxable year 2008 or prorated, considering that R.A. 9504 took effect only on 6 July 2008?
Whether an MWE is exempt for the entire t axable year 2008 or from 6 July 2008 only; Whether an MWE who becomes non-MWE during the year still qualifies for the exemption; Whether they are entitled to basic personal exemption; Whether Sections 1 and 3 of RR 10-2008 are consistent with the law in providing that an MWE who receives other benefits in excess of the statutory limit of P30, 000 (Now at P82, 000) is no longer entitled to the exemption provided by R.A. 9504. The MWE is exempt for the entire taxable year 2008. As it stands, the calendar year 2008 remained as one taxable year for an individual taxpayer. Therefore, RR 10-2008 cannot declare the income earned by a minimum wage earner from 1 January 2008 to 5 July 2008 to be taxable and those earned by him for the rest of that year to be tax-exempt. To do so would be to contradict the NIRC and jurisprudence, as taxable income would then cease to be determined on a yearly basis.
NOTE: The above ruling that the MWE exemption is available for the entire taxable year 2008 is premised on the fact of one's status as an MWE during the entire year of 2008.
The increased personal and additional exemptions should be applied to the entire taxable year 2008. Nothing expressly provides or even suggests a prorated application of the exemptions for taxable year 2008. Thus, t here’s no reason to make any distinction between the income earned prior to the effectivity of the amendment (from 1 January 2008 to 5 July 2008) and that earned thereafter (from 6 July 2008 to 31 December 2008) as none is indicated in the law. The principle that the courts should not distinguish when the law itself do es not distinguish squarely applies to this case. Moreover, the legislative policy of full taxable year treatment of the personal and additional exemptions has been in our jurisdiction as established, not by the amendments introduced by R.A. 9504, but by the provisions of Section 35 the 1997 NIRC. Said provision does not allow the prorating of the personal and additional exemptions even in case a status-changing event occurs during the taxable year. Rather, it allows the taxpayer the maximum exemptions that can be availed, notwithstanding the fact that the latter's actual status would qualify only for a lower exemption if prorating were employed (Soriano v. Secretary of Finance, G.R. Nos. 184450, 184508, 184538 & 185234, January 24, 2017).
b.
When the wages received exceed the minimum wage anytime during the taxable year, the employee loses the MWE qualification. Therefore, wages become taxable as the employee ceased to be an MWE. But the exemption of the employee from tax on the income previously earned as an MWE remains. The improvement of one's wage cannot justly operate to make the employee liable for tax on the income earned as an MWE.
c.
One who ceases to be an MWE is still entitled to the personal and additional exemptions. The MWE exemption is separate and distinct from the personal and additional exemptions. One's status as an MWE does not preclude enjoyment of the personal and additional exemptions. Thus, when one is an MWE during a part of the year and later earns higher than the minimum wage and becomes a non-MWE, only earnings for that period when one is a non-MWE is subject to tax. It also necessarily follows that such an employee is entitled to the personal and additional exemptions that any individual taxpayer with taxable gross income is entitled.
d. Sections 1 and 3 of RR 10-2008 add a requirement not found in the law by effectively declaring that an MWE who receives other benefits in excess of the statutory limit of P30,000 is no longer entitled to the exemption provided by R.A. 9504.
Minimum Wage Earners R.A. 9504 was approved and took effect on 6 July 2008. The law granted MWEs exemption from payment of income tax on their minimum wage, holiday pay, overtime pay, night shift differential pay and hazard. On 24 September 2008, the BIR issued RR
R.A. 9504 is explicit as to the coverage of the exemption: the wages that are not in excess of the minimum wage as determined by the wage boards, including the corresponding holiday, overtime, night
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UST LAW PRE-WEEK NOTES 2017 differential and hazard pays. The minimum wage exempted by R.A. 9504 is distinct and different from other payments including allowances, honoraria, commissions, allowances or benefits that an employer may pay or provide an employee.
1.
The treatment of bonuses and other benefits that an employee receives from the employer in excess of t he P30, 000 (now at P82, 000) is taxable. The treatment of this excess cannot operate to disenfranchise the MWE from enjoying the exemption explicitly granted by R.A. 9504 (Soriano v. Secretary of Finance, G.R. Nos. 184450, 184508, 184538 & 185234, January 24, 2017)
3.
2.
Once the foregoing requirements are met, the taxpayer is deemed to have discharged the burden of proving its claim for refund or issuance of tax credit certificate (Republic v. Team (Phils.) Energy Corp., G.R. No. 188016, January 14, 2015, J. Bersamin).
Corporate taxpayer’s options in case of excess quarterly income taxes paid
What are the mechanisms and remedies that a taxpayer may opt to exercise in case the sum of the quarterly tax payments made during the said taxable year exceeds the total tax due on the entire taxable income of that year?
What Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely needed. This simply underscores the rule that any document, other than quarterly ITRs may be used to establish that indeed the non-carry over clause has been complied with, provided that such is competent, relevant and part of the records (Winebrenner & Inigo Insurance Brokers, Inc. vs. CIR, G.R. No. 206526, January 28, 2015, J. Mendoza).
The taxpayer shall either: a.
b.
That the claim for refund was filed within the twoyear reglementary period pursuant to Section 229 of the NIRC; When it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income; and When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount.
Carry-over the excess credit against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years; or be credited or refunded with the excess amount paid (Sec 76, NIRC).
In its 1997 ITR, PM Management International Inc. expressly signified that it had a CWT of P1.2M for taxable year 1997 to be claimed as tax credit in taxable year 1998. However, due to its net-loss position in 1998, the taxpayer was unable to claim the P1.2M as tax credit.
NOTE: The above options are alternative and not cumulative in nature, that is, the choice of one precludes the other. The carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The logic behind the rule is to ease tax administration, particularly the self-assessment and collection aspects (Republic v. Team (Phils.) Energy Corp., G.R. No. 188016, January 14, 2015, J. Bersamin).
On April 12, 2000, the taxpayer filed with BIR a written claim for the refund of the P1.2M unutilized CWT for taxable year 1997. Is the taxpayer entitled to refund?
Claim for tax refund or credit of excess and unutilize d creditable withholding tax (CWT)
NO. Inasmuch as the respondent already opted to carry over its unutilized CWT of P1.2M to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund.
The annual income tax returns (ITR) for taxable years 2002 and 2003 of Team (Phils.) Energy Corp., reflect overpaid income taxes or excess CWTs. It indicated in the ITRs its option for the refund of the tax overpayments. It then filed an administrative claim for refund or issuance of tax credit certificate with the BIR. Due to the inaction of the BIR, it filed a Petition for Review with the CTA which rendered decision in favor of Team (Phils.) Energy Corp., ordering the refund or the issuance of tax credit certificate in its favor.
However, in view of its irrevocable choice, the respondent remained entitled to utilize that amount of P1.2M as tax credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax credit considering that there is no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years (CIR vs. PL Management International Philippines, Inc., April 4, 2011, J. Bersamin).
In its motion for reconsideration, CIR asserts that the final adjustment return was not sufficient to establish the claim for refund because it only reflected the sum of the payments made and the taxes due for the year. It contends that the quarterly return was necessary to prove that the sum, as stated in the adjusted return, was correct. Is the contention of BIR tenable?
What is the effect of failure to signify preference in the return? Failure to signify preference in the return does not bar outright a claim for refund.
NO. The submission of quarterly returns is not necessary to prove entitlement for refund. The requirements for entitlement of a corporate taxpayer for a refund or the issuance of tax credit certificate involving excess withholding taxes are as follows:
The corporation must signify its intention by marking the corresponding option box provided in the final adjustment return (FAR). While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for facilitating tax collection to ease
15
TAXATION LAW tax administration, particularly the self-assessment and collection aspects.
Discuss the nature and purpose of withholding tax system under the law.
Failure to signify one's intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. Despite the failure of taxpayer to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one's intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period (Philam Asset Management Inc. v. CIR, G.R. Nos. 156637/162004, December 14, 2005).
The purpose of the withholding tax system is threefold: (1) to provide the taxpayer with a convenient way of paying his tax liability; (2) to ensure the collection of tax, and (3) t o improve the government’s cashflow. Under the withholding tax system, the payor is the taxpayer upon whom the tax is imposed, while the withholding agent simply acts as an agent or a collector of the government to ensure the collection of taxes. It is, therefore, indisputable that the withholding agent is merely a tax collector and not a taxpayer. The liability of the withholding agent is independent from that of the taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability for the tax, however, remains with the taxpayer because the gain was realized and received by him.
Filing of income tax return Indicate whether each of the following individuals is required or not required to file an income tax return: a.
b. c.
d. e.
a.
b.
c.
d.
e.
Filipino citizen residing outside the Philippines on his income from sources outside the Philippines. Resident alien on income derived from sources within the Philippines. Resident citizen earning purely compensation income from two employers within the Philippines, whose income taxes have been correctly withheld. Resident citizen who falls under the classification of minimum wage earners. An individual whose sole income has been subjected to final withholding tax. (2015 BAR)
While the withholding agent can be held accountable for its negligence in performing its duty to withhold the amount of tax due on the transaction, the taxpayer and the one which earned income on the transaction, remains liable for the payment of tax as the taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise from the nonpayment of the withholding tax due (Rizal Commercial Banking Corporation vs. CIR, G.R. No. 170257, September 7, 2011, J. Mendoza).
Not required. The income of a non-resident Filipino citizen is taxable only on income sourced within the Philippines. Accordingly, his income from sources outside the Philippines is exempt from income tax [Sec. 51(A)(1)(b), NIRC] Required. A resident alien is taxable only on income derived from sources within the Philippines [Sec. 51(A)(1)(c), NIRC]. Required. A resident citizen who is earning purely compensation income from two employers should file income tax return. If the compensation income is received concurrently from two employers during the taxable year, the employee is not qualified for substituted filing [Sec. 51(A)(2)(b), NIRC]. Not required. Under the law, all minimum wage earners in the private and public sector shall be exempt from payment of income tax [Sec. 51(A)(2)(d), NIRC in relation to R.A. No. 9504]. Not required. Under the law, an individual whose sole income has been subjected of final withholding tax pursuant to Sec. 57(A), NIRC, need not file a return. What he received is a tax paid income [Sec. 51(A)(2)(c), NIRC].
Note that withholding tax is merely a method of collecting income tax in advance. The perceived tax is collected at the source of income payment to ensure collection. Consequently, those subjected to the final withholding tax are no longer subject to t he regular income tax (Banco de Oro vs. Republic of the Philippines, G.R. No. 198756 (Resolution), August 16, 2016, J. Leonen).
In 2011, the BIR issued a Ruling where it declared that all treasury bonds (including PEACe Bonds), regardless of the number of purchasers/lenders at the time of origination/issuance are considered deposit substitutes. The PEACe Bonds are thus subject to 20% final withholding tax on interest income from deposit substitutes. Is the BIR ruling valid? NO. Under Sections 24(B)(1), 27(D)(1), and 28(A)(7) of the Tax Code of 1997, a final withholding tax at the rate of 20% is imposed on interest on any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements.
WITHHOLDING TAX
Deposit substitutes are defined under Section 22(Y) 5 of the Tax Code with the addition of the qualifying phrase for public – borrowing from 20 or more individual or
5 SEC. 22. Definitions - When used in this Title: xxx (Y) The term ‘deposit
notes, repurchase agreements, including reverse repurchase agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, certificates of assignment or participation and similar instruments with recourse: Provided, however, That debt instruments issued for interbank call loans with maturity of not more than five (5) days to cover deficiency in reserves against deposit liabilities, including those between or among banks and quasi-banks, shall not be considered as deposit substitute debt instruments.
substitutes’ shall mean an alternat ive form of obtaining funds from t he public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time) other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may include, but need not be limited to, bankers’ acceptances, promissory
16
UST LAW PRE-WEEK NOTES 2017 corporate lenders at any one time. Hence, the number of lenders is determinative of whether a debt instrument should be considered a deposit substitute and consequently subject to the 20% final withholding tax (Banco de Oro vs. Republic of the Philippines, G.R. No. 198756, January 15, 2015, J. Leonen).
except a rank and file employee, such as but not limited to: [HEV-HIM-HEEL]
Housing Expense account Vehicle of any kind Household personnel such as maid, driver and others Interest on loans at less than market rate to the extent of the difference between the market rate and the actual rate granted 6. Membership fees, dues and other expenses athletic clubs or other similar organizations 7. Expenses for foreign travel 8. Holiday and vacation expenses 9. Educational assistance to the employee or his dependents 10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows (NIRC, Sec. 33 [B]; R.R. 3-98, Sec. 2.33 [B]). 1. 2. 3. 4. 5.
Based on the definition of deposit substitutes, what is the meaning of “at any one time”? The phrase “at any one time” for purposes of determining the “20 or more lenders” would mean every transaction executed in the primary or secondary market in connection with the purchase or sale of securities. For example, where the financial assets involved are government securities like bonds, the reckoning of “20 or more lenders/investors” is made at any transaction in connection with the purchase or sale of the Government Bonds, such as: 1. 2. 3.
4.
What is the tax treatment of fringe benefits?
Issuance by the Bureau of Treasury of the bonds to GSEDs in the primary market; Sale and distribution by GSEDs to various lenders/investors in the secondary market; Subsequent sale or trading by a bondholder to another lender/investor in the secondary market usually through a broker or dealer; or Sale by a financial intermediary-bondholder of its participation interests in the bonds to individual or corporate lenders in the secondary market.
If the benefit is not tax-exempt and the recipient is: 1. A rank and file employee – the value of such fringe benefit shall be considered as part of the compensation income of such employee subject to tax payable by the employee; 2. A managerial or supervisory employee – the value shall not be included in the compensation income of such employee subject to tax. The FBT is payable by the employer on behalf of the employee (NIRC, Sec. 33).
When, through any of the foregoing transactions, funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed deposit substitutes. Consequently, the seller is required to withhold the 20% final withholding tax on the imputed interest income from the bonds (Banco de Oro vs. Republic of the Philippines, G.R. No. 198756, January 15, 2015, J. Leonen).
What is the nature of FBT? FBT is imposed on the grossed-up monetary value (GMV) of fringe benefit furnished, granted or paid by the employer to the employee, except rank and file employees (R.R. 3-98, Sec. 2.33 [A]). FBT is treated as a final income tax on the employee that shall be withheld and paid by the employer on a calendar quarterly basis (CIR v. Secretary of Justice, G.R. No. 177387, November 9, 2016, J. Bersamin).
NOTE: Debt instruments that do not qualify as deposit substitutes are subject to the regular income tax. Distinguish indirect taxes from withholding taxes.
What are the fringe benefits exempt from FBT? Indirect taxes, like VAT and excise tax, are different from withholding taxes (direct taxes). To distinguish, indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. On the other hand, in case of withholding taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent who merely collects, by withholding, the tax due from income payments to entities arising from certain transactions and remits the same to the government (Asia International Auctioneers, Inc. v. CIR, G.R. No. 179115, September 26, 2012).
1. Fringe benefits which are authorized and exempted from tax under the NIRC or special laws (e.g. separation benefits which are given to employees who are involuntarily separated from work); 2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; 3. Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; 4. De minimis benefits, whether given to rank and file employees or to supervisory or managerial employees; 5. Fringe benefits granted to employee as required by the nature of, or necessary to the trade, business or profession of the employer; 6. Fringe benefits granted for the convenience of the employer (Employer’s Convenience Rule) (NIRC, Sec. 32; R.R. 3-98, Sec. 2.33 [C]).
FRINGE BENEFITS TAX (FBT) What is fringe benefit? Fringe benefit is any good, service or other benefit furnished or granted by an employer in cash or in kind in addition to basic salaries, to an individual employee,
NOTE: Although a fringe benefit may be exempted from the FBT, it may still fall under a different tax under
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TAXATION LAW another law, such as the compensation income tax or the like.
contends that the discount is nothing more than a privilege and its availment is restricted.
PAGCOR extends car plan extended by PAGCOR to its qualified officers. It asserts that the car plan was granted "not only because it was necessary to the nature of the trade of PAGCOR but it was also granted for its convenience." Is PAGCOR liable to withhold FBT on its car plan?
Is the BIR assessment correct? Explain. (2016 BAR) NO. The courtesy discounts given to rank and file employees are considered “de minimis benefits” falling under the category of other facility and privileges furnished or offered by an employer to his employees which are of relatively small value intended to promote the health, goodwill, contentment or efficiency of the employee. These benefits are not considered as compensation subject to income tax and consequently to withholding tax (Sec.2.78.1 of RR No. 10-2008). If these “de minimis benefits” are furnished to supervisors and managers, the same are also exempt from the fringe benefits tax (RR No. 3-98; Sec. 33, NIRC).
YES. For FBT, PAGCOR is a mere withholding agent inasmuch as the FBT is imposed on PAGCOR's employees who receive the fringe benefit. PAGCOR's liability as a withholding agent is not covered by the tax exemptions under its Charter. The car plan extended by PAGCOR to its qualified officers is evidently considered a fringe benefit as defined under Section 33 of the Tax Code. To avoid the imposition of the FBT on the benefit received by the employee, and, consequently, to avoid the withholding of the payment thereof by the employer, PAGCOR must sufficiently establish that the fringe benefit is required by the nature of, or is necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer, which PAGCOR failed to establish.
Alternative Answer:
YES, the BIR assessment is correct. De minimis benefits are benefits of relatively small values provided by the employers to the employee on top of the basic compensation intended for the general welfare of the employees. It is considered exempt from income tax on compensation as well as from fringe benefit tax, provided it does not exceed P10, 000 per employee per taxable year.
Accordingly, PAGCOR should have withheld the FBT f rom the officers who have availed themselves of the benefits of the car plan and remitted the same to the BIR (CIR v. Secretary of Justice, G.R. No. 177387, November 9, 2016, J. Bersamin).
This list of de minimis benefits is exclusive and anything that is given which is not on the list, shall not be considered de minimis. The 5% discount of purchase price of its products, not being in this enumeration, is subject to tax as well as to withholding tax on compensation.
Is PAGCOR’s payment of membership dues and fees to cover various memberships in social, athletic clubs and similar organizations subject to FBT?
TRANSFER TAX
NO. PAGCOR’s nature of business is casino operations and it derives business from its customers who play at the casinos. In furtherance of its business, it usually attends its VIP customers, amenities such as playing rights to golf clubs. The membership of PAGCOR to these golf clubs and other organizations are intended to benefit customers and not its employees. Moreover, the membership is under the name of PAGCOR, and as such, cannot be considered as fringe benefits because it is the customers and not the employees of PAGCOR who benefit from such memberships.
In 2011, Solar Computer Corporation (Solar) purchased a proprietary membership share covered by Membership Certificate No. 8 from the Mabuhay Golf Club, Inc. for P500, 000.00. On December 27, 2012, it transferred the same to David, its American consultant, to enable him to avail of the facilities of the Club. David executed a Deed of Declaration of Trust and Assignment of Shares wherein he acknowledged the absolute ownership of Solar over the share; that the assignment was without any consideration; and that the share was placed in his name because the Club required it to be done. In 2013, the value of the share increased to P800, 000.00.
Considering that the payments of membership dues and fees are not borne by PAGCOR for its employees, they cannot be considered as fringe benefits which are subject to FBT. Hence, PAGCOR is not liable to withhold FBT from its employees (CIR v. Secretary of Justice, G.R. No. 177387, November 9, 2016, J. Bersamin).
Is the said assignment a "gift" and, therefore, subject to gift tax? Explain. (2016 BAR) NO. The transfer is not a taxable donation because there is no divestment of ownership by the transferor. The purpose of the transfer is simply to allow David to avail of the facilities of the Club. The execution of a “Deed of Declaration of Trust and Assignment of Shares” where the absolute ownership by Solar of the share is acknowledged would show that there is no relinquishment of ownership by Solar. The transfer being merely a transfer in form but not in substance, the same is not subject to gift tax.
Mapagbigay Corporation grants all its employees (rank and file, supervisors, and managers) 5% discount of the purchase price of its products. During an audit investigation, the BIR assessed the company the corresponding tax on the amount equivalent to the courtesy discount received by all the employees, contending that the courtesy discount is considered as additional compensation for the rank and file employees and additional fringe benefit for the supervisors and managers. In its defense, the company argues that the discount given to the rank and file employees is a de minimis benefit and not subject to tax. As to its managerial employees, it
Alternative Answer:
18
UST LAW PRE-WEEK NOTES 2017 The assignment is a “gift” subject to gift tax. The absence of donative intent does not exempt the sales of stock transaction from donor’s tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in p rice is considered a donation by fiction of law (Philam Life and General Insurance Co. v. of finance and CIR, 741 SCRA 579 [2014]).
settlement of the estate. The notarial fee paid for the extrajudicial settlement is clearly deductible expense since such settlement effected the distribution of estate to lawful heirs. Similarly, the attorney's fees paid to the guardian of property of the deceased during his lifetime should also be considered as a deductible administration expense (CIR v. CA, G.R No. 123206, Mar. 22, 2000).
BIR issued an Estate Tax Assessment Notice demanding payment of the deficiency estate tax against Jose Fernandez’s estate. The administrator claims that in as much as the valid claims of creditors against the estate are in excess of the gross estate, no estate tax was due.
Jennifer is the only daughter of Janina who was a resident in Los Angeles, California, U.S.A. Janina died in the U.S. leaving to Jennifer one million shares of Sun Life (Philippines), Inc., a corporation organized and existing under the laws of the Republic of the Philippines. Said shares were held in trust for Janina by the Corporate Secretary of Sun Life and the latter can vote the shares and receive dividends for Janina. The Internal Revenue Service (IRS) of the U.S. taxed the shares on the ground that Janina was domiciled in the U.S. at the time of her death.
May the actual claims of the creditors be fully allowed as deductions from the gross estate of Jose despite the fact that the claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors? YES. Under the date-of-death valuation rule , claims existing at the time of death should be made the basis of the determination of allowable deductions. Thus, postdeath developments, such as condonation in this case, are not material in determining the amount of the deduction (Dizon, et. al v. CA, G.R. No. 140944, April 30, 2008).
Can the CIR of the Philippines also tax the same shares? Explain. (2016 BAR) YES. The property being a property located in the Philippines, it is subject to the Philippine estate tax irrespective of the citizenship or residence of the decedent (Sec. 85, NIRC). However, if Janina is a nonresident alien at her time of her death, the transmission of the shares of stock can only be taxed applying the principle of reciprocity (Sec. 104, NIRC).
VALUE-ADDED TAX (VAT) What is the Destination Principle and Cross Border Doctrine in VAT?
What is a judicial expense for purposes of deductions from the gross estate of the decedent?
Under the Destination Principle, the goods and services are taxed only in the country where these are consumed, and in connection with the said principle, the CrossBorder Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% (now 12%) VAT (Atlas Consolidated Mining and Development Corporation v. CIR, G.R. No. 141104 & 148763, June 8, 2007).
Judicial expenses are expenses of administration which include all expenses “essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it.” In other words, the expenses must be essential to the proper settlement of the estate. However, it does not include the following: 1. 2.
3.
4.
Expenditures incurred for the individual benefit of the heirs, devisees, legatees; Compensation paid to a t rustee of the decedent’s estate when it appeared that such trustee was appointed for the purpose of managing the decedent’s real property for the benefit of the testamentary heir; Premiums paid on the bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a qualification for the office and not necessary for the settlement of the estate; and Attorney’s fees incident to litigation incurred by the heirs in asserting their respective rights (CIR v. CA, G.R No. 123206, Mar. 22, 2000).
Who is liable to pay VAT? The seller is the one statutorily liable for the payment of the tax but the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services. In case of importation, the importer is the one liable for VAT (Sec. 4.105-2, R.R. 16-2005).
What are the elements of VATable transaction? The following must be present in order for a transaction to be subjected to 12% VAT :
May the notarial fee paid for the extrajudicial settlement and the attorney's fees in the guardianship proceedings be allowed as deductions from the gross estate of decedent in order to arrive at the value of the net estate?
1. It must be done in the ordinary course of trade or business; 2. There must be a sale, barter, exchange, lease of properties, or rendering of service in the Philippines; and 3. It is not VAT-exempt or VAT zero-rated (Ingles, 2015).
YES. Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed to include all expenses essential to the proper
19
TAXATION LAW What is Rule of Regularity? (In the course of trade or business)
a tax is a burden on the taxpayer, it cannot be presumed nor can it be extended by implication. As it is, the power to impose amusement tax on cinema/theater operators or proprietors remains with the local government.
It means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity (Sec. 105, NIRC).
A contrary ruling will subject cinema/theater operators or proprietors to a total of 40% tax, the 10% (now 12%) VAT being on top of the 30% amusement tax imposed by the LGC of 1991, thereby killing the “[goose] that lays the golden egg[s].”
The “lease of motion picture films, films, tapes and discs” under Sec. 108 of the NIRC is not the same as the showing or exhibition of motion pictures or films. “Exhibition” is defined as “t o show or to display. x x x To produce anything in public so that it may be taken in possession”. On the other hand, “lease” is defined as “a contract by which one owning such property grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic payment of a stipulated price, referred as rent.” Thus, the legislature never intended to include cinema/theater operator operators or proprietors in the coverage of VAT (CIR v. SM Prime Holdings, Inc., G.R. No. 183505, February 26, 2010).
There should be: 1. Commercial or economic activity – It implies that a transaction is conducted for profit; and 2. Regularity or habituality in the action – Regularity involves more than one isolated transaction and involves repetition and continuity of action (Ingles, 2015).
Is the requirement of regularity absolute? NO. The following are exceptions to regularity: 1. Non-resident alien who perform services in the Philippines are deemed to be making sales in the course of trade or business, even if the performance o f services is not regular (Sec. 4.105-3, RR 16-2005). 2. Importations are subject to VAT whether in the course of trade or business or not. 3. Any business where the gross sales o r receipts do not exceed P100, 000 during the 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business.
The BIR subjected to VAT the total amount of money or its equivalent actually received by MEDICARD from members including the amount earmarked and eventually paid by MEDICARD to the medical service providers. The CIR contends that the act of earmarking or allocation is by itself an act of ownership and management over the funds. Is BIR correct? NO. For purposes of determining the VAT liability of an HMO, the amounts earmarked and actually spent for medical utilization of its members should not be included in the computation of its gross receipts.
Is profit required for VAT to be imposed? NO. VAT is a tax on transaction, there is no need for a taxable gain, unlike in the income tax. It is not required either by law or jurisprudence (Ingles, 2015).
Based on industry practice, MEDICARD informs its would-be member beforehand that 80% of the amount would be earmarked for medical utilization and only the remaining 20% comprises its service fee. The act of earmarking or allocating 80% of the amount it received as membership fee at the time of payment weakens the ownership imputed to it. By earmarking or allocating 80% of the amount, MEDICARD unequivocally recognizes that its possession of the funds is not in the concept of owner but as a mere administrator of the same. For this reason, at most, MEDICARD's right in relation to these amounts is a mere inchoate owner which would ripen into actual ownership if, and only if, there is underutilization of the membership fees at the end of the fiscal year. Prior to that, MEDICARD is bound to pay from the amounts it had allocated as an administrator once its members avail of the medical services of MEDICARD's healthcare providers (Medicard Philippines, Inc. vs. CIR, G.R. No. 222743, April 5, 2017, J. Reyes).
VAT is a tax on transactions imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term “in the course of trade or business” applies to all transactions. Even a non-stock, non-profit corporation or government entity is liable to pay VAT for the sale of goods and services (CIR v. COMASERCO, March 30, 2000).
Are toll fees collected by tollway operators are subject to VAT? YES, because tollway operators are not VAT exempt franchise holders and tollway operation is not a VAT exempt transaction. VAT is impose d on “all kinds of services” including tollway operations which are engaged in construction, maintaining and operating expressways (Diaz v. Sec. of Finance, 654 SCRA 96).
In June 2013, DDD Corp., a domestic corporation engaged in the business of leasing real properties in the Philippines, entered into a lease agreement of a residential house and lot with EEE, Inc., a nonresident foreign corporation. The residential house and lot will be used by officials of EEE, Inc. during their visit to the Philippines. The lease agreement was signed by representatives from DDD Corp. and EEE, Inc. in Singapore. DDD Corp. did not subject the said lease to VAT believing that it was not a domestic
Are gross receipts derived from sales of admission tickets in showing motion pictures subject to VAT? NO. The legislative intent is not to impose VAT on persons already covered by the amusement tax. The repeal by the LGC of 1991 of the Local Tax Code transferring the power to impose amusement tax on cinema/theater operators or proprietors to the local government did not grant nor restore the said power to the national government nor did it expand the coverage of VAT. Since the imposition of
20
UST LAW PRE-WEEK NOTES 2017 service contract. Was DDD Corp. correct? Explain. (2015 BAR)
BIR issued RR No. 16-2005, specifically identifying PAGCOR as one of the franchisees subject to VAT imposed under the Tax Code of 1997, as amended by R.A. No. 9337 6. Is said regulation valid?
DDD Corp. is not correct. Lease of properties shall be subject to VAT irrespective of the place where the contract of lease was executed if the property is leased or used in the Philippines.
NO. The provision in RR No. 16-2005 subjecting PAGCOR to VAT is invalid for being contrary to R.A. No. 9337.
Is a pawnshop operator liable for VAT?
Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to VAT. The law is clear as to the removal of petitioner's exemption from the payment of corporate income tax only. The RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to VAT under RR No. 16-2005; hence, the said regulatory provision is null and void (PAGCOR vs. BIR, GR No. 172087, March 15, 2011, J. Peralta).
NO. It is now settled that for purposes of determining their tax liability, pawnshops are treated as non-bank financial intermediaries. Being as such, it is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be, by virtue of R.A. No. 9238 (H. Tambunting Pawnshop, Inc. v. CIR, G.R. No. 172394, October 13, 2010, J. Bersamin). The BIR issued RMC No. 65-2012 imposing VAT on association dues and membership fees collected by condominium corporations from its member condominium-unit owners. The RMC’s validity is challenged before the Supreme Court by the condominium corporations.
According to the BIR, R.A. No. 77167 has expressly repealed, amended, or withdrawn the 5% franchise tax provision in PAGCOR's Charter; hence, PAGCOR was liable for VAT. The CIR argues that PAGCOR's gambling operations are embraced under the phrase sale or exchange of services, including the use or lease of properties; that such operations are not among those expressly exempted from VAT under Section 38 of R.A. No. 7716; and that the legislative purpose to withdraw PAGCOR's 5% franchise tax was manifested by the language used in Section 20 9 of R.A. No. 7716. Is the contention of the BIR tenable?
The Solicitor General, counsel for BIR, claims that association dues, membership fees, and other assessment/ charges collected by a condominium corporation are subject to VAT since they constitute income payments or compensation for the beneficial services it provides to its members and tenants. On the other hand, the lawyer of the condominium corporations argues that such dues and fees are merely held in trust by the condominium corporations exclusively for their members and used solely for administrative expenses in implementing the condominium corporations’ purposes. Accordingly, the condominium corporations, do not actually render services for a fee subject to VAT.
NO. Firstly, a basic rule in statutory construction is that a special law cannot be repealed or modified by a subsequently enacted general law in the absence of any express provision in the latter law to that effect. A special law must be interpreted to constitute an exception to the general law in the absence of special circumstances warranting a contrary conclusion. R.A. No. 7716, a general law, did not provide for the express repeal of PAGCOR's Charter, which is a special law.
Whose argument is correct? Decide. (2014 BAR) Secondly, R.A. No. 7716 indicates that Congress has not intended to repeal PAGCOR's privilege to enjoy the 5% franchise tax in lieu of all other taxes. The law does not specifically exclude PAGCOR's exemption under P.D. No. 1869 from the grant of exemptions from VAT; hence, the petitioner's contention that R.A. No. 7716 expressly amended PAGCOR's franchise has no leg to stand on (CIR v. Secretary of Justice, G.R. No. 177387, November 9, 2016, J. Bersamin).
The lawyer of the condominium corporations is correct. The association dues, membership fees, and other assessment/charges do not constitute income payments because they were collected for the benefit of the unit owners and the condominium corporation is not created as a business entity. The collection is the money of the unit owners pooled together and will be spent exclusively for the purpose of maintaining and preserving the building and its premises which they themselves own and possess (First e-Bank Tower Condominium Corp., v. BIR, Special Civil Action No. 12-1236, RTC Br. 146, Makati City).
Zero-rated Transactions
6 An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,
"The phrase 'sale or exchange of services' means the performance of all kinds of service in the Philippines for others for a fee, remuneration or consideration, including x x x service of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code; x x x"
112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended, and For Other Purposes
7 An A ct Restructuring the Value Added Tax (VAT) System, Widening its Tax Base and Enhancing its Administration, and for these Purposes Amending and Repealing the Relevant Provisions of the National Internal Revenue Code, as Amended, and For Other Purposes
SEC. 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further amended further to read as follows: "SEC.117. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises on electric, gas and water utilities a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise. x x x"
8 SEC. 3. Section 102 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "SEC. l 02. Value-added tax on sale of services and use or lease of properties. - (a) Rate and base of tax. - There shall be levied, assessed and collected, a value-added tax equivalent to 10% (now at 12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
9 SEC. 20. Repealing Clauses. - T he provisions of any special law relative to the rate of franchise taxes are hereby expressly repealed. xx x
21
TAXATION LAW Distinguish Zero-rated v. VAT-exempt transactions BASIS EXEMPT ZERO-RATED Nature of transaction
By whom made
Input tax
Tax Credit/Refund
Not taxable; removes VAT at the exempt stage
Need not be a VAT-registered person Not subject to output tax, thus cannot claim input tax credit
Cannot avail of tax credit or refund. Thus, may result in increased prices
solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels (Sec. 108, NIRC).
Transaction is taxable for VAT purposes although the tax levied is 0% Made by a VAT-registered person May claim input tax credit although the transaction resulted to zero output tax Tax Credit/Refund
What is an ECOZONE or a Special Economic Zone? An ECOZONE has been described as selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. RA No. 7916 provides that ECOZONES shall be managed by PEZA as a separate customs territory; thus, creating the fiction that the ECOZONE is a foreign territory. The national territory of the Philippines outside of the proclaimed borders of the ECO ZONE shall be referred to as the Customs Territory (CIR v. Toshiba Information Equipment (Phils.), Inc., G.R. No. 150154, August 9, 2005).
What are the zero-rated sales under the Tax Code?
Is the sale of goods to ecozone, such as PEZA, considered as export sale?
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: 1. 2. 3.
YES. While an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. These sales are zero-rated or subject to a tax rate of zero percent (CIR v. Sekisui Jushi Philippines, Inc., G.R. No. 149671, July 21, 2006).
Export sales; Foreign currency denominated sale; and Effectively zero-rated sales (Section 106, NIRC)
The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: 1.
2.
3.
4.
5.
6. 7.
Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP i.e. recruitment; Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof; Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production; Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; an d Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass,
NOTE: Following the Philippine VAT system's adherence to the Cross-Border Doctrine and Destination Principle, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. As a result, all sales of goods, properties, and services made by a VAT-registered supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latter's type or class of PEZA registration (Revenue Memorandum Circular No. 74-99). What is “effectively zero-rated sale of goods and properties”? The term “effectively zero-rated sale of goods and properties” shall refer to the local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. Since the buyer is exempt from indirect tax, the seller cannot pass on the VAT and therefore, the exemption enjoyed by the buyer shall extend to the seller, making the sale effectively zero-rated (R.M.C. 50-2007).
Distinguish Effectively Zero-rated v. Automatic Zerorated transaction BASIS
22
EFFECTIVELY ZERO-RATED TRANSACTION
AUTOMATIC ZERO-RATED TRANSACTION
UST LAW PRE-WEEK NOTES 2017 Nature
Need to apply for zero-rating
For whose benefit is it intended
Stamping of “zerorated” on VAT invoice or receipt
Effect
Refers to sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory An application for zero-rating must be filed and the BIR approval is necessary before the transaction may be considered effectively zerorated. Intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.
3. The recipient of such services is doing business outside of the Philippines.
Refers to export sales and foreign currency denominated sales
In relation to above, is the condition of being “consumed abroad” necessary in order for services performed in the Philippines by a VAT-registered person to be zero-rated? NO. As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.
No need to file an application form and to secure BIR approval before the sale is considered zerorated.
However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are performed in the Philippines , “paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP .” Thus, for the supply of service to be zero-rated as an exception, the law merely requires that first , the service be performed in the Philippines; second , the service fall under any of the categories in Section 102(b) of the Tax Code; and, third , it be paid in acceptable foreign currency accounted for in accordance with BSP rules and regulations (CIR vs. American Express International, Inc. (Philippine Branch), G.R. No. 152609. June 29, 2005).
Primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. Not required. The buyer, as shown by his address in the sales invoice and shipping documents, is located outside the Philippines.
NOTE: In Accenture Inc. v. CIR, G.R. No. 190102, July 11, 2012, the Court ruled that to come within the purview of Section 108 (B)(2), it is not enough that the recipient of the service be proven to be a foreign corporation; rather, it must be specifically proven to be doing business outside the Philippines. The fact that the clients are foreign does not automatically mean that these clients were doing business outside the Philippines.
Required. The buyer, as shown by his address in the sales invoice and shipping documents, is located outside the Philippines merely by fiction of law. Results in no tax chargeable against the purchaser.
Pursuant to Sec. 11 of the "Host Agreement" between the United Nations and the Philippine government, it was provided that the World Health Organization (WHO), "its assets, income and other properties shall be: a) exempt from all direct and indirect taxes." Precision Construction Corporation (PCC) was hired to construct the WHO Medical Center in Manila. Upon completion of the building, the BIR assessed a 12% VAT on the gross receipts of PCC derived from the construction of the WHO building. The BIR contends that the 12% VAT is not a direct nor an indirect tax on the WHO but a tax that is primarily due from the contractor and is therefore not covered by the Host Agreement. The WHO argues that the VAT is deemed an indirect tax as PCC can shift the tax burden to it. Is the BIR correct? Explain. (2016 BAR)
The seller can claim a refund or a tax credit certificate for the VAT previously charged by suppliers.
For services other than processing manufacturing, or repacking of goods under Sec 108 (B)(2) 10 of the Tax Code, what are the requirements to qualify for zerorating?
NO. Since World Health Organization (WHO), the contractee, is exempt from direct and indirect taxes pursuant to an international agreement where the Philippines is a signatory, the exemption from indirect taxes should mean that the entity or person exempt is the contactor itself because the manifest intention of the agreement is to exempt the contractor so that no tax may be shifted to the contractee (CIR v. John Gotameo & Sons, Inc., 148 SCRA 36 [1987]).The immunity of WHO from indirect taxes extends to the contractor by treating the
1. The services other than “processing, manufacturing or repacking of goods” must be performed in the Philippines, 2. That the payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules, and that
10 SECTION 108. Value-added Tax on Sale of Services and Use or Lease of
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) xxx
Properties. xxx (B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx
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TAXATION LAW sale of service as effectively zero-rated when the law provided that – “services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such service to zero percent (0%) rate” [Section 108(B)3, NIRC]. Accordingly, the BIR is wrong in assessing the 12% VAT from the contractor, Precision Construction Corporation.
contract price of the goods, properties and services it had procured to complete the project (Malayan Insurance, Inc. vs. St. Francis Realty Square Realty Corporation, G.R. Nos. 198916-17, January 11, 2016, J. Peralta).
NOTE: In Malayan Insurance, Inc. vs. St. Francis Realty Square Realty Corporation, the Court further held that St. Francis would also be entitled to avail of the same tax credit provisions upon the eventual sale of its proportionate share of the reserved units allocated and transferred to it by Malayan. The allocation of and transfer of such units to St. Francis is subject to output VAT which Malayan could offset against its input VAT. In turn, St. Francis would incur input VAT which it may later offset against its output VAT upon the sale of the said units. This is in accordance with the tax credit method of computing the VAT of a taxpayer whereby the input tax shifted by the seller to the buyer is credited against the buyer’s output taxes when it in turn sells the taxable goods, properties or services.
OUTPUT AND INPUT VAT Malayan Insurance, as Owner, and St. Francis Square Realty Corp, as Developer, executed a Joint Project Development Agreement for the construction, development of a condominium Project. St. Francis was not able to complete the Project. The parties entered to an agreement where Malayan undertook to complete the Project. The basis for the distribution and disposition of the condominium units is the parties’ respective capital investments in the Project. Despite the completion of the Project, the issue of actual cost of construction has not been resolved to the mutual satisfaction of the parties.
VAT REFUND Who may claim for refund/apply for issuance of tax credit certificate?
St. Francis contends that, among others, Input VAT should not be treated as part of construction cost. It claims that even from an accounting standpoint, input tax is not entered into the books as part of cost; input VAT is treated as account in a different acc ount, either under “Other assets” or “Input Tax”, which is an asset account. Besides, the input VAT is offset or credited against output VAT to determine the net VAT due or payable to the government.
The following can avail of refund or tax credit: 1. Zero-rated and effectively zero-rated sales - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated (Sec. 112 [A]); and 2. Cessation of business or VAT status - A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 106(C) of NIRC (Sec. 112[B]).
St. Francis finally notes that since input VAT had already been claimed by Malayan, and its audited financial statements show the offsetting of input VAT against output VAT, then justice and equity dictate that it should not be allowed to claim it as part of the ARCC.
What is the period to file claim for refund/apply issuance of tax credit certificate? The claim, which must be in writing for both cases, must be filed within two years from the close of the taxable quarter when the sales were made by any VATregistered person whose sales are zero-rated or effectively zero-rated [Sec. 112(A), NIRC]. The two-year period should be reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid o r not (CIR vs Mirant Pagbilao Corporation, GR 172129, September 12, 2008).
Rule on the above contention of St. Francis. The contention of St. Francis is without merit. Input VAT should be allowed as part of the construction cost. In determining whether input VAT should be included as part of the construction cost, the issue is not the technical classification of taxes under accounting rules, but whether such tax was incurred and paid as part of the construction cost. Given that input VAT is, strictly speaking, a financial cost and not a direct construction cost, it cannot be denied that Malayan had to pay input VAT as part of the contract price of goods and properties purchased, and services procured in order to complete the project.
Meanwhile, any person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status may, within two years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes.
Anent the claim that it would be unjust and ine quitable if Malayan would be allowed to include its input VAT in the construction cost, as well as to offset such tax against its output tax, the Court held that such coincidence does not result in unjust enrichment at the expense of St. Francis. Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. In offsetting its input VAT against output VAT, Malayan is merely availing of the benefits of the tax credit provisions of the law, and it cannot be said to have benefitted at the expense or to the damage of St. Francis. After all, Malayan is justified in including in the construction cost the input VAT it had paid as part of the
What are the requirements in claim for refund or tax credit for unutilized input VAT? A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur, namely: 1. 2. 3.
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The taxpayer is VAT-registered; The taxpayer is engaged in zero-rated or effectively zero-rated sales; The input taxes are due or paid;
UST LAW PRE-WEEK NOTES 2017 4. 5. 6. 7.
8.
9.
The input taxes are not transitional input taxes as it cannot be claimed as a refund or credit; The input taxes have not been applied against output taxes during and in the succeeding quarters; The input taxes claimed are attributable to zerorated or effectively zero-rated sales; For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the BSP; Where there are both zero-rated or effectively zerorated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and The claim is filed within two years after the close of the taxable quarter when such sales were made (Luzon Hydro Corporation v. CIR, G.R. No. 188260, November 13, 2013, J Bersamin).
claim (Pilipinas Total Gas, Inc. vs. CIR, G.R. No. 207112, December 8, 2015, J. Mendoza).
NOTE: The above rule cannot be applied retroactively. Thus, prior to June 11, 2014, the rule is that from the date an administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to submit the documentary requirements sufficient to support his claim, unless given further extension by the CIR. Should the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any other addition documents to complete his administrative claim, the 120-day period allowed to the CIR begins to run from the date of filing. For calendar year 2011, FFF, Inc., a VAT-registered corporation, reported unutilized excess input VAT in the amount of P1, 000, 000.00 attributable to its zerorated sales. Hoping to impress his boss, Mr. G, the accountant of FFF, Inc., filed with the BIR on January 31, 2013 a claim for tax refund/credit. Not having received any communication from the BIR, Mr. G filed a Petition for Review with the CTA on March 15, 2013, praying for the tax refund/credit of the P1, 000, 000.00 unutilized excess input VAT of FFF, Inc. for 2011.
Discuss the procedure in a claim for refund.
An administrative claim must be filed with the CIR within two years after the close of the taxa ble quarter when the zero-rated or effectively zero-rated sales were made. The CIR has 120 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 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. A judicial claim must be filed with the CTA within 30 days from the receipt of th e CIR's decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR. All taxpayers, however, can rely on BIR Ruling No. DA489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+ 30-day periods (Takenaka Corporation – Philippine Branch vs. CIR, G.R. No. 193321, October 19, 2016, J. Bersamin, citing Mindanao II Geothermal Partnership vs. CIR).
a. b.
a.
Did the CTA acquire jurisdiction over the Petition of FFF, Inc.? Discuss the proper procedure and applicable time periods for administrative and judicial claims for refund/credit of unutilized excess input VAT. (2015 BAR) NO. The CTA has not acquired jurisdiction over the Petition of FFF, Inc. because the juridical claim has been prematurely filed on March 15, 2013. The Supreme Court ruled that the 30-day period after the expiration of the 120-day period fixed by law for the CIR to act on the claim for refund is jurisdictional and failure to comply would bar the appeal and deprive the CTA of its jurisdiction to entertain the appeal. In this case, Mr. G filed the administrative claim on January 31, 2013. The petition for review should have been should have been filed on June 30, 2013. Filing the judicial claim on March 15, 2013 is premature, thus the CTA did not acquire jurisdiction.
b.
Under the law, the CIR has 120 days from the date of submission of complete documents to decide a claim for tax credit or refund of creditable input taxes. When should the submission of documents be deemed “completed” for purposes of determining the running of the 120-day period? RMC 54-201411 dated June 11, 2014 requires that the application for VAT refund/tax credit must be accompanied by complete supporting documents. Thus, the taxpayer, at the time he files his claim, must complete his supporting documents and attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is barred from submitting additional documents after he has filed his administrative
The administrative claim must be filed with the CIR within the two-year prescriptive period. The proper reckoning period date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. However, as an exception, are claims applied only from June 8, 2007 to September 12, 2008, wherein the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. The taxpayer can file a judicial claim in one of two ways: (1) file the judicial claim within thirty days after the CIR denies the claim within the 120-day period, or (2) file the judicial claim within 30 days from the expiration of the 120-day period if the
11 The application for VAT refund/tax credit must be accompanied by
Upon submission of the administrative claim and its supporting documents, the claim shall be processed and no other documents shall be accepted/required from the taxpayer in the course of its evaluation. (emphasis supplied)
complete supporting documents as enumerated in Annex “A” hereof. In addition, the taxpayer shall attach a statement under oath attesting to the completeness of the submitted documents. xxx
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TAXATION LAW Commissioner does not act within the 120-day period.
constitute sufficient secondary proof of effectively zero-rated sales.
As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. As an exception, premature filing is allowed only if filed between December 10, 2003 and October 5, 2010, when the BIR Ruling No. DA-489-03 was still in force.
Luzon Hydro argued that its sale of electricity to NPC was automatically zero-rated pursuant to RA No. 9136 (EPIRA Law); hence, it need not prove that it had zero-rated sales in the period from January 1, 2001 to December 31, 2001 by the presentation of VAT official receipts that would contain all the necessary information required under the Tax Code. Evidence of sale of electricity to NPC other than official receipts could prove zero-rated sales.
Distinguish between administrative cases appealed (1) due to inaction and those (2) dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents.
Is the contention of Luzon Hydro tenable? If an administrative claim was dismissed by the CIR due to the taxpayer’s failure to submit complete documents despite notice/request, then the judicial claim before the CTA would be dismissible, not for lack of jurisdiction, but for the taxpayer’s failure to substantiate the claim at the administrative level. When a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that not only is he entitled under substantive law to his claim for refund or tax credit, but also that h e satisfied all the documentary and evidentiary requirements for an administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place. Consequently, a taxpayer cannot cure its failure to submit a document requested by the BIR at the administrative level by filing the said document before the CTA.
NO. Luzon Hydro did not produce evidence showing that it had zero-rated sales for taxable year 2001. The claimant did not reflect any zero-rated sales from its power generation in its VAT returns, which indicated that it had not made any sale of electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it carried the burden not only that it was entitled under the substantive law to the allowance of its claim for refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim. Although the claimant has correctly contended that the sale of electricity by a power generation company like it should be subject to zero-rated VAT under Republic Act (RA) No. 9136, its assertion that it need not prove its having actually made zero-rated sales of electricity by presenting the VAT official receipts and VAT returns cannot be upheld. It could not be permitted to substitute such vital and material documents with secondary evidence like financial statements.
On the other hand, a judicial claim due to the inaction of the BIR, and thus the administrative claim was never acted upon, there was no decision for the CTA to review on appeal per se. Consequently, the CTA may give credence to all evidence presented by a taxpayer, including those that may not have been submitted to the CIR as the case is being essentially decided in the first instance. The Total Gas must prove every minute aspect of its case by presenting and formally offering its evidence to the CTA, which must necessarily include whatever is required for the successful prosecution of an administrative claim (Pilipinas Total Gas, Inc. vs. CIR, G.R. No. 207112, December 8, 2015, J. Mendoza).
Thus, Luzon Hydro did not competently establish its claim for refund or tax credit (Luzon Hydro Corporation v. CIR, G.R. No. 188260, November 13, 2013, J Bersamin).
Is failure to print the word “zero-rated” on the invoices or receipts fatal to a claim for refund or credit of input VAT on zero-rated sales?
YES. Failure to print the word “zero-rated” on the invoices or receipts is fatal to a claim for refund or credit of input VAT on zero-rated sales. Well-settled is the fact that actions for tax refund are in the nature of a claim for exemption and the law is construed in strictissimi juris against the taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven. The invoicing requirement is reasonable and must be strictly complied with, as it is the only way to determine the veracity of its claim (KEPCO Philippines Corporation vs. CIR, G.R. No. 179961, January 31, 2011, J. Mendoza).
Pursuant to their agreement, the electricity produced by the Luzon Hydro was to be sold exclusively to NPC. Relative to its sale to NPC, Luzon was granted by the BIR a certificate for Zero Rate for VAT purposes. On November 26, 2001, Luzon filed a claim for refund or tax credit relative to its unutilized input VAT alleging that it had incurred input VAT on its domestic purchases of goods and services used in its generation and sales of electricity to NPC in the four quarters of 2001.
MMM, Inc., a domestic telecommunications company, handles incoming telecommunications services for non-resident foreign companies by relaying international calls within the Philippines. To broaden the coverage of its telecommunications services throughout the country, MMM, Inc. entered into various interconnection agreements with local carriers. The non-resident foreign corporations pay MMM, Inc. in US dollars inwardly remitted through Philippine banks, in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
The CIR denied the claim contending that Luzon Hydro failed to demonstrate that the taxes sought to be refunded were erroneously or illegally collected. In its VAT returns for the four quarters of 2001, no amount of zero-rated sales was declared. Likewise, it did not submit any VAT official receipt of payments for services rendered to NPC. The only proof submitted by petitioner is a letter from Regional Director of Revenue Region No. 1, stating that the financial statements and annual income tax return
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UST LAW PRE-WEEK NOTES 2017 MMM, Inc. filed its Quarterly VAT Returns for 2000. Subsequently, MMM, Inc. timely filed with the BIR an administrative claim for the refund of the amount of P6, 321, 486.50, representing excess input VAT attributable to its effectively zero-rated sales in 2000. The BIR ruled to deny the claim for refund of MMM, Inc. because the VAT official receipts submitted by MMM, Inc. did not bear the words "zerorated" as required under Sec. 4.108-1 of Revenue Regulations (RR) No. 7-95. On appeal, the CTA division and the CTA en banc affirmed the BIR ruling.
refund covering the taxable year 2002 on the basis of its sales invoice. For failure of the BIR to act on its claim, Takenaka filed a Petition for Review with CTA on March 10, 2004. Did the CTA properly acquire jurisdiction over the case? NO. The CTA should deny petitioner's claim for tax refund or credit for lack of jurisdiction. Takenaka timely filed its administrative claim on April 11, 2003, within the two-year prescriptive period after the close of the taxable quarter when the zero-rated sales were made. The BIR had 120 days, or until August 9, 2003, to decide the claim. Considering that the BIR did not act on the petitioner's claim on or before August 9, 2003, the latter had until September 8, 2003, the last day of the 30-day period, within which to file its judicial claim. However, it brought its petition for review in the CTA only on March 10, 2004, or 184 days after the last day for the filing.
MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did not provide for such a requirement. RR No. 7-95 should not prevail over a taxpayer's substantive right to claim tax refund or credit. a. Rule on the appeal of MMM, Inc. b. Will your answer in (a) be any different if MMM, Inc. was claiming refund of excess input VAT attributable to its effectively zero-rated sales in 2012? (2015 BAR) a.
Clearly, the petitioner belatedly brought its judicial claim for refund, and the CTA did not acquire jurisdiction over the claim for tax refund.
The appeal of MMM, Inc. must be denied. MMM, Inc.’s position that the requirements under RR No. 7-95 should not prevail over a taxpayer’s su bstantive right to claim tax refund is unmeritorious. The Secretary of Finance has the authority to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the NIRC. Such rules and regulations are given weight and respect by the courts in view of the rule-making authority given to those who formulate them and their specific expertise in their respective fields.
NOTE: Although Takenaka's judicial claim was brought well within the two-year prescriptive period, the twoyear prescriptive period refers to the period within which the taxpayer can file an administrative claim, not the judicial claim with the CTA. In the preceding problem, are sales invoices sufficient as evidence to prove zero-rated sale of services by Takenaka to PIATCO thereby entitling him to claim the refund of its excess input VAT?
An applicant for a claim for tax refund or tax credit must not only prove entitlement to the claim, but al so comply with all the documentary and evidentiary requirements. Consequently, the CTA and the CTA en banc correctly ruled that the failure to indicate the words “zero-rated” on the invoices and receipts issued by a taxpayer would result in the denial of the claim for refund or tax credit. (Eastern Telecommunications Philippines, Inc. v. CIR, 2015) b.
NO. The claim for refund must be denied on the ground that the taxpayer had not established its zero -rated sales of services through the presentation of official receipts. As evidence of an administrative claim for tax refund or tax credit, there is a certain distinction between a receipt and an invoice.
NO, my answer will not be different if the claim for refund is for effectively zero-rated sales in 2012. The requirement to print the w ord “zero-rated” is no longer by mere regulations but is now clearly provided by law as follows – “If the sale is subject to zero percent (0%) value-added tax, the term “zerorated sale” shall be written or printed prominently on the invoice receipt. Failure to comply with this invoicing requirement is fatal to a claim for refund of input taxes attributable to the zero-rated sale (Sec. 113(B)(2)(c), NIRC).
Section 113 of the Tax Code of 1997 provides that a VAT invoice is necessary for every sale, barter or exchange of goods or properties, while a VAT official receipt properly pertains to every lease of goods or properties, as well as to every sale, barter or exchange of services. The taxpayer submitted sales invoices, not official receipts, to support its claim for refund. In light of the distinction between a receipt and an invoice, the submissions were inadequate to comply with the substantiation requirements for administrative claims for tax refund or tax credit (Takenaka Corporation – Philippine Branch vs. CIR, G.R. No. 193321, October 19, 2016, J. Bersamin).
Takenaka entered into an On-Shore Construction Contract with Philippine Air Terminal Co., Inc. (PIATCO), a PEZA-registered entity, for the construction of the Ninoy Aquino Terminal III.
The CTA denied the claim for refund by Taganito on its input VAT on importation of capital goods for failure of the latter to substantiate its claim. However, Taganito insists that the official receipts issued by the bank authorized to collect import duties and taxes are the best evidence to prove its payment of the input tax being claimed. It also points to the report of the independent CPA which allegedly reviewed the IEIRDs and subsidiary ledger
Takenaka filed its quarterly VAT returns for the taxable year 2002. The BIR, on the other hand, i ssued VAT Ruling No. 011-03 which states that the sales of goods and services rendered by Takenaka to PIATCO are subject to zero-percent (0%). This prompted Takenaka on April 11, 2003 to file its claim for VAT
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TAXATION LAW containing the description of the dump trucks. Is Taganito’s claim tenable?
SEC. 112 (VAT) Period is 2 years after the close of the taxable quarter when the sales were made The 30-day period of appeal to the CTA need not necessarily fall within the two-year prescriptive period, as long as the administrative claim before the CIR is filed within the two-year prescriptive period. This is because Sec. 112 (D) of the 1997 NIRC mandates that a taxpayer can file the judicial claim: (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120-day period, or (2) only within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period (CIR v. San Roque Power Corporation, G.R. Nos. 187485, 196113, 197156, February 12, 2013)
NO. IEIRD is required to properly substantiate the payment of the duties and taxes on imported goods. Moreover, even assuming that the importations were duly substantiated, Taganito's claim still would not prosper because it failed to present evidence to show that it properly amortized the related input VAT over the estimated useful life of the capital goods in its subsidiary ledger, as required by RR 16-05 12. This is made apparent by the fact that Taganito's claim for refund is for the full amount of the input VAT on the importation, rather than for an amortized amount, and by its failure to present its subsidiary ledger (Taganito Mining Corporation vs. CIR, G.R. No. 201195, November 26, 2014, J. Mendoza).
Under Section 229 of the Tax Code, no such suit or proceeding shall be filed for the recovery of tax erroneously or illegally collected after the expiration of two (2) years from the date of payment of the tax or penalty. Is this applicable to claims for a refund or tax credit for unutilized creditable input VAT? NO. The two-year period under Section 229 does not apply to claims for a refund or tax credit for unutilized creditable input VAT because it is not considered "excessively" collected. Instead, it is settled that Section 112 applies to claims for a refund or tax credit for unutilized creditable input VAT, thereby making the 120+ 30-day period prescribed therein mandatory and jurisdictional in nature (Taganito Mining Corporation vs. CIR, G.R. No. 198076, November 19, 2014, J. Mendoza).
SEC. 229 (OTHER TAXES) Period is 2 years from the date of payment of the tax Period to file an administrative claim before the CIR AND judicial claim with the CTA must fall within the 2-year prescriptive period
OTHER PERCENTAGE TAX (OPT)
Is a taxpayer, located within an ECOZONE, entitled to the refund of its unutilized input taxes incurred before it became a PEZA-registered entity?
What is the nature of OPT? As a rule, VAT is imposed on every sale, barter, or exchange of goods or services and on importations. However, there are instances where the same does not apply because the transaction is subject to OPT as required by the NIRC.
NO. The purchases of goods and services by the taxpayer that were destined for consumption within the ECOZONE should be free of VAT; hence, no input VAT should then be paid on such purchases, rendering the taxpayer not entitled to claim a tax refund or credit.
Percentage tax is a tax imposed on sale, barter, exchange or importation of goods, or sale of services based upon gross sales, value in money of receipts derived by the manufacturer, producer, importer or seller measured by certain percentage of the gross selling price or receipts. If the transaction is subject to OPT, it is no longer subject to VAT. Nonetheless, OPT as well as VAT may be imposed together with excise taxes (Tabag, 2015).
Verily, if the taxpayer had paid the input VAT, th e proper recourse is not against the Government but against the seller who had shifted to it the output VAT (Coral Bay Nickel Corp. vs. CIR, G.R. No. 190506, June 13, 2016, J. Bersamin).
Distinguish Sec. 112 on refund for VAT from Sec. 229 on refund of other taxes.
12 SECTION 4.110-3. Claim for Input Tax on Depreciable Goods. - Where a VAT-registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds one million pesos (P1,000,000.00), regardless of the acquisition cost of each capital good, shall be claimed as credit against output tax in the following manner: (a) If the estimated useful life of a capital good is five (5) years or more – The input tax shall be spread evenly over a period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the capital good is acquired. The total input taxes on purchases or importations of this type of capital goods shall be divided by 60 and the quotient will be the amount to be claimed monthly. (b) If the estimated useful life of a capital good is less than five (5) years – The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of a capital good. The claim for input tax credit shall commence in the month that the capital goods were acquired.
Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed one million pesos (P1,000,000.00), the total input taxes will be allowable as credit against output tax in the month of acquisition. Capital goods or properties refers to goods or properties with estimated useful life greater than 1 year and which are treated as depreciable assets under Sec. 34(F) of the tax Code, used directly or indirectly in the production or sale of taxable goods or services. Xxx SECTION 4.113-3. Accounting Requirements. Xxx A subsidiary record in ledger form shall be maintained for the acquisition, purchase or importation of depreciable assets or capital goods which shall contain, among others, information on the total input t ax thereon as well as the monthly input tax claimed in VAT declaration or return.
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UST LAW PRE-WEEK NOTES 2017 What is the basis of “gross receipts” for purposes of computing the 3% Percentage Tax under Section 118(A)13 of the Tax Code?
Who is directly liable to pay to the excise tax? For the first type of goods, namely, goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition, Section 130 of the Tax Code states that, unless otherwise specifically allowed, the taxpayer obligated to file the return and pay the excise taxes due thereon is the manufacturer/producer. On the other hand, with respect to the second kind of goods, which are things imported, Section 131 of the Tax Code states that the taxpayer obligated to file the return and pay the excise taxes due thereon is the owner or importer, unless the imported articles are exempt from excise taxes and the person found to be in possession of the same is other than those legally entitled to such tax exemption (Philippine Airlines, Inc. vs CIR, G.R. No. 198759, July 1, 2013, J. PerlasBernabe).
RR No. 15-200214 prescribes that “gross receipts” for the purpose of determining Common Carrier’s Tax shall be the same as the tax base for calculating Gross Philippine Billings Tax. Gross revenues shall be based on the actual amount received by the airline company as reflected on the plane ticket.
EXCISE TAX Define excise tax? The term "excise tax" under Title VI of the Tax Code of 1997 relates to taxes applied to (1) goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to (2) things imported (Sec. 129, Tax Code).
When is excise tax on taxable goods due for payme nt? The liability for the payment of the excise tax arises before the removal of the goods from the place of their production, and in case of imported things, before the release of articles from the customshouse.
Excise taxes are considered as a kind of indirect tax, the liability for the payment of which may fall on a person other than whoever actually bears the burden of the tax. Simply put, the statutory taxpayer may shift the economic burden of the excise tax payment to another – usually the buyer (Chevron Philippines, Inc. vs. CIR, G.R. No. 210836, September 1, 2015, J. Bersamin).
Is payment of excise tax on taxable goods prior to their removal from the place of production or customshouse absolute?
NOTE: The excise tax imposed shall be in addition to the value-added tax imposed under Title IV of the Tax Code.
YES. The subsequent sale, consumption or other disposition of the goods becomes relevant only to determine whether any exemption or tax relief may be granted thereafter.
What are the types of excise tax? Excise taxes as used in our Tax Code fall under two types:
Verily, it is the actual sale, consumption or disposition of the taxable goods that confirms the proper tax treatment of goods previously subjected to the excise tax. If any of the goods enumerated under Title VI of the NIRC are manufactured or produced in the Philippines and eventually sold, consumed, or disposed of in any other manner domestically, therefore, there can be no claim for any tax relief inasmuch as the excise tax was properly levied and collected from the manufacturer-seller (Separate opinion of J. Bersamin in CIR v. Pilipinas Shell Petroleum Corp., G.R. No. 188497, 2014).
(1) specific tax which is based on weight or volume capacity and other physical unit of measurement; and (2) ad valorem tax which is based on selling price or other specified value of the goods (Sec. 129, NIRC; CIR v. Pilipinas Shell Petroleum Corp., G.R. No. 188497, February 19, 2014, J. Villarama, Jr.).
When does the liability for excise tax accrue? The accrual and payment of the excise tax under Title VI of the NIRC materially rest on the fact of actual production, manufacture or importation of the taxable goods (i.e., alcohol products, tobacco products, petroleum products, automobiles and nonessential goods, mineral products) in the Philippines and on their presumed or intended domestic sale, consumption or disposition (Separate opinion of J. Bersamin in CIR v. Pilipinas Shell Petroleum Corp., G.R. No. 188497, 2014).
Are local manufacturers entitled to tax refund on paid excise taxes on its petroleum products sold to international carriers? YES. Under Section 135(a) 15 of the Tax Code, the shifting of the burden of the excise tax to the international carriers who buy petroleum products from the local
area of the tax coupon forming an integral part of the plane ticket. 13 Sec. 118. Percentage Tax on International Carriers. ― (A)
Xxx (emphasis supplied) 15 SECTION 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. — Petroleum products sold to the following are exempt from excise tax:
International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts.
14 Sec. 5. Determination of Gross Philippine Billings. ― (a) In c omputing for “Gross Philippine Billings,” there shall be included the total amount of gross revenue derived from passage of persons, excess baggage, cargo and/or mail, originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the passage documents.
a.
The gross revenue for passengers whose tickets are sold in the Philippines shall be the actual amount derived for transportation services, for a first class, business class or economy class passage, as the case may be, on its continuous and uninterrupted flight from any port or point in the Philippines to its final destination in any port or point of a foreign country, as reflected in the remittance
b.
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International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, that the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, that the country of said foreign international carrier or exempt entities or agencies
TAXATION LAW manufacturers is prohibited. Said international carriers are thus allowed to purchase the petroleum products without the excise tax component which otherwise would have been added to the cost or price fixed by the local manufacturers or distributors/sellers.
and erroneous upon the sale of the petroleum products to CDC. Section 20416 of the Tax Code allows Chevron as the statutory taxpayer to claim the refund or the credit of the excise taxes thereby paid (Chevron Phil. Inc. v. CIR, G.R. No. 210836, September 01, 2015, J. Bersamin).
Thus, local manufacturers or distributors/sellers, as the statutory taxpayers who is directly liable to pay the excise tax on its petroleum products upon their removal from the place of production, is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers (CIR v. Pilipinas Shell Petroleum Corp., G.R. No. 188497, February 19, 2014, J. Villarama, Jr.) .
In cases involving excise tax exemptions on petroleum products under Section 135 of the Tax Code, who is the proper party to claim for tax refund? Section 204(c) of the NIRC states that it is the statutory taxpayer which has the legal personality to file a claim for refund. Accordingly, in cases involving excise tax exemptions on petroleum products under Section 135 of the NIRC, the Court has consistently held that it is the statutory taxpayer who is entitled to claim a tax refund based thereon and not the party who merely bears its economic burden.
NOTE: Excise tax on petroleum products is essentially a tax on property, the direct liability for which pertains to the statutory taxpayer (i.e., manufacturer, producer or importer). Any excise tax paid by the statutory taxpayer on petroleum products sold to any of the entities or agencies named in Section 135 of the Tax Code exempt from excise tax is deemed illegal or erroneous, and should be credited or refunded to the payor (Chevron Philippines, Inc. vs. CIR, G.R. No. 210836, September 1, 2015, J. Bersamin).
Is the above rule absolute? NO. The above rule should not apply to instances where the law clearly grants the party to which the economic burden of the tax is shifted an exemption from both direct and indirect taxes. In which case, the latter must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer under the law.
Chevron filed a claim for refund or tax credit for the excise taxes paid on its importation of petroleum products that it had sold to the Clark Development Corporation (CDC), an entity exempt from direct and indirect taxes. The CTA denied Chevron’s claim stating that there was nothing in Section 135(c) of the Tax Code that explicitly exempted Chevron as the seller of the imported petroleum products from the payment of the excise taxes; and holding that becaus e it did not fall under any of the categories exempted from paying excise tax, Chevron is not entitled to the tax refund or tax credit. Is CTA correct?
Thus, the propriety of a tax refund claim is hinged on the kind of exemption which forms its basis. If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim (Philippine Airlines, Inc. vs CIR, G.R. No. 198759, July 1, 2013, J. Perlas-Bernabe).
NO. Pursuant to Section 135(c) petroleum products sold to entities that are by law exempt from direct and indirect taxes are exempt from excise tax. The phrase which are by law exempt from direct and indirect taxes describes the entities to whom the petroleum products must be sold in order to render the exemption operative. Section 135(c) should thus be construed as an exemption in favor of the petroleum products on which the excise tax was levied in the first place.
DOCUMENTARY STAMP TAX (DST) What is the nature of DST? A DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. The DST is actually an excise tax, because it is imposed on the transaction rather than on the document (Philippine Bank of Communications vs. CIR, G.R. No. 194065, June 20, 2016, C.J. Sereno).
Inasmuch as its liability for the payment of the excise taxes accrued immediately upon importation and prior to the removal of the petroleum products from the customshouse, Chevron was bound to pay, and actually paid such taxes. But the status of the petroleum products as exempt from the excise taxes would be confirmed only upon their sale to CDC, which is an entity exempt from direct and indirect taxes. Before then, Chevron did not have any legal basis to claim the tax refund or the tax credit as to the petroleum products. Consequently, the payment of the excise taxes by Chevron upon its importation of petroleum products was deemed illegal
According to Section 200 (D) of the Tax Code, the DST may be paid by imprinting the stamps through a documentary stamp metering machine, on the taxable document. What is DS metering machine? The DS metering machine was developed and used for businesses with material DST transactions like banks and insurance companies for their regular transactions. These businesses authorized by the BIR may load
exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and Entities which are by law exempt from direct and indirect taxes.
unfit for use and refund their value upon proof of destruction. No credit
16 SEC 204. Authority of the Commissioner to Compromise, Abate and
however, that a return filed showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis and underscoring supplied)
c.
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after payment of the tax or penalty : Provided,
Refund or Credit Taxes. – The Commissioner may – x x x x (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered
30
UST LAW PRE-WEEK NOTES 2017 Who is liable to pay DST?
documentary stamps on their DS metering machine in accordance with the rules and regulations. In other words, this system allows advanced payment of the DST for future applications (Philippine Bank of Communications vs. CIR, G.R. No. 194065, June 20, 2016, C.J. Sereno).
DST on documents, loan agreements, and papers shall be levied, collected and paid for by the person making, signing, issuing, accepting, or transferring the same. The Tax Code provides that whenever one party to the document enjoys exemption from DST, the other party not exempt from DST shall be directly liable for the tax. Thus, it is clear that DST shall be payable by any party to the document , such that the payment and compliance by one shall mean the full settlement of the DST due on the document (CIR vs. De La Salle University, G.R. No. 196596, November 9, 2016, J. Brion).
Should the date of purchase of documentary stamps for loading and reloading on the DS metering machine be deemed as payment of the DST for the purpose of counting the two-year prescriptive period for filing a claim for a refund or tax credit? NO. Under Section 229 of the Tax Code, the claim for a refund of erroneously paid DST must be within two years from the date of payment of the DST.
NIRC REMEDIES What are the remedies of a taxpayer?
The payment of the DST upon loading/reloading of the DS metering machine must not be considered as the "date of payment" when the prescriptive period to file a claim for a refund/credit must commence. For DS metering machine users, the payment of the DST upon loading/reloading is merely an advance payment for future application.
These are legal actions which a taxpayer can avail to seek relief from the undue burden or oppressive effect of tax laws, or as means to check possible excesses by revenue officers in the performance of their duties. Remedies before payment 1. Administrative remedies a. Protest of assessment; i. Reconsideration ii. Reinvestigation b. Compromise; and c. Abatement 2. Judicial Remedies
The liability for the payment of the DST falls due only upon the occurrence of a taxable transaction. Therefore, the date of imprinting the documentary stamp on the taxable document must be considered as the date of payment contemplated under Section 229 of the NIRC (Philippine Bank of Communications vs. CIR, G.R. No. 194065, June 20, 2016, C.J. Sereno).
Remedies after payment 1. Administrative remedies a. Tax refund b. Tax credit 2. Judicial remedies
The BIR assessed PNB for deficiency DST on its interbank call loans. BIR claims that PNB's interbank call loans were included in the concept of loan agreements; hence, the interbank call loans were subject to DST. Is the contention of BIR tenable?
What are the remedies of the Government? NO. PNB's interbank call loans are not taxable under Section 180 of the Tax Code. An interbank call loan refers to the cost of borrowings from other resident banks and non-bank financial institutions with quasi-banking authority that is payable on call or demand. It is transacted primarily to correct a bank's reserve requirements. It does not fall under the definition of a loan agreement (CIR vs. PNB, G.R. No. 195147, July 11, 2016, J. Bersamin).
These are courses of action provided or allowed in the law to implement the tax laws or e nforce tax collection. 1.
NOTE: Section 180 provides that DST of Php0.30 on each Php200.00, or fractional part thereof, shall only be imposed on the face value of: 1. 2. 3. 4. 5. 6. 7.
2.
loan agreements; bills of exchange; drafts; instruments and securities issued by the Government or any of its instrumentalities; certificates of deposits drawing interest; orders for the payment of any sum of money otherwise than at sight or on demand; and promissory notes, whether negotiable or nonnegotiable, except bank notes issued for circulation, and on each renewal of any such note.
Administrative remedies a. Tax lien b. Distraint and levy c. Forfeiture of real property d. Suspension of business operation e. Non-availability of injunction collection of tax Judicial remedies a. Ordinary civil action b. Criminal action
to
restrain
What is Letter of Authority (LOA)? A LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of c ollecting the correct amount of tax. A LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized representatives pursuant to Section
Interbank call loans, although not considered as deposit substitutes for taxation purposes, are not expressly included among the taxable instruments listed in Section 180; hence, they may not be held as taxable. (CIR vs. PNB, G.R. No. 195147, July 11, 2016, J. Bersamin).
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TAXATION LAW NO. When an assessment is made within the prescriptive period, receipt by the taxpayer may or may not be within said period.
617 of the Tax Code. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations without prior authority (Medicard Philippines, Inc. vs. CIR, G.R. No. 222743, April 5, 2017, J. Reyes).
Is Letter Notice (LN) sufficient for purposes of compliance with the requirement of LOA?
However, the rule does not dispense with the requirement that the taxpayer should actually receive the assessment notice, even beyond the prescriptive period (CIR vs. GJM Philippines Manufacturing, Inc., G.R. No. 202695, February 29, 2016, J. Peralta).
NO. LN is entirely different and serves a different purpose than a LOA.
Who has the burden of proof to establish receipt of assessment by the taxpayer?
First, a LOA addressed to a revenue officer is specifically required under the NIRC before an examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR's RELIEF System. Second, a LOA is valid only for 30 days from date of issue while an LN has no such limitation. Third, a LOA gives the revenue officer only a period of 120 days from receipt of LOA to conduct his examination of the taxpayer whereas an LN does not contain such a limitation.
It has been settled that while a mailed letter is deemed received by the addressee in the course of mail , this is merely a disputable presumption subject to controversion, the direct denial of which shifts the burden to the sender to prove that the mailed letter was, in fact, received by the addressee. If the taxpayer denies having received an assessment from the BIR, it then becomes incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. Here, the onus probandi has shifted to the BIR to show by contrary evidence that taxpayer indeed received the assessment in the due course of mail.
What is the effect of absence of LOA? The absence of LOA violates taxpayer’s right to due process. There must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity (CIR vs. SONY Philippines, Inc. G.R. No. 178697, November 17, 2010).
To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer or its authorized representative. And if said documents could not be located, the CIR should, at the very least, submit a certification issued by the Bureau of Posts and any other pertinent document executed with its intervention (CIR vs. GJM Philippines Manufacturing, Inc., G.R. No. 202695, February 29, 2016, J. Peralta).
What is the presumption in cases of tax assessments? All presumptions are in favor of the correctness of tax assessments. The good faith of the tax assessors and the validity of their actions are thus presumed. They will be presumed to have taken into consideration all the facts to which their attention was called. Hence, it is incumbent upon the taxpayer to credibly show that the assessment was erroneous in order to relieve himself from the liability it imposes (CIR v. Secretary of Justice, G.R. No. 177387, November 9, 2016, J. Bersamin).
A perusal of the FAN against a taxpayer will show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was provided by the BIR. Only the resulting interest, surcharge and penalty were anchored with legal basis. The BIR argues that a scrutiny of the BIR records of respondent would show that the details of the factual finding of EWT were itemized from the PAN issued by petitioner. Is the assessment valid?
The FLD issued against a taxpayer stated that the amounts therein were “estimates based on best possible sources.” Is the assessment valid?
NO. Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made. Otherwise, the assessment is void.
NO. A taxpayer should be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment is void. An assessment, in order to stand judicial scrutiny, must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption (Spouses Pacquiao vs. CTA, G.R. No. 213394, April 6, 2016, J. Mendoza).
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice.
If assessment is made within the prescriptive period, is it necessary that the receipt of such assessment by the taxpayer be within the prescriptive period also?
In this case, BIR should have at least attached a detailed notice of discrepancy or stated an explanation why the amount of deficiency tax is collectible against taxpayer and how the same was arrived at. Any short-cuts to the
17 SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement.– (A) Examination of Return and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the
authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, that failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. (emphasis supplied)
Commissioner or his duly authorized representative may
32
UST LAW PRE-WEEK NOTES 2017 prescribed content of the assessment or the process thereof should not be countenanced (CIR vs. United Salvage and Towage (Phils.) Inc, G.R. No. 197515, July 2, 2014, J. Peralta).
liability as it is deemed a denial of the protest filed by the latter, which may also be appealed b efore the CTA. An FDDA that does not inform the taxpayer in writing of the facts and law on which it is based renders the decision void. Therefore, it is as if there was no decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which may still be appealed before the CTA and the assessment evaluated on the basis of the available evidence and documents (CIR vs. Liquigaz Philippines Corporation, G.R. No. 215534, April 18, 2016, J. Mendoza).
When does an assessment become a disputed assessment? Where a taxpayer questions an assessment and asks the CIR to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed assessment" that the CIR must decide. Thus, an assessment becomes a disputed assessment after a taxpayer has filed its protest to the assessment in the administrative level (CIR vs. Liquigaz Philippines Corporation, G.R. No. 215534, April 18, 2016, J. Mendoza).
Is substantial compliance of the notice requirement under Section 228 of the NIRC allowed? YES. The notice requirement under Section 228 of the NIRC is substantially complied with whenever the taxpayer had been fully informed in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an effective protest.
Section 228 of the NIRC declares that an assessment is void if the taxpayer is not notified in writing of the facts and law on which it is made. Is this requirement applicable to both Formal Letter of Demand / Formal Assessment Notice (FLD/FAN) and Final Decision on Disputed Assessment (FDDA)?
NOTE: In one case, the Supreme Court held that considering the exchange of correspondence and documents between the BIR and taxpayer in which the former explained at length the factual and legal bases of the deficiency tax assessments, the requirement of Section 228 was substantially complied with. Taxp ayer’s right to due process was thus not violated (Samar I Electric Cooperative v. CIR, G.R. No. 193100, December 10, 2014).
YES. The requirement of providing the taxpayer with written notice of the factual and legal bases applies both to the FLD/FAN and the FDDA. Although Section 228 is silent with regards to a decision on a disputed assessment by the CIR which fails to state the law and facts on which it is based, it should not be read restrictively as to limit the written notice only to the assessment itself. Moreover, RR No. 12-99 detailed the process of assessment and required that both the FAN/FLD and the FDDA state the law and facts on which it is based.
Taxpayer duly protested a PAN it received from the BIR. Subsequently, the BIR issued a FAN to the taxpayer. The demand letter stat es: “This is our final decision based on investigation. If you disagree, you may appeal the final decision within 30 days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.” Instead of filing a protest on the assessment, the taxpayer filed a petition for review with the CTA. The BIR filed a motion to dismiss on the ground that the taxpayer failed to exhaust administrative remedies by filing a protest on the assessment. Should the motion be granted?
The Court raises the possibility that the amounts reflected in the FDDA were arbitrarily made if the factual and legal bases thereof are not shown. Thus, the rule is in observance of due process —to afford the taxpayer adequate opportunity to file a protest on the assessment and thereafter file an appeal in case of an adverse decision (CIR vs. Liquigaz Philippines Corporation, G.R. No. 215534, April 18, 2016, J. Mendoza).
NO. This case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of BIR. The taxpayer cannot be blamed for not filing a protest against the FAN since the language used and the tenor of the demand letter indicate that it is the final decision of the CIR on the matter. The CIR must indicate, in a clear and unequivocal language, whether its action on a disputed assessment constitutes its final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Thus, the CIR is now estopped from claiming that it did not intend the FAN to be a final decision (Allied Banking Corp. v. CIR, G.R. No. 175097, February 5, 2010).
What is the effect of void FDDA? A void FDDA does not ipso facto render the assessment void. A “decision” differs from an “assessment.” The difference is apparent in Section 7 of R.A. 1125, as amended, where the CTA is conferred with appellate jurisdiction over the decision of the CIR in cases involving disputed assessments, as well as inaction of the CIR in disputed assessments. From the foregoing, it is clear that what is appealable to the CTA is the “decision” of the CIR on disputed assessment and not the assessment itself.
Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates (TCCs) which it purchased through the One Stop Shop Inter-Agency Tax Credit Center (Center) of the Department of Finance. The Center is a composite body of the DOF, BIR, BOC and the BOI. The TCCs were accepted by the BIR as payments. A year after, the BIR demanded the payment of alleged deficiency excise taxes on the ground that Soaring Eagle is not a qualified transferee of the TCCs it purchased from other BOI-registered companies. The BIR argued that the TCCs are subject to post-
After the protest to the assessment by the taxpayer, the CIR either issues a decision on the disputed assessment or fails to act on it and is, therefore, considered denied. 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. Under the law, inaction on the part of the CIR may likewise result in the finality of a taxpayer’s tax
33
TAXATION LAW audit as a suspensive condition. On the other hand, Soaring Eagle countered that it is a buyer in good faith and for value who merely relied on the Center's representation of the genuineness and validity of the TCCs. If it is ordered to pay the deficiency, Soaring Eagle claims the same is confiscatory and a violation of due process. Is the assessment against Soaring Eagle valid? Explain. (2016 BAR)
that he may either pay the amount of the assessment or contest its validity in court. It would surely be prejudicial to the interest of the taxpayer for the Government collecting agency to unduly delay the assessment and the collection because by the time the collecting agency finally gets around to making the assessment or making the collection, the taxpayer may then hav e lost his papers and books to support his claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer eventually has to pay.
NO. The assessment is invalid because the TCCs used by Soaring Eagle are valid and effective. A TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations (Pilipinas Shell Petroleum Corp. v. CIR, 541 SCRA 316 [2007]).
Likewise, the prescriptive period for the filing of actions for collection of taxes is justified by the need to protect law-abiding citizens from possible harassment. Also, it is principally intended to afford protection to the taxpayer against unreasonable investigations as the indefinite extension of the period for assessment deprives the taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. Thus, the legal provisions on prescription should be liberally construed to protect taxpayers and that, as a corollary, the exceptions to the rule on prescription should be strictly construed (CIR vs. Basf Coating + Inks Phils., Inc, G.R. No. 198677, November 26, 2014, J. Peralta).
A Rehabilitation Court declared LCI to be under corporate rehabilitation and issued an Order providing, among others, the suspension of all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI. The BIR was notified of the rehabilitation proceedings involving LCI. Despite the foregoing, the BIR, through Misajon, still opted to assess and sent FAN requiring LCI to pay deficiency taxes. As such, Misajon was cited for contempt by the court. Misajon argued that (a) they only performed such acts to toll the prescriptive period for the collection of deficiency taxes; and (b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government. Is Misajon correct?
On January 9, 1996, BIR issued assessment notice against a taxpayer for taxable year 1992. The taxpayer protested arguing that the assessment is void because the right of the government to assess and collect deficiency taxes from it has prescribed. BIR, on the other hand, argued that its right to collect the deficiency tax has not yet prescribed because while the final assessment notice and demand letter were issued on January 9, 1996, the five (5)-year prescriptive period to collect was interrupted when respondent filed its request for reinvestigation on March 14, 1997 which was granted by the BIR on January 22, 2001. Thus, the period for tax collection should have begun to run from the date of the reconsidered or modified assessment. Is BIR correct?
NO. It was improper for Misajon to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings, and in the process, willfully disregard the Order lawfully issued by the Rehabilitation Court.
NO. The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg. 700. Thus, BIR has three (3) y ears from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. However, when it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.
The act of sending FAN and FLD is part of assessment and collection of deficiency taxes, an action or proceeding for the enforcement of a claim which should have been suspended pursuant to the Order. Misajon could have easily tolled the running of such prescriptive period, and at the same time, perform their functions as officers of the BIR, without defying the Order by simply ventilating their claim before the Rehabilitation Court (BIR vs. Lepanto Ceramics, Inc., G.R. No. 224764, April 24, 2017, J. PerlasBernabe).
Statute of Limitations What is the purpose of statute of limitations on the assessment and collection of taxes? Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so
The Collection Letter for deficiency taxes for taxable year 1992 was only issued on February 21, 2002, despite the fact that the FANs for the deficiency taxes for taxable year 1992 was issued as early as January 9, 1996. Clearly, five (5) long years had already lapsed, beyond the three (3)year prescriptive period, before collection was pursued by the BIR. Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted upon by petitioner on January 22, 2001, also beyond the three (3)
34
UST LAW PRE-WEEK NOTES 2017 the basis that the same had already prescribed under Tax Code.
year statute of limitations reckoned from January 9, 1996, notwithstanding the lack of impediment to rule upon such issue. Moreover, the request for reinvestigation should be granted or at least acted upon in due course before the suspension of the statute of limitations may set in (CIR vs. United Salvage and Towage (Phils.) Inc, G.R. No. 197515, July 2, 2014, J. Peralta).
On its Petition for Review, MERALCO argued that exemption was provided and ascertained only through BIR Ruling No. DA-342-2003 and that the prescriptive period for initiating an action on the ground of quasicontract or solutio indebiti under Article 1145 of the New Civil Code is six (6) years. Is MERALCO correct?
More than 12 years after the filing of the protest, the CIR rendered a decision reiterating the deficiency DST assessment against CBC and ordered the payment thereof within 30 days from receipt of the Decision.
NO. Section 22918 of the Tax Code provides taxpayer/claimant a period of two (2) years f rom the date of payment of tax to file a claim for refund before the BIR. The prescriptive period provided is mandatory regardless of any supervening cause that may arise after payment. It should be pointed out further that while the prescriptive period of two (2) years commences to run from the time that the refund is ascertained, the propriety thereof is determined by law (in this case, from the date of payment of tax), and not upon the discovery by the taxpayer of the erroneous or excessive payment of taxes. The issuance by the BIR of the Ruling declaring the taxexempt status of NORD/LB, if at all, is merely confirmatory in nature. There is no basis that the subject exemption was provided and ascertained only through BIR Ruling No. DA-342-2003, since said ruling is not the operative act from which an entitlement of refund is determined. In other words, the BIR is tasked only to confirm what is provided under the Tax Code on the matter of tax exemptions as well as the period within which to file a claim for refund.
Consequently, CBC filed a Petition for Revie w with the CTA. On 11 March 2002, the CIR filed an Answer with a demand for CBC to pay the assessed DST. Is the right of the BIR to collect the assessed DST from CBC barred by prescription? YES. Under the law, the time limit for the government to collect the assessed tax is set at three years, to be reckoned from the date when the BIR mails/releases/sends the assessment notice to the taxpayer. Further, Section 319(C) states that the assessed tax must be collected by distraint or levy and/or court proceeding within the three-year period. However, in this case, there was neither a warrant of distraint or levy served nor a collection case filed in court by the BIR within the three-year period. The BIR’s Answer in the case filed before the CTA could not, by any means, have qualified as a collection case as required by law. Further, the demand was made almost thirteen years from the date from which the prescriptive period is to b e reckoned. Thus, the attempt to collect the tax was made way beyond the three-year prescriptive period (China Banking Corporation vs. CIR, GR. No. 172509, February 4, 2015, C.J. Sereno).
Moreover, MERALCO is misguided when it relied upon the six (6)-year prescriptive period for initiating an action on the ground of quasicontract or solutio indebiti under Article 1145 of the New Civil Code. There is solutio indebiti where: (1) payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. Here, there is a binding relation between BIR as the taxing authority in this jurisdiction and MERALCO which is bound under the law to act as a withholding agent of NORD/LB Singapore Branch, the taxpayer. Hence, the first element of solutio indebiti is lacking. Moreover, such legal precept is inapplicable to the present case since the Tax Code, a special law, explicitly provides for a mandatory period for claiming a refund for taxes erroneously paid (CIR vs. Manila Electric Company, G.R. No. 181459, June 9, 2014, J. Peralta).
MERALCO obtained a loan from Norddeutsche Landesbank Girozentrale (NORD/LB). Pursuant thereto, MERALCO remitted to the BIR the withholding tax on its interest payments to NORD/LB. Sometime in 2001, MERALCO discovered that NORD/LB is a foreign government-owned financing institution of Germany and requested for a BIR Ruling with regard to the tax-exempt status of NORD/LB. On October 7, 2003, the BIR issued Ruling No. DA-342-2003 declaring that the interest payments made to NORD/LB are exempt from the ten percent (10%) final withholding tax, since it is a financing institution owned and controlled by the foreign government of Germany.
What is the rule on suspension of the running of prescriptive period to assess in case a taxpayer cannot be located in the address given in the return?
Consequently, on July 13, 2004, relying on the aforesaid BIR Ruling, MERALCO filed with the BIR a claim for tax refund or issuance of tax credit certificate for the erroneously paid or overpaid final withholding tax. Said claim was denied by the BIR on
Under Section 223 19 of the Tax Code, the running of the Statute of Limitations shall be suspended when the taxpayer cannot be located in the address given by him in
18 Section 229. Recovery of Tax Erroneously or Illegally Collected. – xxx
proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (emphasis supplied)
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any s upervening cause that may arise after payment xxx. (emphasis supplied)
19 Sec. 223. Suspension of Running of Statute of Limitations. – The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a
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TAXATION LAW the return filed upon which a tax is being assessed or collected.
2. Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the waiver need not specify the particular taxes to be assessed nor the amount thereof, and it may simply state "all internal revenue taxes" considering that during the assessment stage, the CIR or her duly authorized representative is still in the process of examining and determining the tax liability of the taxpayer. 3. Since the taxpayer is the applicant and the executor of the extension of the period of limitation for its benefit in order to submit the required documents and accounting records, the taxpayer is charged with the burden of ensuring that the waivers of statute of limitation are validly executed by its authorized representative. The authority of the taxpayer's representative who participated in the conduct of audit or investigation shall not be thereafter contested to invalidate the waiver. 4. The waiver may be notarized. However, it is sufficient that the waiver is in writing as specifically provided by the NIRC, as amended. 5. Considering that the waiver is a voluntary act of the taxpayer, the waiver shall take legal effect and be binding on the taxpayer upon its execution thereof. 6. It shall be the duty of the taxpayer to submit its duly executed waiver to the CIR or officials previously designated in existing issuances or the concerned revenue district officer or group supervisor as designated in the Letter of Authority/Memorandum of Assignment who shall then indicate acceptance by signing the same. Such waiver shall be executed and duly accepted prior to the expiration of the period to assess or to collect. The taxpayer shall have the duty to retain a copy of the a ccepted waiver. 7. Note that there shall only be two (2) material dates that need to be present on the waiver:
However, the above rule on the suspension of the threeyear period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the taxpayer. In case the BIR, by all indications, is well aware that taxpayer had moved to its new address, as shown by the documents which form part of its records with the BIR, the running of the three-year period to assess respondent is not suspended. (CIR vs. Basf Coating + Inks Phils., Inc, G.R. No. 198677, November 26, 2014, J. Peralta).
What are the requisites in order that request for reinvestigation will suspend the statute of limitations? Two things must concur: there must be a request for reinvestigation and the CIR must have granted it. Thus, request for reinvestigation alone will not suspend the statute of limitations (China Banking Corporation vs. CIR, GR. No. 172509, February 4, 2015, C.J. Sereno).
What is the nature of waiver of statute of limitations? Waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription but rather an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. It is not a unilateral act by the taxpayer of the BIR but is a bilateral agreement between two parties. Since a waiver of the statute of limitations is a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, waivers of this kind must be carefully and strictly construed (Philippine Journalists, Inc. v. CIR, G.R. No. 162852, December 16, 2004).
a. The date of execution of the waiver by the taxpayer or its authorized representative; and b. The expiry date of the period the taxpayer waives the statute of limitations.
What is the effect of a defect in a waiver of statute of limitations? A defect in the waiver results to the non-extension of the period to assess or collect taxes, and makes the assessment issued by the BIR beyond the three-year prescriptive period void (CIR vs Philippine Daily Inquirer, G.R. No. 213943, March 22, 2017, J. Carpio).
8. Before the expiration of the period set on the previously executed waiver, the period earlier set may be extended by subsequent written waiver (RMO 14 2016).
1. The waiver may be, but not necessarily, in the form prescribed by RMO No. 20-90 or RDAO No. 05-01. The taxpayer's failure to follow the aforesaid forms does not invalidate the executed waiver, for as long as the following are complied with:
After being assessed by the BIR with alleged deficiency income taxes, VVV Corporation (VVV) through Enrique, its President, executed a waiver of the prescriptive period. The waiver was signed by Revenue District Officer (RDO) Alfredo. However, the waiver did not state the date of execution by the taxpayer and date of acceptance by the BIR. Enrique was also not furnished a copy of the waiver by the BIR.
a) The Waiver of the Statute of Limitations under Section 222(b) and (d) shall be executed before the expiration of the period to assess or to collect taxes. The date of execution shall be specifically indicated in the waiver. b) The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by a ny of its responsible officials; c) The expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription should be indicated;
VVV claims that the waiver is void due to noncompliance with RMO 20-90. Hence, the period for assessment had already prescribed. Moreover, since the assessment involves P2 Million, the waiver should have been signed by the CIR and instead of a mere RDO. On the other hand, the BIR contends that the requirements of RMO No. 20-90 are merely directory; that the execution of the waiver by VVV was a renunciation of its right to invoke prescription and that the government cannot be estopped by the mistakes committed by its revenue officers. Is VVV liable? Explain. (2016 BAR)
What are the guidelines on proper execution of waivers?
36
UST LAW PRE-WEEK NOTES 2017 NO. The waiver was executed after VVV Corporation (VVV) was assessed for deficiency income taxes obviously to justify the assessment made after prescription had set in. This is the reason why VVV is invoking prescription due to the alleged invalidity of the waiver for failure to comply with the requisites set forth under RMO 20-90. A waiver executed beyond the prescriptive period is ineffective (CIR v. The Stanley Works Sales (Phils), Inc. 743 SCRA 642 [2014]).
Shell Petroleum Corporation, G.R. No. 187631, July 8, 2015, J. Peralta).
May Congress, under the 1987 Constitution, abolish the power to tax of local governments? (2003 BAR) NO. The Congress cannot abolish the local government’s power to tax as it cannot abrogate what is expressly granted by the fundamental law. The only authority conferred to Congress is to provide the guidelines and limitations on the local government’s exercise of the power to tax.
RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers failed to indicate acceptance or agreement of the CIR, as required under Section 223(b) of the 1997 Tax Code. RCBC further argues that the principle of estoppel cannot be applied against it because its payment of the other tax assessments does not signify a clear intention on its part to give up its right to question the validity of the waivers. Is RCBC correct?
Local taxpayers who are engaged in the retail business of selling general merchandise within the territorial jurisdiction of Davao City assails the validity of the City Ordinance No. 158-05, Series of 2005, for being violative of Section 191 21 of the LGC which allows an adjustment in local tax rates not more than once every five years, and not exceeding 10%.
NO. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood.
Under the old tax ordinance, wholesalers and retailers were grouped as one, thus, the tax base and tax rate imposed upon retailers were the same as that imposed upon wholesalers. The new tax ordinance provided different tax treatment between wholesale and retail businesses pursuant to the LGC. They alleged that they used to pay only 50% of 1 % of the business tax rate under the old Davao City Ordinance No. 230, Series of 1990, but in the assailed new ordinance, it will require them to pay a tax rate of 1.5%, or an increase of 200% from the previous rate.
Estoppel is clearly applicable in this case. RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. Thus, RCBC is estopped from questioning the validity of the waivers (Rizal Commercial Banking Corporation vs. CIR, G.R. No. 170257, September 7, 2011, J. Mendoza).
Is the assailed ordinance valid? YES. The assailed ordinance does not violate the limitation imposed by Section 191 of the LGC on the adjustment of tax rate. Section 191 of the LGC presupposes that the following requirements are present for it to apply, to wit: (i)
there is a tax ordinance that already imposes a tax in accordance with the provisions of the LGC; and (ii) there is a second tax ordinance that made adjustment on the tax rate fixed by the first tax ordinance.
PART III: LOCAL TAXATION Is power to tax inherent in local government unit (LGU)? NO. Although the power to tax is inherent in the State, the same is not true for LGUs because although the mandate to impose taxes granted to LGUs is categorical and long established in the 1987 Philippine Constitution, the same is not all encompassing as it is subject to limitations as explicitly stated in Section 5, Article X 20 of the 1987 Constitution. The power to tax must be exercised within the guidelines and limitations that Congress may provide.
In this case, both elements are not present. First, it cannot be said that the old tax ordinance was imposed in accordance with the provisions of the LGC. The old tax ordinance of Davao 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 imposed the new tax base and the new tax rate as provided by the LGC for retailers. It must be emphasized that a tax has two components, a tax base and a tax rate. However, 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. Again, the new ordinance provided, not only a tax rate, but also a tax base that were
Moreover, t he power to tax “is an attribute of sovereignty,” and as such, inheres in the State. Such, however, is not true for provinces, cities, municipalities and barangays as they are not the sovereign; rather, they are mere “territorial and political subdivisions of the Republic of the Philippines ” (Batangas City vs. Pilipinas
21 Section 191. Authority of Local Government Units to Adjust Rates of 20 SECTION 5. Each local government unit shall have the power to
Tax Ordinances. - Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.
create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
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TAXATION LAW assessment than a commercial classification. Within the premises of the Hospital, the Association constructed the St. Michael's Medical Arts Center (Center) which will house medical practitioners who will lease the spaces therein for their clinics at prescribed rental rates. The doctors who treat the patients confined in the Hospital are accredited by the Association.
appropriate for retailers, following the parameters provided under the LGC. Moreover, the resulting increase in the tax rate for retailers was merely incidental. When Davao City enacted the assailed ordinance, it merely intended to rectify the glaring error in the classification of wholesaler and retailer in the old ordinance (Mindanao Shopping Destinations Corporation vs. Hon. Rodrigo Duterte, G.R. No. 211093, June 6, 2017, J. Peralta).
The City Assessor classified the Center as "commercial" instead of "special" on the ground that the Hospital owner gets income from the lease of its spaces to doctors who also entertain out-patients. Is the City Assessor correct in classifying the Center as "commercial?" Explain. (2016 BAR)
Is LGU empowered under the LGC to impose business taxes on persons or entities engaged in the business of manufacturing and distribution of petroleum products?
NO. The Medical Arts Center is an integral part of the Hospital and should be classified assessment purpose as “special”. The fact alone that the doctors holding clinics in the center are those duly accredited by the Association who owns the Hospital, and these doctors are the ones who can treat the Hospital’s patients confined in it, takes away the said Medical Arts Center from being categorized a “commercial” since tertiary hospital is required by law to have a pool of physicians who comprise the required medical departments in various medical fields (City Assessor of Cebu City v. Association of Benevola de Cebu, Inc., 524 SCRA 128 [(2007]).
Among the common limitations on the taxing powers of LGUs under Section 133 of the LGC is paragraph (h) 22 which specifies the two kinds of taxes which cannot be imposed by LGUs: (1) excise taxes on articles enumerated under the NIRC, as amended; and (2) taxes, fees or charges on petroleum products. The above provision makes plain that the prohibition with respect to petroleum products extends not only to excise taxes thereon, but all “taxes, fees or charges” (Batangas City vs. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, July 8, 2015, J. Peralta).
The City of Maharlika passed an ordinance imposing a tax on any sale or transfer of real property located within the city at a rate of fifty percent (50%) of one percent (1%) of the total consideration of the transaction. Jose sold a parcel of land in the city, which he inherited from his deceased parents, and refused to pay the aforesaid tax. He instead filed a case asking that the ordinance be declared null and void since the tax it imposed can only be collected by the national government, as in fact he has paid the Bureau of Internal Revenue (BIR) the required capital gains tax. If you were the City Legal Officer of Maharlika, what defenses would you raise to sustain the validity of the ordinance? (2016 BAR)
In 2014, M City approved an ordinance levying customs duties and fees on goods coming into the territorial jurisdiction of the city. Said city ordinance was duly published on February 15, 2014 with effectivity date on March 1, 2014.
I would argue that the city is allowed to levy a tax on transfer of real property ownership (Sec. 135, LGC). The capital gains tax which is an income tax collected by the national government is entirely different from the tax on sale or transfer imposed by the ordinance. The tax imposed by the ordinance not being in the nature of an income tax, the imposition of the income tax by the national government will not pre-empt the tax sought to be imposed by the ordinance. I would further argue that the imposition by the national government of a tax will pre-empt Local Government Units (LGU) only if there is no specific provision under the Local Government Units Code giving said power (Bulacan v. CA, 299 SCRA 442 [1998]).
a. b.
Is there a ground for opposing said ordinance? What is the proper procedural remedy and applicable time periods for challenging the ordinance? (2015 BAR)
a.
YES, on the ground that the ordinance is ultra vires. The taxing powers of local government units, such as M City, cannot extend to the levy of taxes, fees and charges already imposed by the national government, and this includes, among others, the levy of customs duties under the Tariff and Customs Code [Sec. 133(e), LGC]. Any question on the constitutionality or legality of tax ordinance may be raised on appeal within 30 days from effectivity to the Secretary of Justice. The Secretary of Justice shall render a decision within 60 days from the date of receipt of the appeal. Thereafter, within 30 days after receipt of the decision or the lapse of the 60 -day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file the appropriate proceedings with the Regional Trial Court (Sec. 187, LGC).
b.
Are submarine or undersea communications cables subject to real property tax?
The Philippine-British Association, Inc. (Association) is a non-stock, non-profit organization which owns the St. Michael's Hospital (Hospital). Sec. 216 in relation to Sec. 215 of the LGC classifies all lands, buildings and other improvements thereon actually, directly, and exclusively used for hospitals as "special." A special classification prescribes a lower
YES. Submarine or undersea communications cables are akin to electric transmission lines which as declared in Manila Electric Company v. City Assessor and City Treasurer of Lucena City are "no longer exempted from real property tax" and may q ualify as "machinery" subject
22 SECTION 133. Common Limitations on the Taxing Powers of Local
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products. (emphasis supplied)
Government Units. – Unless otherwise provided herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x x
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UST LAW PRE-WEEK NOTES 2017 to real property tax under the LGC (Capitol Wireless Inc. vs. The Provincial Treasurer of Batangas, G.R. No. 180110, May 30, 2016, J. Peralta).
Thus, a letter to the Treasurer questioning the imposition of business tax while paying the assessed amount is a valid protest (China Banking Corporation vs. City Treasurer of Manila, GR. No. 204117, July 1, 2015, J. Mendoza).
Is payment under protest necessary when the reasonableness of the amount of real property tax assessed is being questioned?
The Provincial Assessor of Batangas had determined that the submarine cable systems of Capwire are taxable real property. Consequently, Capwire received a Warrant of Levy from the Provincial Treasurer. Thereafter, Capwire filed a Petition for Prohibition and Declaration of Nullity of Warrant of Levy with the RTC which dismissed said petition because of the latter's failure to comply with the requirements set in Sections 226 and 229 of the LGC, that is, by not availing of remedies before administrative bodies like the LBAA and the CBAA and for failure to pay the tax assessed against it under protest pursuant to Section 252.
YES. Settled is the rule that should the taxpayer/real property owner question the excessiveness or reasonableness of the assessment, Section 252 of the LGC of 1991 directs that the taxpayer should first pay the tax due before his protest can be entertain. There shall be annotated on the tax receipts the words "paid under protest." It is only after the taxpayer has paid the tax due that he may file a protest in writing within 30 days from payment of the tax to the Provincial, City or Municipal Treasurer, who shall decide the protest within sixty days from receipt. In no case is the local treasurer obliged to entertain the protest unless the tax due has been paid.
Capwire asserts that recourse to the LBAA, or payment of the tax under protest, is inapplicable to the case since there is no question of fact involved. It contends that there is only a pure question of law since the issue is whether its submarine cable system is taxable. Capwire holds the position that the cable system is not subject to tax because cable system lies outside of Philippine territory, i.e., on international waters. Is Capwire correct?
A taxpayer alleges that payment under protest under Section 252 of the LGC is only required when the reasonableness of the amount assessed is being questioned. However, in challenging the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax, such payment is not a condition sine qua non for the LBAA to entertain the challenge on the validity of the tax imposed on its tax-exempt properties. Is the taxpayer correct?
NO. In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of administrative remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment itself is alleged to be illegal or is made without legal authority. Stated differently, the general rule of a prerequisite recourse to administrative remedies applies when questions of fact are raised, but the exception of direct court action is allowed when purely questions of law are involved.
NO. As settled in jurisprudence, a claim for exemption from the payment of real property taxes does not actually question the assessor's authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the assessment by the local assessor, a question of fact which should be resolved, at th e very first instance, by the LBAA. Section 206 of the LGC categorically provides that every person by or for whom real property is declared, who shall claim exemption from payment of real property taxes imposed against said property, shall file with the provincial, city or municipal assessor sufficient documentary evidence in support of such claim. The burden of proving exemption from local taxation is upon whom the subject real property is declared. Real property not declared and proved as tax-exempt shall be included in the assessment roll and the local assessor has the authority to assess the property for realty taxes, and any subsequent claim for exemption shall be allowed only when sufficient proof has been adduced supporting the claim. Thus, if the property being taxed has not been dropped from the assessment roll, taxes must be paid under protest if the exemption from taxation is insisted upon (National Power Corporation vs. The Provincial Treasurer of Benguet, G.R. No. 209303, November 14, 2016, J. Peralta).
Capwire’s proposition that the cables lie entirely beyond Philippine territory, and therefore, outside of Philippine sovereignty, is a fact that is not subject to judicial notice. Therefore, Capwire's resort to judicial action, premised on its legal conclusion that its cables lie entirely on international waters, without first administratively substantiating such a factual premise, is improper. Facts must be threshed out administratively, as the courts in these types of cases step in at the first instance only when pure questions of law are involved (Capitol Wireless Inc. vs. The Provincial Treasurer of Batangas, G.R. No. 180110, May 30, 2016, J. Peralta).
Is a tax declaration be validly considered as a notice of assessment for purposes of real property taxation? NO. Tax declarations cannot be validly considered as a notice of assessment. A notice of assessment fixes and determines the tax liability of a taxpayer and is a notice to the effect that the amount stated therein is due as tax and a demand to pay thereof. Such notice should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties.
What constitute a valid protest? Is there any formal requirement prescribed by law? The law does not prescribe any formal requirement to constitute a valid protest. To constitute a valid protest, it is sufficient if what has been filed contains the spontaneous declaration made to acquire or keep some right or to prevent an impending damage. Accordingly, a protest is valid so long as it states the taxpayer’s objection to the assessment and the reasons therefor.
Tax declarations cannot be considered as notices of assessment. First, a tax declaration is issued pursuant to
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TAXATION LAW Section 22 of P.D. No. 464 23 which mandates "that upon discovery of real property, the provincial, city or municipal assessor shall make an appraisal and assessment of such real property in accordance with Section 5 of the law, irrespective of any previous assessment on taxpayer’s valuation thereon," while a notice of assessment is issued pursuant to Section 27 of the law which mandates the "assessor xxx to give written notice within thirty days of such assessment, to the person in whose name the property is declared."
also be published once a week for two (2) consecutive weeks, in a newspaper of general circulation in the province, city, or municipality. Section 258 of the LGC further requires that should the treasurer issue a warrant of levy, the same shall be mailed to or served upon the delinquent owner of the real property or person having legal interest therein, or in case he is out of the country or cannot be located, the administrator or occupant of the property. At the same time, the written notice of the levy with the attached warrant shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or municipality within the Metropolitan Manila Area where the property is located, who shall annotate the levy on the tax declaration and certificate of title of the property, respectively.
Second, a tax declaration is to be issued "upon discovery" by the assessor of the "real property" to be appraised and assessed, while a "written notice of assessment" has to be issued by the assessor "within thirty days" from "such assessment." Third, no tax accrues as a result of the assessor's issuance of a tax declaration, for at that time, the assessor is merely tasked "to determine the assessed value of the property, meaning, the value placed on taxable property for ad valorem tax purposes." On the other hand, the written notice of assessment is what ripens into a demandable tax (Romeo Pucyutan vs. Manila Electric Company, Inc., GR No. 197136, April 18, 2016, J. Peralta).
Section 260 of the LGC also mandates that within thirty (30) days after service of the warrant of levy, the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the tax delinquency and expenses of sale. Such advertisement shall be effected by posting a notice at the main entrance of the provincial, city or municipal building, and in a publicly accessible and conspicuous place in the barangay where the real property is located, and by publication once a week for two (2) weeks in a newspaper of general circulation in the province, city or municipality where the property is located.
Is the issuance of the writ of execution necessary for purposes of local tax refund or credit? NO. Section 252(c) of the LGC of the Philippines is very clear that “[i]n the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the taxpayer, or applied as tax credit against his existing or future tax liability.” It is not necessary for the issuance of the writ of execution because the remedy has already been provided by law.
Requirements for a tax delinquency sale under the LGC are mandatory. Strict adherence to the statutes governing tax sales is imperative not only for the protection of the taxpayers, but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce the laws (Corporate Strategies Development Corp. vs. Agojo, G.R. No. 208740, November 19, 2014, J. Mendoza).
The issuance of the Writ of Execution is superfluous, because the judgment of the trial court can neither be considered a judgment for a specific sum of money susceptible of execution by levy or garnishment under Section 9, Rule 39 of the Rules of Court nor a special judgment under Section 11, Rule 39 thereof. (Coca-Cola Bottlers Philippines, Inc. vs. City of Manila, G.R. No. 197561, April 7, 2014, J. Peralta).
Who has the burden to prove compliance with the validity of the proceedings leading up to the tax delinquency sale under the LGC? The burden to prove compliance with the validity of the proceedings leading up to the tax delinquency sale is incumbent upon the buyer or the winning bidder. This is premised on the rule that a sale of land for tax delinquency is in derogation of property and due process rights of the registered owner. In order to be valid, the steps required by law must be strictly followed. The burden to show that such steps were taken lies on the person claiming its validity, for the Court cannot allow mere presumption of regularity to take precedence over the right of a property owner to due process accorded no less than by the Constitution.
In an appeal from a decision of the LBAA to the CBAA, is the “fresh period rule” applicable? NO. While it is evident in jurisprudence that the filing of motion for reconsideration before the LBAA is allowed, it is also settled that the "fresh period rule" in the case of Neypes, et al. v. Court of Appeals applies only to judicial appeals and not to administrative appeals. An appeal from a decision of the LBAA to the CBAA, is not judicial but administrative in nature. Thus, the "fresh period rule" in Neypes does not apply (National Power Corporation vs. The Provincial Treasurer of Benguet, G.R. No. 209303, November 14, 2016, J. Peralta).
It is well settled that there could be 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 (Corporate Strategies Development Corp. vs. Agojo, G.R. No. 208740, November 19, 2014, J. Mendoza).
Discuss the rules for a valid tax delinquency sale. Under Section 254 of the LGC, it is required that the notice of delinquency must be posted at the main hall and in a publicly accessible and conspicuous place in each barangay of the local government unit concerned. It shall 23 P.D. No. 464. (The Real Property Tax Code) was superseded by Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
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UST LAW PRE-WEEK NOTES 2017 involvement of the importers, the brokers and even some customs officials and personnel.
PART IV: TARIFF AND CUSTOMS Under the Tariff and Customs Code, as amended: a. b.
a.
The crime of unlawful importation under Section 3601 of the TCCP is complete, in the absence of a bo na fide intent to make entry and pay duties when the prohibited article enters Philippine territory. Importation, which consists of bringing an article into the country from the outside, is complete when the taxable, dutiable commodity is brought within the limits of the port of entry. Entry through a customs house is not the essence of the act. On the other hand, as regards Section 3602 of the TCCP which particularly deals with the making or attempting to make a fraudulent entry of imported or exported articles, the term “entry” in customs law has a triple meaning, namely: (1) the documents filed at the customs house; (2) the submission and acceptance of the documents; and (3) the procedure of passing goods through the customs house. In view thereof, it is only for charges for unlawful importation under Section 3601 that the BOC must first prove that the subject articles were imported. For violation of Section 3602, in contrast, what must be proved is the act of making or attempting to make such entry of articles (Bureau of Customs vs. Devanadera, G.R. No. 193253, September 8, 2015, J. Peralta)
When does importation begin and when is it deemed terminated? In what cases is the decision of the Collector automatically reviewed by the Commissioner of Customs? In what instance/s is the decision of the Commissioner automatically appealed to the Secretary of Finance? (1995, 2015 BAR) Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unlade therein. Importation is deemed terminated upon payment of the duties, taxes, and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of Customs (Sec. 1202 of the Tariff and Customs Code). Importation begins from the time the carrying vessel or aircraft enters Philippine territorial jurisdiction with the intention to unload therein and ends at the time the goods are released or withdrawn from the customhouse upon payment of the customs duties or with legal permit to withdraw (Viduya vs. Berdiago, 73 SCRA 553).
b.
How is outright smuggling committed under Sec 3601? Smuggling is committed by any person who:
Whenever the decision of the Collector of Customs in any seizure proceedings is adverse to the government, the said decision is automatically elevated to the Commissioner of Customs for review, and if such decision is affirmed by the Commissioner of Customs, the same shall be elevated to and finally reviewed by the Secretary of Finance (Sec. 2315 of the Tariff and Customs Code).
a. fraudulently imports or brings into the Philippines any article contrary to law; b. assists in so doing any article contrary to law; or c. receives, conceals, buys, sells or in any manner facilitate the transportation, concealment or sale of such goods after importation, knowing the same to have been imported contrary to law.
NOTE: The phrase contrary to law qualifies the phrases imports or brings into the Philippines and assists in so doing, not the word article.
Differentiate outright smuggling from technical smuggling.
How is technical smuggling committed under Sec 3602?
In outright smuggling, or the unlawful importation under Section 3601 of the TCCP, goods and articles of commerce are brought into the country without the required importation documents, or are disposed of in the local market without having been cleared by the BOC or other authorized government agencies, to evade the payment of correct taxes, duties and other charges. Such goods and articles do not undergo the processing and clearing procedures at the BOC, and are not declared through submission of import documents, such as the import entry and internal revenue declaration.
The following acts or omissions constitute crime/s: a. making or attempting to make any entry of imported or exported article: i. by means of any false or fraudulent invoice, declaration, affidavit, letter, paper or by any means of any false statement, written or verbal; or ii. by any means of any false or fraudulent practice whatsoever; or b. knowingly effecting any entry of goods, wares or merchandise, at less than the true weight or measures thereof or upon a false classification as to quality or value, or by the payment of less than the amount legally due; or c. knowingly and willfully filing any false or fraudulent entry or claim for the payment of drawback or refund of duties upon the exportation of merchandise; or d. making or filing any affidavit, abstract, record, certificate or other document, with a view to securing the payment to himself or others of any drawback, allowance or refund of duties on the exportation of merchandise, greater than that legally due thereon.
On the other hand, in technical smuggling, or the various fraudulent practices against customs revenue under Section 3602, the goods and articles are brought into the country through fraudulent, falsified or erroneous declarations, to substantially reduce, if not totally avoid, the payment of correct taxes, duties and other charges. Such goods and articles pass through the BOC, but the processing and clearing procedures are attended by fraudulent acts in order to evade the payment of correct taxes, duties, and other charges. Often committed by means of misclassification of the nature, quality or value of goods and articles, undervaluation in terms of their price, quality or weight, and misdeclaration of their kind, such form of smuggling is made possible through the
41
TAXATION LAW What is the rule on undervaluation, misclassification and misdeclaration in the import entry?
importation, was obtained only after the forfeiture of the 6,500 sacks of rice had been effected on January 26, 1999.
Under Sec. 2503 of R.A. No. 765124, when the undervaluation, misclassification or misdeclaration in the import entry is intentional, the importer shall be subject to the penal provision under Sec. 3602.
Moreover, the proof of the rice being smuggled was patently insufficient. In contrast, the records showed that the 6,500 sacks of rice were of local origin, having been purchased from Sablayan, Occidental Mindoro from a licensed grains dealer. The local origin was substantiated by the official receipts, business license and certificate of registration issued by the NFA in favor of the source in Sablayan, Occidental Mindoro, Mintu Rice Mill, and its proprietor.
Enumerate the elements under the first form of fraudulent practice, which is the act of making an entry by means of false and fraudulent invoice and declaration punished under Section 3602 of the TCCP?
Still, the BOC insisted that the 6,500 sacks of rice were unlawfully imported because the shipment was not accompanied by the necessary import documents. Such insistence was based on the premise that the rice shipment was imported. The premise was plainly erroneous. Since it was established that the 6,500 sacks of rice were of local origin, the shipment need not be accompanied by import documents (M/V Don Martin Voy 047 and its Cargoes vs. Secretary of Finance, G.R. No. 160206, July 15, 2015, J. Bersamin).
The elements to be established are: a.
there must be an entry of imported or exported articles; b. the entry was made by means of any false or fraudulent invoice, declaration, affidavit, letter, or paper; and c. there must be intent to avoid payment of taxes (Mercado vs. People of the Philippines, G.R. No. 167510, July 8, 2015, J. Bersamin).
Does the Bureau of Customs have jurisdiction over seizure cases within the Subic Freeport Zone?
The M/V Don Martin and its cargo of rice were seized and forfeited on January 26, 1999 because it was alleged that the subject 6,500 bags of rice are of imported variety which are not covered by proper import documents, hence, in violation of Section 2530 (a), (f), (k) and (l), paragraph (1), of the TCCP. To prove that the rice shipment was imported, rice samples were submitted to and examined by the PRRI and NFA which rendered the results of the laboratory analyses of the rice samples on February 4, 1999 and February 5, 1999, respectively. Was there probable cause in effecting the said forfeiture?
YES. The Bureau of Customs have exclusive jurisdiction over seizure cases within the Subic Freeport Zone. The authority of the Bureau of Customs to seize and forfeit goods and articles entering the Subic Bay Freeport does not contravene the nature of th e Subic Bay Freeport as a separate customs authority. Indeed, the investors can generally and freely engage in any kind of business as well as import into and export out goods with minimum interference from the Government.
NO. To warrant the forfeiture of the 6,500 sacks of rice and the carrying vessel, there must be a prior showing of probable cause that the rice cargo was smuggled. Thus, the BOC should establish probable cause prior to forfeiture by proving: a.
b.
Yet, the treatment of the Subic Ba y Freeport as a separate customs territory cannot completely divest the Government of its right to intervene in the operations and management of the Subic Bay Freeport, especially when patent violations of the customs and tax laws are discovered. After all, Section 602 of the Tariff and Customs Code vests exclusive original jurisdiction in the Bureau of Customs over seizure and forfeiture cases in the enforcement of the tariff and customs laws (Agriex Co., Ltd. v. Villanueva, G.R. No. 158150, September 10, 2014, J. Bersamin).
that the importation or exportation of the 6,500 sacks of rice was effected or attempted contrary to law, or that the shipment of the 6,500 sacks of rice constituted prohibited importation or exportation; and that the vessel was used unlawfully in the importation or exportation of the rice, or in conveying or transporting the rice, if considered as contraband or smuggled articles in commercial quantities, into or from any Philippine port or place.
What is the proper remedy to assail the order of the Commissioner of Customs?
The evidence (results of the laboratory analyses of the rice samples) offered by BOC to establish that the 6,500 sacks of rice were smuggled or were the subject of illegal
The proper recourse of a taxpayer is an appeal in due course to the CTA, in accordance with Section 7(4) of RA No. 1125, as amended 25, in relation to Section 2402 of th e Tariff and Customs Code 26, within 30 days after the receipt of the order27 (Agriex Co., Ltd. v. Villanueva, G.R. No. 158150, September 10, 2014, J. Bersamin).
24 An Act to Revitalize and Strengthen the Bureau of Customs,
26 Section 2402. Review by Court of Tax Appeals. - The party aggrieved
Amending for the Purpose Certain Sections of the Tariff and Customs Code of the Philippines
by the ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals, in the manner and within the period prescribed by law and regulations. Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribe by laws and regulations, the action or ruling of the Commissioner shall be final and conclusive.
25 Section 7. Jurisdiction. - The CTA shall exercise: a. Exclusive appellate jurisdiction to review by appeal, as herein provided: xxx 4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs.
27 Section 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the
42
UST LAW PRE-WEEK NOTES 2017 In the course of its business undertakings in the period from 1991 to 1994, URC imported oil products into the country. On January 11, 1996, Oilink was incorporated. URC and Oilink had interlocking directors when Oilink started its business.
be taken as contemplated by Section 2402 of the Tariff and Customs Code; that what Section 7 of RA No. 1125 referred to as a decision that was appealable to the CTA was a judgment or order of the Commissioner of Customs that was final in nature, not merely an interlocutory one; that Oilink did not exhaust its administrative remedies under Section 2308 of the Tariff and Customs Code. Rule on the Commissioner’s contention.
On March 4, 1998, the District Collector of the Port of Manila, formally demanded that URC pay the taxes and duties on its oil imports that had arrived between January 6, 1991 and November 7, 1995. Said demand was challenged by URC. However, on November 25, 1998, the Customs Commissioner formally directed that URC pay the assessed deficiency taxes. On July 2, 1999, the Commissioner made a final demand upon URC and Oilink.
The position of the Commissioner of Customs lacks merit. The principle of non-exhaustion of administrative remedies is not an iron-clad rule because there were instances in which the immediate resort to judicial action was proper. This was one such exceptional instance when the principle did not apply. The Commissioner of Customs already decided to deny the protest by Oilink on July 12, 1999, and stressed then that the demand to pay was final. In that instance, the exhaustion of administrative remedies would have been an exercise in futility because it was already the Commissioner of Customs demanding the payment of the deficiency taxes and duties.
On July 8, 1999, Oilink protested the assessment alleging that it was not the party liable for the assessed deficiency taxes. The same was denied on July 12, 1999 and the Commissioner stressed that it would not issue any clearance to Oilink unless that liability be paid first. Thus, on July 30, 1999, Oilink appealed to the CTA. The Commissioner contends that the CTA should not take cognizance of the case because of the lapse of the 30-day period within which to appeal, arguing that on November 25, 1998 URC had already received the BoC’s final assessment demanding payment of the amount due within 10 days, but filed the petition only on July 30, 1999. Is the Commissioner’s contention tenable?
PART V: JUDICIAL REMEDIES What is the jurisdiction of CTA? (2016 BAR) Pursuant to Section 7 of RA No. 1125, as amended, the CTA shall exercise:
NO. The reckoning date for Oil ink’s appeal was July 12, 1999 which is the date when the Commissioner denied the protest of Oilink. Clearly, the filing of the petition on July 30, 1999 by Oilink was well within its reglementary period to appeal. The insistence by the Commissioner on reckoning the reglementary period to appeal from November 25, 1998, the date when URC received the final demand letter, is unwarranted. The November 25, 1998 final demand letter of the BoC was addressed to URC, not to Oilink. As such, the final demand sent to URC did not bind Oilink unless the separate identities of the corporations were disregarded in order to consider them as one (Commissioner of Customs v. Oilink International Corp., G.R. No. 161759, July 2, 2014, J. Bersamin).
a.
Exclusive appellate jurisdiction to review by appeal, as herein provided: 1.
2.
NOTE: In this case, the Court held that the doctrine of piercing the corporate veil has no application here because the Commissioner of Customs did not establish that Oilink had been set up to avoid the payment of taxes or duties, or for purposes that would defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. It is also noteworthy that from the outset the Commissioner of Customs sought to collect the deficiency taxes and duties from URC, and that it was only on July 2, 1999 when the Commissioner of Customs sent the demand letter to both URC and Oilink. That was revealing, because the failure of the Commissioner of Customs to pursue the remedies against Oilink from the outset manifested that its belated pursuit of Oilink was only an afterthought .
3.
Based on the preceding problem, the Commissioner of Customs posits that the final demand letter dated July 2, 1999 from which Oilink appealed was not the final “action” or “ruling” from which an appeal could
5.
4.
Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs; Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. x x x
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TAXATION LAW
6.
7.
b.
and taxation of real property originally decided by the provincial or city board of assessment appeals; Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code; and Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.
including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA (Philippine National Oil Company vs. Philippine National Bank, G.R. No. 109976, April 26, 2005).
Which court has jurisdiction over a special civil action for certiorari questioning an interlocutory order of the RTC in a tax case? The CTA has appellate jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the RTC in a local tax case, despite the fact that there is no categorical statement to that effect under R.A. No. 1125, as well as the amendatory R.A. No. 9282. The court ruled that CTA has jurisdiction over a special civil action for certiorari via express constitutional mandate and for being inherent in the exercise of its appellate jurisdiction (City of Manila v. Hon. GreciaCuerdo, G.R. No. 175723, February 4, 2014, J. Peralta)
Exclusive appellate jurisdiction in criminal offenses: 1. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction. 2. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.
Does the CTA have original jurisdiction over a petition for certiorari? YES. Concededly, there is no clear statement under R.A. No. 1125, the amendatory R.A. No. 9282, let alone in the Constitution, that the CTA has original jurisdiction over a petition for certiorari. By virtue of Section 1, Article VIII of the 1987 Constitution, vesting judicial power in the Supreme Court and such lower courts as may be established by law, to determine whether or not there has been a grave abuse of discretion on the part of any branch or instrumentality of the Government, in relation to Section 5(5), Article VIII thereof, vesting upon it the power to promulgate rules concerning practice and procedure in all courts, the Court declared that the CA's original jurisdiction over a petition for certiorari assailing the DOJ resolution in a preliminary investigation involving tax and tariff offenses was necessarily transferred to the CTA pursuant to Section 7 of R.A. No. 9282,40 and that such petition shall be governed by Rule 65 of the Rules of Court, as amended.
PNB appealed to the Department of Justice (DOJ) the BIR assessment against it for deficiency withholding tax. PNB alleged that its appeal to the DOJ was sanctioned under P.D. No. 242 28, which provided for the administrative settlement of disputes between government offices, agencies, and instrumentalities, including government-owned and controlled corporations. It argued that P.D. No. 242, the more recent law, repealed Section 7 of R.A. No. 1125. Is PNB’s contention tenable? NO. P.D. No. 242 is a general law that deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies. On the other hand, R.A. No. 1125 is a special law dealing with a specific subject matter the creation of the CTA, which shall exercise exclusive appellate jurisdiction over the tax disputes and controversies enumerated therein.
Accordingly, it is the CTA, not the CA, which has jurisdiction over the petition for certiorari assailing the DOJ resolution of dismissal of the BOC's complaintaffidavit against a taxpayer for violation of the TCCP (Bureau of Customs vs. Devanadera, G.R. No. 193253, September 8, 2015, J. Peralta).
Does the CTA have exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of the CIR?
Following the rule on statutory construction that between a general law and a special law, the special law prevails, then P.D. No. 242 should not affect R.A. No. 1125. R.A. No. 1125, specifically Section 7 29 thereof on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government offices, agencies, and instrumentalities,
YES. The CTA has jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund. It is only in the lawful exercise of its power to pass upon all matters brought before it, as sanctioned by Section 7 of RA No. 1125, as amended.
28 Prescribing the Procedure for Administrative Settlement or
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; xxx
Adjudication of Disputes, Claims and Controversies Between or Among Government Agencies and Instrumentalities, Including GovernmentOwned or Controlled Corporations, and for Other Purposes
29 SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided -
44
UST LAW PRE-WEEK NOTES 2017 The Supreme Court also declared that the CTA may likewise take cognizance of cases directly ch allenging the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders, revenue memorandum circulars, rulings).
betrays the principle that judgments must, at some point, attain finality. A court that can revisit its own final judgments leaves the door open to possible endless reversals or modifications which is anathema to a stable legal system (CIR vs. Kepco Ilijan Corporation, G.R. No. 199422, June 21, 2016, J. Peralta).
Section 7 of RA No. 1125, as amended, is explicit that, except for local taxes, appeals from the decisions of quasijudicial agencies (Commissioner of Internal Revenue, Commissioner of Customs, Secretary of Finance, Central Board of Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be brought exclusively to the Court of Tax Appeals (CTA).
GGG, Inc. offered to sell through competitive bidding its shares in HHH Corp., equivalent to 40% of the total outstanding capital stock of the latter. JJJ, Inc. acquired the said shares in HHH Corp. as the highest bidder. Before it could secure a certificate authorizing registration/tax clearance for the transfer of the shares of stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming that its sale of the said shares was at fair market value and was thus not subject to donor's tax. In BIR Ruling No. 012-14, the CIR held that the selling price for the shares of stock of HHH Corp. was lower than their book value, so the difference between the selling price and the book value of said shares was a taxable donation. GGG, Inc. requested the Secretary of Finance to review BIR Ruling No. 012-14, but the Secretary affirmed said ruling. GGG, Inc . filed with the Court of Appeals a Petition for Review under Rule 43 of the Revised Rules of Court. The Court of Appeals, however, dismissed the Petition for lack of jurisdiction declaring that it is the CTA which has jurisdiction over the issues raised. Before which Court should GGG, Inc. seek recourse from the adverse ruling of the Secretary of Finance in the exercise of the latter's power of review? (2015 BAR)
In other words, within the judicial system, the law intends the CTA to have exclusive jurisdiction to resolve all tax problems. Petitions for writs of certiorari against the acts and omissions of the said quasi-judicial agencies should, thus, be filed before the CTA. RA No. 9282, a special and later law than Batas Pambansa Blg. 129, provides an exception to the original jurisdiction of the Regional Trial Courts over actions questioning the constitutionality or validity of tax laws or regulations. Except for local tax cases, actions directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance may be filed directly before the CTA. Furthermore, with respect to administrative issuances (revenue orders, revenue memorandum circulars, or rulings), these are issued by the Commissioner under its power to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws. Tax rulings, on the other hand, are official positions of the Bureau on inquiries of taxpayers who request clarification on certain provisions of the Tax Code, other tax laws, or their implementing regulations. Hence, the determination of the validity of these issuances clearly falls within the exclusive appellate jurisdiction of the C TA under Section 7(1) of RA No. 1125, as amended, subject to prior review by the Secretary of Finance, as required under RA No. 8424 (Banco De Oro vs. Republic of the Philippines, G.R. No. 198756 (Resolution), August 16, 2016, J. Leonen).
GGG, Inc. should seek recourse with the CTA which has jurisdiction. There is no provision in law that expressly provides where exactly the adverse ruling of the Secretary of Finance under Sec. 4 of the NIRC is appealable. However, RA 1125, as amended, addresses the seeming gap in the law as it vests upon the CTA, albeit impliedly, with jurisdiction over the case as “other matters” arising under the NIRC or other laws administered by the BIR. Furthermore, the Supreme Court held that the jurisdiction to review the rulings of the Secretary of Finance on the issues raised against a ruling of the CIR, pertains to the CTA in the exercise of its appellate jurisdiction (Philamlife v. The Sec. of Finance and CIR, GR No. 210987, November 24, 2014).
Does the CTA En Banc have jurisdiction to take cognizance of the petition for annulment of final judgment rendered by one of its Divisions? NO. The Revised Rules of the CTA and even the Rules of Court which apply suppletorily thereto provide for no instance in which the en banc may reverse, annul or void a final decision of a division. Verily, the Revised Rules of the CTA provide for no instance of an annulment of judgment at all.
On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by the CIR dismissing the protest of CCC, Inc. and affirming the assessment against said corporation. On June 10, 2013, CCC, Inc. filed a Petition for Review with the CTA in division. On July 31, 2015, CCC, Inc. received a copy of the Decision dated July 22, 2015 of the CTA division dismissing its Petition. CCC, Inc. immediately filed a Petition for Review with the CTA en banc on August 6, 2015. Is the immediate appeal by CCC, Inc. to the CTA en banc of the adverse Decision of the CTA division the proper remedy? (2015 BAR)
The divisions in collegial courts are not considered separate and distinct courts but are divisions of one and the same court. There is no hierarchy of courts within the collegial court. For instance, the Supreme Court sitting en banc is not an appellate court vis-a-vis its divisions, and it exercises no appellate jurisdiction over the latter.
NO, CCC, Inc. should first file a motion f or reconsideration with the CTA Division. 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. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the
Thus, it appears contrary to these features that a collegial court, sitting en banc, may be called upon to annul decision of one of its divisions which had become final and executory, for it is tantamount to allowing a court to annul its own judgment and acknowledging that a hierarchy exists within such court. In the process, it also
45
TAXATION LAW litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division.
evidence require that these documents must be formally offered before the CTA.32 As an exception to the above rule, the evidence may be admitted provided the following requirements are present: (1) the same must have been duly identified by testimony duly recorded; and (2) the same must have been incorporated in the records of the case.
BOC Deputy Commissioner rendered decision on April 19, 1999 upholding the forfeiture of the 6,500 sacks of rice of Palacio Shipping, Inc. Consequently, on June 21, 1999, Palacio brought a petition for review in the CTA to seek the nullification of the decision and to obtain the release of the rice shipment.
In this case, BIR admitted that it failed to formally offer the PANs as evidence. Worse, it advanced no justifiable reason for such fatal omission. Instead, it merely alleged that the existence and due execution of the PANs were duly tackled by its witnesses. Thus, this is not sufficient to seek exception from the general rule requiring a fo rmal offer of evidence, since no evidence of positive identification of such PANs by witnesses was presented.
On the other hand, the BOC argued that the April 19, 1999 decision by BOC Deputy Commissioner had already attained finality. Palacio insisted that they were not furnished a copy of the decision and that they only learned of the decision on June 1, 1999. Has the BOC decision attained finality?
While CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in themselves but are primarily intended as tools in the administration of justice, the presentation of PANs as evidence of the taxpayer’s liability is not mere procedural technicality. It is a means by which a taxpayer is informed of his liability for deficiency taxes. It serves as basis for the taxpayer to answer the notices, present his case and adduce supporting evidence. More so, the same is the only means by which the CTA may ascertain and verify the truth of respondent's claims (CIR vs. United Salvage and Towage (Phils.) Inc, G.R. No. 197515, July 2, 2014, J. Peralta).
NO. The April 19, 1999 decision of BOC would become final and immutable if Palacio did not appeal it in the CTA within 30 days from receipt thereof. Such period of appeal was expressly set in Section 11 30 of R.A. No. 1125. Thus, the 30-day period for filing the appeal in the CTA commenced to run for the petitioners only after June 1, 1999, which was the date when they unquestionably acquired notice of the adverse decision. Accordingly, they had until July 1, 1999 within which to appeal. With their petition for review being filed on June 21, 1999, which was well within the 30-day period, their appeal was timely (M/V Don Martin Voy 047 and its Cargoes vs. Secretary of Finance, G.R. No. 160206, July 15, 2015, J. Bersamin).
Does an appeal to the CTA from the dec ision of the CIR suspend the collection of tax?
In a case before the CTA, the BIR failed to formally offer the PANs of EWTs for taxable years 1994 and 1998. On appeal, it avers that their existence and due execution were duly tackled during the presentation of witnesses. It also claims that although the PANs were not marked as exhibits, their existence and value were properly established, since the BIR records for taxable years 1994 and 1998 were forwarded to the CTA and made part of the CTA records.
As a rule, an appeal to the CTA from the decision of the CIR will not suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law (Sec. 11 of R.A. No. 1125, as amended by RA No. 9282).
In what instance may the CTA suspend the collection of taxes? The CTA may order the suspension of the collection of taxes when in the opinion of the Court the collection by the BIR or BOC may jeopardize the interest of the Government and/or the taxpayer, provided that the taxpayer either: (1) deposits the amount claimed; or (2) files a surety bond for not more than double the amount (Sec. 11 of R.A. No. 1125, as amended by RA No. 9282).
Moreover, it contends that technical rules of evidence should not be strictly applied in the interest of substantial justice, considering that the mandate of the CTA explicitly provides that its proceedings shall not be governed by the technical rules of evidence. Rule on BIR’s contention. The contention of the BIR is without merit.
May the bond requirement be dispensed with by the CTA?
Under Section 8 31 of R.A. No. 1125, the CTA is categorically described as a court of record. Moreover, a s cases filed before it are litigated de novo, party litigants shall prove every minute aspect of their cases. Thus, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on documentary
YES. CTA has ample authority to issue injunctive writs to restrain the collection of tax and to even dispense with the deposit of the amount claimed or the filing of the required bond, whenever the method employed by the CIR in the collection of tax jeopardizes the interests of a taxpayer for being patently in violation of the law. Thus,
30
processes. It shall have the power to promulgate rules and regulations for the conduct of the business of the Court, and as may be needful for the uniformity of decisions within its jurisdiction as conferred by law, but such proceedings shall not be governed strictly by technical rules of evidence.
Section 11. Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. x x x
32 SEC. 34. Offer of evidence. – The court shall consider no evidence 31 Section 8. Court of record; seal; proceedings. - The Court of Tax
which has not been formally offered. The purpose for which the evidence is offered must be specified. (Rule 132)
Appeals shall be a court of record and shall have a seal which shall be judicially noticed. It shall prescribe the form of its writs and other
46
