TAXATION Reviewer
b. Re#lation Re#lation / *s in the case of taxes levied on excises and privileges like those imposed in tobacco or alcoholic products or amusement places like night clubs, cabarets, cockpits, etc. In the case of Caltex Caltex Phils. Inc. vs COA (;.).
LAWS TAX TAX Reviewer on laws Taxation 201 Review CHAPTER 1 GENERAL PRINCIPLES I. Cone!ts" Nat#re an$ C%arateristis o& Taxation Taxation an$ Taxes. Taxes.
Taxation 'e&ine$( As a !roess, !roess , it is a means by which the sovereign, through its law-making body, body, raises income to defray the necessary expenses of the government. It is merely a way of apportioning the costs of government among those who in some measures are privileged to enjoy its benefits and must bear its burdens. As a !ower, !ower , taxation refers to the inherent power of the state to demand enforced contributions for public purpose or purposes. Rationale o& Taxation ) The Supreme ourt held! "It is said that taxes are what we pay for civili#ed society. $ithout taxes, the government would be paraly#ed for lack of the motive power to activate and operate it. %ence, despite the natural reluctance to surrender part of one&s hard-earned income to the taxing authorities, every person who is able must contribute his share in the running of the government. The government for its part is expected expected to respond respond in the form of tangible and intangible intangible benefits benefits intended to improve the lives of the people and enhance their moral and material values. The s*+,ioti relations%i! is t%e rationale o& taxation and taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. power. Taxation is a symbiotic relationship, whereby in exchange for the protection that the citi#ens get from the government, taxes are paid.' paid.' (ommission (ommissioner er of Internal Internal )evenue )evenue vs *llegre, Inc.,et al., +/, 0eb. 12, 13
c. Re$#tion Re$#tion o& Soial Soial Ine#alit* Ine#alit* @ this this is made made possib possible le through the progressive system of taxation where the objective is to preven preventt the underunder-con concen centra tratio tionn of wealth wealth in the hands hands of few individuals. d. Eno#r Eno#rae ae Eono+ Eono+i i Growt% Growt% @ in the the realm of tax exemptions and tax reliefs, for instance, the purpose is to grant incentives or exemptions in order to encourage investments and thereby promote the country&s economic growth. e. Protetionis+ @ Protetionis+ @ in some important sectors of the economy, as in the case case of foreig foreignn import importati ations ons,, taxes taxes someti sometimes mes provid providee protection to local industries like protective tariffs and customs. Taxes 'e&ine$ Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of government and for public needs. > Essential Essenti al C%arateristi C%arate risti o& Taxes 4 +6=5 S 7
1. It is an en&ore$ contribution en&ore$ contribution * tax is not a voluntary payment or donation. It is not dependent on the will or contractual assent, express or implied, of the person taxed. Taxes are not contracts but positive acts of the government. . It is !ro!ortionate in !ro!ortionate in character - It is ordinarily based on the taxpayer’s ability to pay .
P#r!oses an$ -,etives o& Taxation
>. It is is gener generall allyy payab payable le in in +one* Tax is a pecuniary burden @ an exaction to be discharged alone in the form of money which must be in legal tender, unless Aualified by law, such as )* >B8 which allows backpay certificates as payment of taxes
1. Reven# Reven#ee / to provide funds or property with which the State promotes the general welfare and protection of its citi#ens.
8. It is levi levied ed on !ersons or !ro!ert* ) * tax may also be imposed on acts, transactions, rights or privileges.
. Non)Reven#e 45) Non)Reven#e 45)657
?. It is levie leviedd by by the the State which State which has jurisdiction over the persons or property. - The persons, property or service to be taxed must be subject to the jurisdiction of the taxing state.
a. Pro+otion o& General Wel&are / Taxation may be used as an implement of police power in in order to promote the general welfare of the people. 4see +ut# vs *raneta ( 5hil 183 and 9sme:a vs 9rbos (;.).
1, 1>37
/. It is levie leviedd by by the the law)+ain ,o$* of ,o$* of the State The power to tax is a legislative power which under the onstitution only ongress can exercise through the enactment of laws. *ccordingly, *ccordingly, the obligation to pay taxes is a statutory liability.
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2. It is levi levied ed for for !#,li !#r!ose or !#r!oses ) Taxation involves, and and a tax tax cons constititu tute tes, s, a burd burden en to prov provid idee incom incomee for for publ public ic purposes.
T%eor* an$ 3asis o& Taxation Taxation 1. Neessit* T%eor* Taxes proceed upon the theory that the existence of the government is a necessityC that it cannot continue without the means to pay its expensesC and that for those means, it has the right to compel all citi#ens and properties within its limits to contribute. In a case, the Supreme ourt held that! Taxatio axationn is a power power emanat emanating ing from necess necessity ity.. It is a necessary burden to preserve the State&s sovereignty and a means to give the citi#enry an army to resist aggression, a navy to defend its shores shores from from invasi invasion, on, a corps corps of civil civil servan servants ts to serve, serve, public improvements designed for the enjoyment of the citi#enry and those which come with the State&s territory and facilities, and protection which a government is supposed to provide. provide. (Phil. Guaranty Co., Inc. vs Commissioner of Internal evenue, !" #CA $$%&. . T%e 3ene&its)Protetion T%eor* The basis of taxation is the reciprocal duty of protection between the state and its inhabitants. In return for the contributions, the taxpayer receives the general advantages and protection which the government affords the taxpayer and hi s property.
a. onsti onstitut tution ional al provision provisionss relati relating ng to the power power of taxati taxation on do not operate as grants of the power to the government. They merely consti constitut tutee limita limitatio tions ns upon upon a power power which which would would otherw otherwise ise be practically without limit. b. $hil $hilee the the powe powerr to tax is not not expr expres essly sly provi provide dedd for for in our constitutions, its existence is recogni#ed by the provisions relating to taxation. In the case of /actan Cebu International Airport Authority vs /arcos, #ept. !!, !**-, as an incident of sovereignty, the power to tax has been described as "unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found found only in the responsibility responsibility of the legislative legislative which imposes the tax on the constituency who are to pay it.' . Leislativ Leislativee in %arater %arater @ The power power to tax is exclusi exclusively vely legisla legislativ tivee and canno cannott be exercis exercised ed by the execut executive ive or judicia judiciall branch of the government. >. S#,et to onstit#tional an$ in%erent li+itations @ *lthough in one decided case the Supreme ourt called it an awesome power, power, the power of taxation is subject to certain limitations. =ost of these limitations are specifically provided in the onstitution or implied therefrom while the rest are inherent and they are those which spring from the nature of the taxing power itself although, they may or may not be provided in the onstitution.
So!e o& Leislat L eislative ive Taxin Power 4S * 5 D * =7 4#ali&iations o& t%e 3ene&it)Protetion T%eor*( a. It does does not mean mean that only only those those who are are able to pay pay and do pay taxes can enjoy the privileges and protection given to a citi#en by the government. b. 0rom 0rom the contrib contributi utions ons receive received, d, the govern governme ment nt renders renders no special or commensurate benefit to any particular property or person. c. The only only benefit benefit to which which the the taxpayer taxpayer is entitle entitledd is that derived derived from his enjoyment of the privileges of living in an organi#ed society established established and safeguard safeguarded ed by the devotion of taxes to public public purposes. (Gome' vs Palomar, % #CA )*& d. * taxpay taxpayer er cannot cannot object object to or resist resist the paymen paymentt of taxes taxes solely because no personal benefit to him can be pointed out as arising from the tax. (+oren'o vs Posaas, - Phil "%"& >. Li&e,loo$ T%eor* Taxes are the lifeblood li feblood of the government, being such, their (Collector of prompt prompt and certain certain availability is an imperious imperious need. need. (Collector Internal evenue vs. Goorich International ubber Co., #ept. -, !*-%& $ithout taxes, the government would be paraly#ed for lack of motive power to activate and operate it.
Nat#re o& Taxin Power 1. In%erent in sovereint* @ sovereint* @ The power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the exis existe tenc ncee of ever everyy gove govern rnme ment nt.. It can can be exer exercis cised ed by the the government even if the onstitution is entirely sil ent on the subject.
1. s#,ets o& Taxation (the Taxation (the persons, property or occupation etc. to be taxed3 . a+o#nt or rate o& t%e tax >. !#r!oses &or w%i% taxes s%all ,e levie$ !rovi$e$ t%e* are !#,li !#r!oses 8. a!!ortion+ent o& t%e tax ?. sit#s o& taxation /. +et%o$ o& olletion Is t%e Power to Tax t%e Power to 'estro*5 In the case of Churchill, et al. vs Concepcion (" Phil *-*& it has been ruled that! The power to impose taxes is one so unlimited in force and so searching in extent so that the courts scarcely venture to declare that it is subject to any restriction whatever, except such as rest in the disc discre retition on of the the auth author oritityy which which exer exerci cise se it. it.
TAXATION Reviewer
2. It is levi levied ed for for !#,li !#r!ose or !#r!oses ) Taxation involves, and and a tax tax cons constititu tute tes, s, a burd burden en to prov provid idee incom incomee for for publ public ic purposes.
T%eor* an$ 3asis o& Taxation Taxation 1. Neessit* T%eor* Taxes proceed upon the theory that the existence of the government is a necessityC that it cannot continue without the means to pay its expensesC and that for those means, it has the right to compel all citi#ens and properties within its limits to contribute. In a case, the Supreme ourt held that! Taxatio axationn is a power power emanat emanating ing from necess necessity ity.. It is a necessary burden to preserve the State&s sovereignty and a means to give the citi#enry an army to resist aggression, a navy to defend its shores shores from from invasi invasion, on, a corps corps of civil civil servan servants ts to serve, serve, public improvements designed for the enjoyment of the citi#enry and those which come with the State&s territory and facilities, and protection which a government is supposed to provide. provide. (Phil. Guaranty Co., Inc. vs Commissioner of Internal evenue, !" #CA $$%&. . T%e 3ene&its)Protetion T%eor* The basis of taxation is the reciprocal duty of protection between the state and its inhabitants. In return for the contributions, the taxpayer receives the general advantages and protection which the government affords the taxpayer and hi s property.
a. onsti onstitut tution ional al provision provisionss relati relating ng to the power power of taxati taxation on do not operate as grants of the power to the government. They merely consti constitut tutee limita limitatio tions ns upon upon a power power which which would would otherw otherwise ise be practically without limit. b. $hil $hilee the the powe powerr to tax is not not expr expres essly sly provi provide dedd for for in our constitutions, its existence is recogni#ed by the provisions relating to taxation. In the case of /actan Cebu International Airport Authority vs /arcos, #ept. !!, !**-, as an incident of sovereignty, the power to tax has been described as "unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found found only in the responsibility responsibility of the legislative legislative which imposes the tax on the constituency who are to pay it.' . Leislativ Leislativee in %arater %arater @ The power power to tax is exclusi exclusively vely legisla legislativ tivee and canno cannott be exercis exercised ed by the execut executive ive or judicia judiciall branch of the government. >. S#,et to onstit#tional an$ in%erent li+itations @ *lthough in one decided case the Supreme ourt called it an awesome power, power, the power of taxation is subject to certain limitations. =ost of these limitations are specifically provided in the onstitution or implied therefrom while the rest are inherent and they are those which spring from the nature of the taxing power itself although, they may or may not be provided in the onstitution.
So!e o& Leislat L eislative ive Taxin Power 4S * 5 D * =7 4#ali&iations o& t%e 3ene&it)Protetion T%eor*( a. It does does not mean mean that only only those those who are are able to pay pay and do pay taxes can enjoy the privileges and protection given to a citi#en by the government. b. 0rom 0rom the contrib contributi utions ons receive received, d, the govern governme ment nt renders renders no special or commensurate benefit to any particular property or person. c. The only only benefit benefit to which which the the taxpayer taxpayer is entitle entitledd is that derived derived from his enjoyment of the privileges of living in an organi#ed society established established and safeguard safeguarded ed by the devotion of taxes to public public purposes. (Gome' vs Palomar, % #CA )*& d. * taxpay taxpayer er cannot cannot object object to or resist resist the paymen paymentt of taxes taxes solely because no personal benefit to him can be pointed out as arising from the tax. (+oren'o vs Posaas, - Phil "%"& >. Li&e,loo$ T%eor* Taxes are the lifeblood li feblood of the government, being such, their (Collector of prompt prompt and certain certain availability is an imperious imperious need. need. (Collector Internal evenue vs. Goorich International ubber Co., #ept. -, !*-%& $ithout taxes, the government would be paraly#ed for lack of motive power to activate and operate it.
Nat#re o& Taxin Power 1. In%erent in sovereint* @ sovereint* @ The power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the exis existe tenc ncee of ever everyy gove govern rnme ment nt.. It can can be exer exercis cised ed by the the government even if the onstitution is entirely sil ent on the subject.
1. s#,ets o& Taxation (the Taxation (the persons, property or occupation etc. to be taxed3 . a+o#nt or rate o& t%e tax >. !#r!oses &or w%i% taxes s%all ,e levie$ !rovi$e$ t%e* are !#,li !#r!oses 8. a!!ortion+ent o& t%e tax ?. sit#s o& taxation /. +et%o$ o& olletion Is t%e Power to Tax t%e Power to 'estro*5 In the case of Churchill, et al. vs Concepcion (" Phil *-*& it has been ruled that! The power to impose taxes is one so unlimited in force and so searching in extent so that the courts scarcely venture to declare that it is subject to any restriction whatever, except such as rest in the disc discre retition on of the the auth author oritityy which which exer exerci cise se it. it.
TAXATION Reviewer
epigrammatic statement of the political and economic axiom that since the financial needs of a state or nation may outrun any human calculation, so the power to meet those needs by taxation must not be limit limited ed even even thou though gh the the taxe taxess beco become me burd burden enso some me or confiscatory. To say that "the power to tax is the power to destroy' is to describe not the purposes for which the taxing power may be used but the degree of vigor with which the taxing power may be employed in order to raise revenue (I ooley 12-113 Constit#tional Restraints Re( Taxation is t%e Power to 'estro* $hile taxation is said to be the power to destroy, it is by no means unlimited. It is eAually correct to postulate that the 0 power to tax is not the power to destroy while the Supreme Court sits ,1 because of the constitutional restraints placed on a taxing power that violated fundamental rights. In the case of oxas, et al vs C2A (April -, !*-)& , the S reminds us that although the power of taxation is sometimes called the power to destroy, in order to maintain the general public&s trust and confidence in the ;overnment, this power must be used justly and not treacherously. The Supreme ourt held! "The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimi#e injury to the proprietary rights of a taxpayer. It must be exercised fairly, eAually and uniformly, lest the tax collector kill the F hen that lays the 3olen e33 &. *nd, in order to maintain the general public& trust and confidence in the ;overnment this power must be used justly and not treacherously.' treacherously.' The The doct doctri rine ne seek seekss to desc descri ribe be,, in an extr extrem eme, e, the the conseAuential nature of taxation and its resulting implications, to wit! a. The power power to tax must must be exercise exercisedd with caution caution to minimi minimi#e #e injury to proprietary rights of a taxpayerC b. If the tax is lawful lawful and not violat violative ive of any of the inhere inherent nt and constitutional limitations, the fact alone that it may destroy an activity or object of taxation will not entirely permit the courts to afford any reliefC and c. * subje subject ct or object object that that may not be destro destroyed yed by the the taxing taxing authority may not likewise be taxed. (e.g. exercise of a constitutional right3 Power o& 6#$iial Review in Taxation Taxation The courts cannot review the wisdom or advisability or expe expedi dien ency cy of a tax. tax. The The cour court&t&ss powe powerr is limit limited ed only only to the the application and interpretation of the law. Eudicial action is limited only to review where involves! 1. The dete deterrmina minati tioon of vali validi dity ty on the tax in rel relatio ationn to constitutional precepts or provisions. . The determi determinatio nation, n, in an appropriat appropriatee case, of the the application application of the law.
As!ets o& Taxation 1. Lev* @ determination determination of the persons, persons, property property or excises to be taxed, the sum or sums to be raised, the due date thereof and the time and manner of levying and collecting taxes (strictly speaking, such refers to taxation3
. Colletion @ consist consistss of the manne mannerr of enforcem enforcement ent of the obligation on the part of those who are taxed. (this includes payment by the taxpayer and is referred to as tax administration3 The The two two proc proces esse sess toge togeth ther er cons constititu tute te the the " taxation s*ste+'. s*ste+'. 3asi Prini!les o& a So#n$ Tax S*ste+ 40*T7 1. 7isal A$e#a* / the sources of tax revenue should coincide with, and approximate the needs of government expenditure. . T%eoretial 6#stie @ the tax burden should be in proportion to the the taxp taxpay ayer& er&ss abil abilitityy to pay pay (ability4to4 The 12 12 (ability4to4pay pay principle& principle&. The onstitution reAuires taxation to be eAuitable and uniform.
II. II. Classi&iations an$ 'istintion Classi&iation o& Taxes Taxes *.
As to S#,et +atter
1. Personal" a!itation or !oll taxes @ taxes @ taxes of fixed fix ed amount upon all persons of a certain class within the jurisdiction of the taxing power without regard to the amount of their property or occupations or businesses in which they may be engaged in. example! community tax . Pro!ert* Taxes @ taxes on things things or property property of a certain certain class within the jurisdiction of the taxing taxing power. example! real estate tax >. Exise Exise Taxes @ charges imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. exampl examples! es! income income tax, tax, valuevalue-add added ed tax, tax, estate estate tax or donor&s tax
H.
As to 3#r$en
1. 'iret Taxes @ Taxes @ taxes wherein both the 0incience1 as as well as the 0impact1 or or burden of the tax faces on one person. examples! income tax, community tax, donor&s tax, estate tax . In$iret Taxes @ Taxes @ taxes wherein the incidence of or the liability for the payment of the tax falls on one person, but the burden thereof can be shifted or passed to another person. examples! *T, percentage taxes, customs duties excise taxes on certain specific goods I+!ortant Points to Consi$er rear$in In$iret Taxes! Taxes ! 1. $hen $hen the consumer consumer or end-use end-userr of a manufact manufacture urerr product product is tax-exempt, such exemption covers only those taxes for which such
TAXATION Reviewer
consum consumer er or end-us end-user er is direct directly ly liable liable.. Indire Indirect ct taxes taxes are not included. %ence, the manufacturer cannot claim exemption from the payment of sales tax, neither can the consumer or buyer of the product demand the refund of the tax that the manufacturer might have passed on to him. (Phil. Acetylene Co. inc. vs Commissioner of Internal evenue et. al., +4!*$5$, Au3.!$, !*)$& . $hen $hen the transac transactio tionn itself itself is the one one that is tax-exem tax-exempt pt but through error the seller pays the tax and shifts the same to the buyer, the seller seller gets gets the refund, refund, but must hold hold it in trust trust for buyer buyer. (American ubber Co. case, +4!5*-", April "5, !*-"& ". $here the exemption from indirect tax is given to the contractee, but the evident intention is to exempt the contractor so that such contractor may no longer shift or pass on any tax to the contractee, the the cont contra ract ctor or may may clai claim m tax tax exem exempt ptio ionn on the the tran transa sact ctio ionn (Commissioner of Internal evenue vs 6ohn Gotamco an #ons, Inc., et.al., +4"!5*, 7eb. $, !*)$&
8. $hen $hen the the law law gran grantiting ng tax tax exem exempt ptio ionn spec specififica icallllyy incl includ udes es indirect taxes or when it is clearly manifest therein that legislative intention to exempt embraces indirect taxes, then the buyer of the product or service sold has a right to be reimbursed the amount of the tax taxes that hat the the sell seller erss pass passed ed on to him. im. (/ace (/aceaa vs /acarai3,supra&
.
As to P#r!ose
1. General87isal8Reven#e @ tax imposed for the general purposes of the government, i.e., to raise revenues for governmental needs. 6xamples! income taxes, *T, and almost all taxes . S!eial8Re#lator* @ S!eial8Re#lator* @ tax imposed for special purposes, i.e., to achieve some social or economic needs. 6xampl 6xamples! es! educat education ional al fund fund tax under under )eal )eal 5rope 5roperty rty Taxation J.
As to 9eas#re o& A!!liation
1. S!ei&i Tax @ Tax @ tax imposed per head, unit or number, or by some stan standa dard rd of weig weight ht or meas measur urem emen entt and and whic whichh reAu reAuir ires es no assessment beyond a listing and classification of the subjects to be taxed. 6xamples! taxes on distilled spirits, wines, and fermented liAuors . A$ :alore+ Tax @ Tax @ tax based on the value of the article or thing subject to tax. example! real property taxes, customs duties 6.
As to 'ate
1. Proressive Tax @ Tax @ the rate or the amount of the tax increases as the the amou amount nt of the the inco income me or earn earnin ingg (tax (tax base base33 to be taxe taxedd increases. examples! income tax, estate tax, donor&s tax
. Reressive Tax Tax @ the tax rate decreases as the amount of income or earning (tax base3 to be taxed increases. . 9ixe$ Tax Tax @ tax tax rate ratess are are part partly ly prog progre ressi ssive ve and and part partly ly regressive. 8. Pro!ortionate Tax Tax @ tax rates are fixed on a flat tax base. examples! real estate tax, *T, and other percentage taxes
0. As to So!e or a#t%orit* i+!osin t%e tax 1. National Tax / tax / tax imposed by the
Taxes Taxes $istin#is%e$ &ro+ ot%er I+!ositions a. Toll vs Tax Toll @ Toll @ sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge of the like, of a public nature.
Tax vs 1. demand of sovereignty . paid paid for for the supp suppor ortt of the the government >. generally lly, no lim limit as to amount imposed 8. imposed government
only
by
the
Toll 1. demand of proprietorship . paid paid for for the use use of anot anothe her&s r&s property >. amount amount depend dependss on the cost cost of constructio constructionn or maintenan maintenance ce of the public improvement used 8. impo impose sedd by the gover governm nmen entt or private individuals or entities
b. Penalt* vs Tax Penalt Penalt** @ any sanctions imposed as a punishment for violations of law or acts deemed injurious. Tax vs 1. gene genera rally lly inten intende dedd to raise raise revenue . imposed only by the government c. S!eial Assess+ent vs Tax
Penalt* 1. design designed ed to regula regulate te condu conduct ct . impo impose sedd by the gover governm nmen entt or private individuals or entities
TAXATION Reviewer
S!eia S!eiall Assess Assess+en +entt @ an enfo enforc rced ed prop propor ortition onal al contributio contributionn from owners of lands especially or peculiarly peculiarly benefited benefited by public improvements. Tax vs S!eial Assess+ent 1. imposed on persons, 1. levie leviedd onl onlyy on on lan landd property and excise . personal liability ity of the . not a perso personal nal liab liabilit ilityy of the the person assessed person assessed, i.e. his liability is lim limite ited only only to the land and involved >. base basedd on nece necess ssitityy as well well >. based based wholly wholly on benefi benefits ts as on benefits received 8. gener eneral al appl applic icat atio ionn (see (see 8. except exception ional al both both as time time and and *post *postoli olicc 5refec 5refectt vs Treas Treas.. 9f place Haguio, 21 5hil ?823 I+!ort I+!ortant ant Points Points to Consi$ Consi$er er Rear$ Rear$in in S!eia S!eiall Assess+ents( 1. Since special special assessme assessments nts are not not taxes within within the constitu constitutiona tionall or statut statutory ory provisi provisions ons on tax exempt exemption ions, s, it follow followss that that the exemption under Sec. (>3, *rt. I of the onstitution does not apply to special assessments. . %owever %owever,, in view of the exempting exempting proviso in #ec. " of the +ocal Government Coe, properties which are actually, actually, irectly an exclusively use for reli3ious, charitable an eucational purposes are not exactly exempt exactly exempt from real property taxes but are exempt from the imposition of special assessments as well.( see Aban& > .The general rule is that an exemption from taxation does not include exemption from special assessment. $. Liens Liensee or Per+i Per+itt 7ee vs vs Tax Tax Liense or Per+it &ee @ &ee @ is a charge imposed under the police power for the purposes of regulation. Tax vs Liense8Per+it Liense8P er+it 7ee 1. enforced contribution 1. leg legal com compensa ensattion ion or assessed by sovereign authority reward of an officer for specific to defray public expenses purposes . for revenue purposes . for regulation purposes >. an exerc xercis isee of the the taxin axingg >. an exer exerci cise se of the poli police ce power power 8. generally no lim limit in the 8. amount is lim limited to the amount of tax to be paid necessary expenses of inspection and regulation ?. impo impose sedd also lso on perso ersons ns ?. imposed on the right to and property exercise privilege /. non-payment does not /. nonnon-pa paym ymen entt makes makes the the act nece necess ssar arililyy make make the the act act or or business illegal business illegal T%ree in$s o& lienses are reoni. +icens +icenses es for for reve revenue nue only only
I+!ortane o& t%e $istintions ,etween tax an$ liense &ee( 1. Some limitat limitations ions apply apply only to to one and not to the the other, other, and that that exemption from taxes may not include exemption from license fees. . The power to regulate as an exercise of police power does not incl includ udee the the powe powerr to impo impose se fees fees for for reve revenu nuee purp purpose oses. s. (see American /ail +ine vs City of 8utuan, +4!-$, /ay "!, !*-$ an relate cases& >. *n extract extraction ion,, however however,, maybe maybe conside considered red both both a tax and a license fee. 8. Hut a tax may may have have only a regulato regulatory ry purpose. purpose. %. The general rule is that the imposition is a tax if its primary purpose is to generate revenue and regulation is merely incidentalC but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition of a tax. (see Pro3ressive 9evelopment Corp. vs :ue'on City, !$ #CA -*& e. 'e,t vs Tax Jebt is based upon juridical tie, created by law, contracts, delicts or Auasi-delicts between parties for their private interest or resulting from their own acts or omissions. Tax 1. based on law
vs
. generally, cannot be assigned >. generally lly pa payable in in mo money 8. gene genera rally lly not not subje subject ct to setsetoff or compensation ?. impr impris ison onme ment nt is a sanc sanctition on for non-pa non-payme yment nt of tax except except poll tax /. governed by special prescriptive periods provided for in the Tax ode 2. does not draw interest except only when delinAuent
'e,t 1. based on contracts, express or implied . assi assiggnabl nablee >. may be be pa paid in in ki kind 8. may may be subj subjec ectt to set-o set-off ff or or compensation ?. no impr impris isoonme nment for for nononpayment of debt /. gove govern rneed by the the ordin rdinaary periods of prescriptions 2. draws interest when so stipulated, or in case of default
axes are not subject to set-off or legal compensation. General R#le( T R#le( Taxes The government government and the taxpayer are not creditors creditors and debtors debtors or each each other other.. 9bliga 9bligatio tions ns in the nature nature of debts debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity ( Philex /inin3 Corp. vs CI, * #CA -)$; epublic vs /ambulao +umber +umber Co., - #CA -& Exe!t Exe!tion ion(( $here $here both both the claims claims of the governme government nt and the taxp taxpay ayer er agai agains nstt each each othe otherr have have alre alread adyy beco become me due due and and demandab demandable le as well as fully liAuated. liAuated. (see 9omin3o vs Garlitos, +4 !)*5, 6une *, !*-"&
Pertinent Case( P%ilex 9inin Cor!. vs Co++issioner o& Internal Reven#e ;.).
TAXATION Reviewer
- no limit
The Supreme ourt held that! "$e have consistently ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the government. * person cannot refuse to pay a tax on the ground that the government owes him an amount eAual to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.' f.
Tax 'istin#is%e$ &ro+ ot%er Ter+s.
1. S#,si$* @ a pecuniary aid directly granted by the government to an individual or private commercial enterprise deemed beneficial to the public. . Reven#e @ refers to all the funds or income derived by the government, whether from tax or from whatever source and whatever manner. >. C#sto+s '#ties @ taxes imposed on goods exported from or imported into a country. The term taxes is broader in scope as it includes customs duties. 8. Tari&& @ it may be used in > senses! a. *s a book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same. b. *s duties payable on goods imported or exported (5J B3 c. *s the system or principle of imposing duties on the importationKexportation of goods. ?. Internal Reven#e @ refers to taxes imposed by the legislative other than duties or imports and exports. /. 9arin 7ee @ a currency measure designed to stabili#e the currency. 2. Tri,#te @ synonymous with taxC taxation implies tribute from the governed to some form of sovereignty. . I+!ost @ in its general sense, it signifies any tax, tribute or duty. In its limited sense, it means a duty on imported goods and merchandise. In%erent Powers o& t%e State
- limited to the no exaction, cost of compensation paid by regulations, the government issuance of the license or surveillance 8=>=7I2# =C=I@=9 - no special or no direct - direct benefit results direct benefits benefits but a in the form of just received but the healthy compensation enjoyment of economic the privileges of standard of living in an society or organi#ed 0amnum absue inBuria1 is society attained >O>4I/PAI/=>2 O7 CO>2AC2# - the impairment - contract may be - contracts may be rule subsist impaired impaired 2A>#7= O7 POP=2 IGD2# - taxes paid - no transfer but - property is taken by become part of only restraint on the gov&t upon public funds the exercise of payment of just property right compensation exists #COP= - affects all - affects all - affects only the persons, persons, particular property property and property, comprehended excise privileges, and even rights 8A#I# public - public necessity -public necessity, necessity and the right of private property is the state and the taken for public use public to selfprotection and self-preservation A<2DOI2 EDICD =?=CI#=# 2D= POE= - only by the - only by the - may be granted to government or government or its public service, its political political companies, or public subdivisions subdivisions utilities
1. 5olice 5ower . 5ower of 6minent Jomain >. 5ower of Taxation
III. Li+itations on t%e Power o& Taxation
'istintions a+on t%e T%ree Powers
a. In%erent Li+itations or those which restrict the power although they are not embodied in the onstitution 45 < I T 67
Taxation Polie Power P<PO#= - levied for the ) exercised to purpose of promote public raising revenue welfare thru regulations A/O<>2 O7 =?AC2IO>
Li+itations" Classi&ie$
E+inent 'o+ain - taking of property for public use
1. . >. 8. ?.
P#,li 5urpose of Taxes Non-delegability of the Taxing 5ower Territorialit* or the Situs of Taxation Exe+!tion of the ;overnment from taxes International omity
TAXATION Reviewer
b. Constit#tional Li+itations or those expressly found in the constitution or implied from its provision 1. '#e process of law . E#al protection of law >. 0reedom of S!ee% and of the press 8. Non)in&rine+ent of religious freedom ?. Non)i+!air+ent of contracts /. Non)i+!rison+ent for debt or non-payment of poll tax 2. 9rigin of A!!ro!riation, )evenue and Tariff Hills . =ni&or+it*, 6Auitability and 5rogressitivity of Taxation . 'eleation of +egislative *uthority to 0x Tariff )ates, Import and 6xport Luotas 1B. Tax 6xemption of Pro!erties *ctually, Jirectly, and 6xclusively used for )eligious haritable 11. oting reAuirements in connection with the +egislative Grant of Tax 6xemption 1. . Tax exemption of Reven#es and *ssets, including ;rants, 6ndowments, Jonations or ontributions to 6ducation Institutions
. Test in $eter+inin P#,li P#r!oses in tax a. '#t* Test @ whether the thing to be threatened by the appropriation of public revenue is something which is the duty of the State, as a government. b. Pro+otion o& General Wel&are Test @ whether the law providing the tax directly promotes the welfare of the community in eAual measure.
3asi Prini!les o& a So#n$ Tax S*ste+ >7AT? a. 7isal A$e#a* / the sources of tax revenue should coincide with, and approximate the needs of government expenditure.
c. -t%er Constit#tional Provisions relate$ to Taxation 1. S#,et and Title of Hills . 5ower of the Presi$ent to eto an items in an *ppropriation, )evenue or Tariff Hill >. 3 directly to promote the welfare of the community (taxation as an implement of police power3 . The term 0public purpose1 is synonymous with 03overnmental purpose1; a purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals. c. * tax levied for a private purpose constitutes a taking of property without due process of law. d. The purposes to be accomplished by taxation need not be exclusively public. *lthough private individuals are directly benefited, the tax would still be valid provided such benefit is only incidental. e. The test is not as to who receives the money, but the character of the purpose for which it is expendedC not the immediate result of the expenditure but rather the ultimate. g. In the imposition of taxes, public purpose is presumed.
c. T%eoretial 6#stie @ the tax burden should be in proportion to the taxpayer&s ability to pay (ability4to4pay principle&. The 12 onstitution reAuires taxation to be eAuitable and uniform.
H. Non)$elea,ilit* o& Taxin Power 1.
Rationale( Joctrine of Separation of 5owersC Taxation is purely legislative, ongress cannot delegate the power to others.
. Exe!tions( a. 9ele3ation to the Presient (Art.@I. #ec. )(& !*)$ Constitution& for purposes of practic ally an expeiency. The power granted to ongress under this constitutional provision to authori#e the 5resident to fix within specified limits and subject to such limitations and restrictions as it may impose, tariff rates and other duties and imposts include tariffs rates even for revenue purposes only. ustoms duties which are assessed at the prescribed tariff rates are very much like taxes which are freAuently imposed for both revenue-raising and regulatory purposes (Garcia vs =xecutive #ecretary, et. al., G.. >o. !5!$", 6uly ", !**& b. 9ele3ations to the +ocal Government (Art. ?. #ec. %, !*)$ Constitution& It has been held that the general principle against the delegation of legislative powers as a conseAuence of the theory of separation of powers is subject to one well-established exception, namely, that legislative power may be delegated to local governments. The theory of non-delegation of legislative powers does not apply in maters of local concern. (Pepsi4Cola 8ottlin3 Co. of the Phil, Inc. vs City of 8utuan, et . al., +4)!, Au3. ), !*-)&
TAXATION Reviewer
c. 9ele3ation to Aministrative A3encies with respect to aspects of 2axation not le3islative in character. i. Power to value property ii. Power to assess an collect the taxes iii. Power to perform computation, appraisement an aBustment
>. Li+itations on 'eleation a. It shall not contravene any onstitutional provisions or inherent limitations of taxationC b. The delegation is effected either by the onstitution or by validly enacted legislative measures or statuteC and c. The delegated levy power, except when the delegation is by an express provision of onstitution itself, should only be in favor of the local legislative body of the local or municipal government concerned. 5owers which cannot be delegated! i. Jetermination of the s#,ets to be taxed ii. P#r!ose of the tax iii. A+o#nt or rate of the tax iv. 9anner v. 9eans vi. Aenies o& olletion vii. Presri,in the necessary r#les with respect thereto
8. Tax Leislation vis);)vis Tax A$+inistration ) 6very system of taxation consists of two parts! a. the elements that enter into the imposition of the tax 4S * 5 D * =7, or tax regulationC and b. the steps taken for its assessment and collection or tax administration If what is delegated is tax legislation, the delegation is invalidC but if what is involved is only tax administration, the nondelegability rule is not violated.
. Territorialit* or Sit#s o& Taxation 1. I+!ortant Points to Consi$er( a. Territoriality or Situs of Taxation means 0place of taxation1 depending on the nature of taxes being imposed. b. It is an inherent mandate that taxation shall only be exercised on persons, properties, an excise within the territory of the taxing power because! b.13 Tax laws do not operate beyond a country&s territorial limit. b.3 5roperty which is wholly and exclusively within the jurisdiction of another state receives none of the protection for which a tax is supposed to be compensation. c. %owever, the fundamental basis of the right to tax is the capacity of the 3overnment to provie benefits an protection to the obBect of the tax . * person may be taxed, even if he is
outside the taxing state, where there is between him and the taxing state, a privity of relationship justifying the levy. . 7ators to Consi$er in $eter+inin Sit#s o& Taxation a. kind and lassification of the Tax ,. location of the subject matter of the tax @ real and pers. . domicile or residence of the person @ intangible per. 5rop. $. citi#enship of the person e. source of income @ income derived wKin &. place where the privilege, business or occupation is being exercised
J. Exe+!tion o& t%e Govern+ent &ro+ Taxes 1. I+!ortant Points to Consi$er( Reasons &or Exe+!tions( a.13 To levy tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus, the government would be taxing itself to raise money to pay over to itselfC a.3 In order that the functions of the government shall not be unduly impedeC and a.>3 To reduce the amount of money that has to be handed by the government in the course of i ts operations. Mnless otherwise provided by law, the exemption . applies only to government entities through which the government immediately and directly exercises its sovereign powers (Infantry Post =xchan3e vs Posaas, % Phil )--& >. 3 foreign government may not be sued without its consent so that it is useless to assess the tax since it cannot be collected b.83 reciprocity among states Constit#tional Li+itations 1. '#e Proess o& Law
TAXATION Reviewer
a. 3asis( #ec. ! Art. " 0>o person shall be eprive of life, liberty or property without ue process of law x x x.'
1. . >. 8.
Re#isites ( The interest of the public generally as distinguished from those of a particular class reAuire the intervention of the stateC The means employed must be reasonably necessary to the accomplishment for the purpose and not unduly oppressiveC The deprivation was done under the authority of a valid law or of the constitutionC and The deprivation was done after compliance with fair and reasonable method of procedure prescribed by law. In a string of cases, the Supreme ourt held that in order that due process of law must not be done in an arbitrary, despotic, capricious, or whimsical manner. . E#al Protetion o& t%e Law a. 3asis( #ec.! Art. " 0 xxx >or shall any person be enie the eual protection of the laws. I+!ortant Points to Consi$er! 1. 6Aual protection of the laws signifies that all persons subject to legislation shall be treated under circumstances and conditions both in the privileges conferred and li abilities imposed . This doctrine prohibits class legislation which discriminates against some and favors others. b. )eAuisites for a alid lassification 1. =ust not be arbitrary . =ust not be based upon substantial distinctions >. =ust be germane to the purpose of law. 8. =ust not be limited to exiting conditions onlyC and ?. =ust play eAually to all members of a class. >. =ni&or+it*" E#ita,ilit* an$ Proressivit* o& Taxation a. 3asis( Sec. (13 *rt. I. The rule of taxation shall be uniform and eAuitable. The ongress shall evolve a progressive system of taxation. b. I+!ortant Points to Consi$er( 1. =ni&or+it* (eAuality or eAual protection of the laws3 means all taxable articles or kinds or property of the same class shall be taxed at the same rate. * tax is uniform when the same force and effect in every place where the subject of it is found. . E#ita,le means fair, just, reasonable and proportionate to one&s ability to pay. >. Proressive s*ste+ o& Taxation places stress on direct rather than indirect taxes, or on the taxpayers& ability to pay 8. IneAuality which results in singling out one particular class for taxation or exemption infringes no constitutional limitation. (see Commissioner vs. +in3ayen Gulf =lectric, !- #CA $& ?. The rule of uniformity does not call for perfect uniformity or perfect eAuality, because this is hardly attainable. 8. 7ree$o+ o& S!ee% an$ o& t%e Press a. 3asis( Sec. 8 *rt. III.
b. I+!ortant Points to Consi$er( 1. There is curtailment of press freedom and freedom of thought if a tax is levied in order to suppress the basic right of the people under the onstitution. . * business license may not be reAuired for the sale or contribution of printed materials like newspaper for such would be imposing a prior restraint on press freedom >. %owever, an annual registration fee on all persons subject to the value-added tax does not constitute a restraint on press freedom since it is not imposed for the exercise of a privilege but only for the purpose of defraying part of cost of registration. ?. Non)in&rine+ent o& Reliio#s 7ree$o+ a. 3asis( Sec. ? *rt. III. "
2. Non)i+!rison+ent &or non)!a*+ent o& !oll tax a. 3asis( Sec. B *rt. III. "
TAXATION Reviewer
a. 3asis( Sec. 8 *rt. I. "*ll appropriation, revenue or tariff bills, bill authori#ing increase of the public debt, bills of local application, and private bills shall originate exclusively in the %ouse of )epresentatives, but the Senate may propose or concur with amendments.' b. Mnder the above provision, the Senator&s power is not only to @onl* on#r wit% a+en$+ents but also "to propose amendments'. (2olentino vs #ec. of 7inance, supra& . 'eleation o& Leislative A#t%orit* to 7ix Tari&& Rates" I+!orts an$ Ex!ort 4#otas a. 3asis( Sec. (3 *rt. I "x x x The ongress may, by law, authori#e the 5resident to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export Auotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the government. 1B. Tax Exe+!tion o& Pro!erties At#all*" 'iretl* an$ Exl#sivel* #se$ &or Reliio#s" C%arita,le an$ E$#ational P#r!oses a. 3asis( Sec. (>3 *rt. I. "haritable institutions, churches and parsonages or convents appurtenant thereto, mosAues, non-profit cemeteries, and all lands, building, and improvements actually, irectly an exclusively used for religious, charitable or educational purposes shall be exempt from taxation.' b. I+!ortant Points to Consi$er( 1. +est of the tax exemption! the use and not ownership of the property . To be tax-exempt, the property must be actually, directly and exclusively used for the purposes mentioned. >. The word "exclusively' means "primarily&. 8. The exemption is not limited to property actually indispensable but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. ?. The constitutional exemption applies only to property tax. /. %owever, it would seem that under existing law, gifts made in favor or religious charitable and educational organi#ations would nevertheless Aualify for donor&s gift tax exemption. (Sec. 1B1(3(>3,
a. 3asis( Sec. ? (3 *rt. III. "The ongress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme ourt of its jurisdiction over cases enumerated in Sec. ? hereof.' Sec. ? (b3 *rt. III. "The Supreme ourt shall have the following powers! x x x(3 )eview, revise, modify or affirm on appeal or certiorari x x x final judgments and orders of lower courts in x x x all cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed in relation thereto.' 1>. Tax Exe+!tions o& Reven#es an$ Assets" inl#$in rants" en$ow+ents" $onations or ontri,#tions to E$#ational Instit#tions a. 3asis( Sec. 8(83 *rt. OI. "Subject to the conditions prescribed by law, all grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax.' b. I+!ortant Points to Consi$er( 1. The exemption granted to non-stock, non-profit educational institution covers income, property, and donor&s taxes, and custom duties. . To be exempt from tax or duty, the revenue, assets, property or donation must be used actually, directly and exclusively for educational purpose. >. In the case or religious and charitable entities and non-profit cemeteries, the exemption is limited to property tax. 8. The said constitutional provision granting tax exemption to non-stock, non-profit educational institution is self-executing. ?. Tax exemptions, however, of proprietary (for profit3 educational institutions reAuire prior legislative implementation. Their tax exemption is not self-executing. /. +ands, Huildings, and improvements actually, directly, and exclusively used for educational purposed are exempt from property tax, whether the educational institution is proprietary or non-profit. c. 'e!art+ent o& 7inane -r$er No. 1D)D" $ate$ 'e. 1F" 1D The following are some of the highlights of the J90 order governing the tax exemption of non-stock, non-profit educational institutions! 1. The tax exemption is not only limited to revenues and assets derived from strictly school operations like income from tuition and other miscellaneous feed such as matriculation, library, )9T, etc. fees, but it also extends to incidental income derived from canteen, bookstore and dormitory facilities. . In the case, however, of incidental income, the facilities mentioned must not only be owned and operated by the school itself but such facilities must be located inside the school campus. anteens operated by mere concessionaires are taxable. >. Income which is unrelated to school operations like income from bank deposits, trust fund and similar arrangements, royalties, dividends and rental income are taxable. 8. The use of the school&s income or assets must be in consonance with the purposes for which the school is createdC in short, use must be school-related, like the grant of scholarships,
TAXATION Reviewer
faculty development, and establishment of professional chairs, school building expansion, library and school facilities.
violated. The 95S0, according to the court, remains as a special fund subject to 9* audit ( OsmeFa vs Orbos, et al., G.. >o. **))-, /ar. "!, !**"&
-t%er Constit#tional Provisions relate$ to Taxation
/. Allot+ent to Loal Govern+ents 3asis( Se. F" Art. X o& t%e 1D Constit#tion "+ocal ;overnment units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.'
1. S#,et an$ Title o& 3ills >Se. 2F>1? 1D Constit#tion? "6very Hill passed by ongress shall embrace only one subject which shall be expressed in the title thereof.' in the Tolentino 6-*T case, supra, the 6-vat, or the 6xpanded alue *dded Tax +aw ()* 221/3 was also Auestioned on the ground that the constitutional reAuirement on the title of a bill was not followed. →
I:. Sit#s o& Taxation an$ 'o#,le Taxation Sit#s o& Taxation
2. Power o& t%e Presi$ent to :eto ite+s in an A!!ro!riation" Reven#e or Tari&& 3ill >Se. 2D>2?" Art. :I o& t%e 1D Constit#tion?
1. Sit#s o& Taxation literally means the Plae o& Taxation. . 3asi R#le @ state where the subject to be taxed has a situs may rightfully levy and collect the tax
"The 5resident shall have the power to veto any particular item or items in an *ppropriation, )evenue or Tariff bill but the veto shall not affect the item or items to which he does not object.'
So+e 3asi Consi$erations A&&etin Sit#s o& Taxation 1. Protetion * legal situs cannot be given to property for the purpose of taxation where neither the property nor the person is within the protection of the taxing state In the case of /anila =lectric Co. vs atco (-* Phil )*& , the Supreme ourt ruled that insurance premium paid on a fire insurance policy covering property situated in the 5hils. are taxable in the 5hils. 6ven though the fire insurance contract was executed outside the 5hils. and the insurance policy is delivered to the insured therein. This is because the Philippines Government must 3et somethin3 in return for the protection it 3ives to the insure property in the Phils. an by reason of such protection, the insurer is benefite thereby.
>. Neessit* o& an A!!ro!riation +a$e ,e&ore +one* +a* ,e !ai$ o#t o& t%e Treas#r* >Se. 2>1?" Art. :I o& t%e 1D Constit#tion? "Se. 2>2?" Art. :I o& t%e 1D Constit#tion? 'Se. 2>?" Art. :I o& t%e 1D Constit#tion? "*ll money collected or any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. It the purpose for which a special fund was created has been fulfilled or abandoned the balance, if any, shall be transferred to the general funds of the government.' *n example is the 9il 5rice Stabili#ation 0und created under 5.J. 1?/ to stabili#e the prices of imported crude oil. In a decide case, it was held that where under an executive order of the 5resident, this special fund is transferred from the general fund to a "trust liability account,' the constitutional mandate is not →
•
. T%e +axi+ o& Mobilia Sequuntur Personam an$ Sit#s o& Taxation *ccording to this maxim, which means 'movable follow the person,' the situs of personal property is the domicile of the owner. This is merely a fiction of law and is not allowed to stand in the way of taxation of personalty in the place where it has its actual situs and the reAuisite legislative jurisdiction exists. Exa+!le( shares of stock may have situs for purposes of taxation in a state in which they are permanently kept regardless of the domicile of the owner, or the state in which he corporation is organi#ed.
>. Leislative Power to 7ix Sit#s If no constitutional provisions are violated, the power of the legislative to fix situs is undoubted. Exa+!le( our law fixes the situs of intangible personal property for purposes of the estate and gift taxes. (see Se. 10" 1D NIRC3
TAXATION Reviewer
Note( In those cases where the situs for certain intangibles are not categorically spelled out, there is room for applying the mobilia rule.
,. 6nter into treaties with other states
'o#,le Taxation 8. 'o#,le Taxation an$ t%e Sit#s Li+itation (see later topic3 Criteria in 7ixin Tax Sit#s o& S#,et o& Taxation a. Persons @ 5oll tax may be levied upon persons who are residents of the State. b. Real Pro!ert* @ is subject to taxation in the State in which it is located whether the owner is a resident or non-resident, and is taxable only there. R#le o& Lex Rei Sitae . Tani,le Personal !ro!ert* @ taxable in the state where it has actual situs @ where it is physically located. *lthough the owner resides in another jurisdiction. R#le o& Lex Rei Sitae $. Intani,le Personal Pro!ert* @ situs or personal property is the domicile of the owner, in accordance with the principle @9-3ILIA SE4==NT=R PERS-NA9, said principle, however, is not controlling when it is inconsistent with express provisions of statute or when justice demands that it should be, as where the property has in fact a situs elsewhere. (see Eells 7ar3o 8an v. Collector $5 PDI+ "%; Collector v. 7isher +4!!-, 6anuary, !*-!& e. Ino+e @ properly exacted from persons who are residents or citi#ens in the taxing jurisdiction and even those who are neither residents nor citi#ens provided the income is derived from sources within the taxing state. &. 3#siness" -#!ation" an$ Transation @ power to levy an excise tax depends upon the place where the business is done, of the occupation is engaged in of the transaction not place.
. Grat#ito#s Trans&er o& Pro!ert* @ transmission of property from donor to donee, or from a decedent to his heirs may be subject to taxation in the state where the transferor was a citi#en or resident, or where the property is located. :. 9#lti!liit* o& Sit#s There is multiplicity of situs when the same subject of taxation, like income or intangible, is subject to taxation in several taxing jurisdictions. This happens due to! a. ariance in the concept of "domicile' for tax purposesC b. =ultiple distinct relationship that may arise with respect to intangible personalityC and c. The use to which the property may have been devoted, all of which may receive the protection of the laws of jurisdiction other than the domicile of the owner Re+e$* @ taxation jurisdiction may provide! a. 6xemption or allowance of deductions or tax credit for foreign taxes
Two >2? in$s o& 'o#,le Taxation 1. -,noxio#s or 'iret '#!liate Taxation (9ouble taxation in its strict sense& - In the objectionable or prohibited sense means that the same property is taxed twice when it should be taxed only once.
1. 2. . . J. F.
Re#isites( Same property is taxed twice Same purpose Same taxing authority $ithin the same jurisdiction Juring the same taxing period Same kind or character of tax
. Per+issive or In$iret '#!liate Taxation (9ouble taxation in its broa sense& @ This is the opposite of direct double taxation and is not legally objectionable. The absence of one or more of the foregoing reAuisites of the obnoxious direct tax makes it indirect. Instanes o& 'o#,le Taxation in its 3roa$ Sense 1. * tax on the mortgage as personal property when the mortgaged property is also taxed at its full value as real estateC 2. * tax upon a corporation for its capital stock as a whole and upon the shareholders for their sharesC . * tax upon a corporation for its capital stock as a whole and upon the shareholders for their sharesC . * tax upon depositions in the bank for their deposits and a tax upon the bank for their property in which such deposits are invested J. *n excise tax upon certain use of property and a property tax upon the same propertyC and F. * tax upon the same property imposed by two different states. 9eans to Re$#e t%e Hars% E&&et o& Taxation 1. Tax 'e$#tion / subtraction from gross income in arriving a taxable income 2. Tax Cre$it / an amount subtracted from an individual&s or entity&s tax liability to arrive at the total tax liability * deduction differ from a tax credit in that a deduction reduces taxable income while credit reduces tax liability . Exe+!tions . Treaties with other States J. Prini!le o& Rei!roit* Constit#tionalit* Jouble Taxation in its stricter sense is undoubtedly unconstitutional but that in the broaer sense is not necessarily so.
TAXATION Reviewer
General R#le( 9ur onstitution does not prohibit double taxationC hence, it may not be invoked as a defense against the validity of tax laws. a. $here a tax is imposed by the
1. 2. . . J. F.
Six 3asi 7or+s o& Esa!e &ro+ Taxation Shifting Capitali#ation Transformation Evasion Avoidance Exemption
1. S%i&tin @ Transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to another or someone else I+!at o& taxation @ is the point at which a tax is originally imposed. Ini$ene o& Taxation @ is the point on which a tax burden finally rests or settles down. Relations a+on S%i&tin" I+!at an$ Ini$ene o& Taxation @ the impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. in$s o& S%i&tin( a. 7orwar$ S%i&tin @ the burden of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer ,. 3awar$ S%i&tin @ effected when the burden of tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production . -nwar$ S%i&tin @ this occurs when the tax is shifted two or more times either forward or backward 2. Ca!itali
. Trans&or+ation @ The method whereby the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost. . Tax Evasion @ is the use of the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. In$iia o& 7ra#$ in Taxation a. 0ailure to declare for taxation purposes true and actual income derived from business for two consecutive years, and b. Substantial underdeclaration of income tax returns of the taxpayer for four consecutive years couple with overstatement of euction. 6vasion of the tax takes place only when there are no proceeds. 6vasion of Taxation is tantamount, fiscally speaking, to the absence of taxation. J. Tax Avoi$ane @ is the use by the taxpayer of legally permissible alternative tax rates or method of assessing taxable property or income in order to avoid or reduce tax liability. → Tax *voidance is not punishable by law, a taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid by means which the law permits. 'istintion ,etween Tax Evasion an$ Avoi$ane Tax Evasion vs Tax Avoi$ane accomplished by breaking accomplished by legal the letter of the law procedures or means which maybe contrary to the intent of the sponsors of the tax law but nevertheless do not violate the letter of the law
:I. Exe+!tion &ro+ Taxation A. Tax Exe+!tion @ is a grant of immunity, express or implied, to particular persons or corporations from the obligations to pay taxes. 3. Nat#re o& Tax Exe+!tion 1. It is merely a personal privilege of the grantee . It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment, but the contract must contain the other essential elements of contracts, such as, for example, a valid cause or consideration. >. It implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and in this sense is prejudicial thereto. 8. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. C. Rationale o& tax Exe+!tion
TAXATION Reviewer
5ublic interest would be subserved by the exemption allowed which the law-making body considers sufficient to offset monetary loss entailed in the grant of the exemption. (CI vs 8othelo #hippin3 Corp., +4!-"", 6une *, !*-$; CI vs PA+, +45*-5, Oct. "!, !*-)& '. Gro#n$s &or Tax Exe+!tions 1. =ay be based on a contract in which case, the public represented by the ;overnment is supposed to receive a full eAuivalent therefore . =ay be based on some ground of public policy, such as, for example, to encourage new and necessary industries. >. =ay be created in a treaty on grounds of reciprocity or to lessen the rigors of international double or multiple taxation which occur where there are many taxing jurisdictions, as in the taxation of income and intangible personal property
/. onstitutional grants of tax exemptions are self-executing (Opinion >o. !"5, !*)$, #ec. Of 6ustice& 2. Tax exemption are personal. . Jeductions for income tax purposes partake of the nature of tax exemptions, hence, they are strictly construed against the tax payer *. * tax amnesty, much like a tax exemption is never favored or presumed by law (CI vs CA, G.. >o. !5)%$-, 6an. 5, !***& 1B. The rule of strict construction of tax exemption should not be applied to organi#ations performing strictly religious, charitable, and educational functions :II.
-t%er 'otrines in Taxation
Pros!etivit* o& Tax Laws General R#le( Taxes must only be imposed prospectively
E. E#it*" not a ro#n$ &or Tax Exe+!tion There is no tax exemption solely on the ground of eAuity, but eAuity can be used as a basis for statutory exemption. *t times the law authori#es condonation of taxes on eAuitable considerations. (Sec 2/, 22, +ocal ;overnment ode3
Exe!tion( The language of the statute clearly emans or express that it shall have a retroactive effect .
Important Points to Consider
7. in$s o& Tax Exe+!tions 1. *s to ,asis a. Constit#tional Exe+!tions / Immunities from taxation which originate from the onstitution ,. Stat#tor* Exe+!tions / Those which emanate from +egislation *s to &or+ a. Ex!ress Exe+!tion / $henever expressly granted by organic or statute of law ,. I+!lie$ Exe+!tion / 6xist whenever particular persons, properties or excises are deemed exempt as they fall outside the scope of the taxing provision itself 2.
*s to extent a. Total Exe+!tion / onnotes absolute immunity ,. Partial Exe+!tion / 9ne where collection of a part of the tax is dispensed with .
G. Prini!les Governin t%e Tax Exe+!tion !. 6xemptions from taxation are highly disfavored by law, and he who claims an exemption must be able to justify by the clearest grant of organic or statute of law. (Asiatic Petroleum vs +lanes, * PDI+ --; Collector of Internal evenue vs. /anila 6ocey Club, *) PDI+ -$5& . %e who claims an exemption must justify that the legislative intended to exempt him by words too plain to be mistaken. (@isayan Cebu 2erminal vs CI, +4!*%"5, 7eb. $, !*-%& >. %e who claims exemptions should convincingly proved that he is exempt 8. Tax exemptions must be strictly construed (Phil. Acetylene vs CI, +4!*$5$, Au3. !$, !*-$& %. Tax 6xemptions are not presumed. (+eala =lectric Co. vs CI, +4!-), Apr. "5, !*-"&
!. In order to declare a tax transgressing the due process clause of the onstitution it must be so harsh and oppressive in its retroactive application (7ernane' vs 7ernane', ** PDI+*"& . Tax laws are neither political nor penal in nature they are deemed laws of the occupied territory rather than the occupying enemy. (Dilao vs Collector, !55 PDI+ ))& >. Tax laws not being penal in character, the rule in the onstitution against the passage of the ex post facto laws cannot be invoked, exe!t for the penalty imposed.
I+!resri!ti,ilit* o& Taxes General R#le( Taxes are imprescriptible Exe!tion( $hen provided otherwise by the tax law itself. 6xample! o. !5!$!, 7eb. , !***&
'otrine o& E#ita,le Reo#!+ent It provides that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities should be pertinent only to taxes arising from the same transaction on which an overpayment is made and underpayment is due. This doctrine, however, was rejected by the Supreme ourt, saying that it was not convinced of the wisdom and proprietary thereof, and that it may work to tempt both the collecting agency and the taxpayer to delay and neglect their respective pursuits of legal
TAXATION Reviewer
action within the period set by law. (Collector vs <#2, !5 PDI+ !5-& Tax!a*erBs S#it ) It is only when an act complained of, which may include legislative enactment, directly involves the illegal disbursement of public funds derived from taxation that the taxpayer&s suit may be allowed. :III. Inter!retation an$ Constr#tion o& Tax Stat#tes I+!ortant Points to Consi$er( 1. 9n the interpretation and construction of tax statutes, legislative intention must be considered. . In case of doubt, tax statutes are construed strictly against the government and liberally construed in favor of the taxpayer. . The rule of strict construction against the government is not applicable where the language of the tax law is plain and there is no doubt as to the legislative intent. . The exemptions (or eAuivalent provisions, such as tax amnesty and tax condonation3 are not presumed and when granted are strictly construed against the grantee. J. The exemptions, however, are construed liberally in favor of the grantee in the following! a. $hen the law so provides for such liberal constructionC ,. 6xemptions from certain taxes granted under special circumstances to special classes of personsC . 6xemptions in favor of the ;overnment, its political subdivisionsC $. 6xemptions to traditional exemptees, such as, those in favor of charitable institutions. /.
The tax laws are presumed valid.
2.
The power to tax is presumed to exist. TAX A'9INISTRATI-N AN' EN7-RCE9ENT
Aenies Involve$ in Tax A$+inistration 1.
.
Hureau of Internal )evenue and the Hureau of ustoms for internal revenue and customs law enforcement. It is noteworthy to note that the HI) is largely decentrali#ed in that a great extent of tax enforcement duties are delegated to the )egional Jirectors and )evenue Jistrict 9fficers. 5rovincial, ity and =unicipal assessors and treasures for local and real property taxes.
Aents an$ 'e!#ties &or Colletion o& National Internal Reven#e Taxes
Mnder Sec. 1 of the 12
The ommissioner of ustoms and his subordinates with respect to the collection of national internal revenue taxes on imported goodsC b. The head of the appropriate government office and his subordinates with respect to the collection of energy taxC and c. Hanks duly accredited by the ommissioner with respect to receipt of payments of internal revenue taxes authori#ed to be made through banks.
3#rea# o& Internal Reven#e Powers an$ '#ties a.
b. c. d. e. f.
6xclusive and original power to interpret provisions of the
Rule of “ No stoppel !"ainst the #overnment$
It is a settled rule of law that in the performance of its governmental functions, the state cannot be estopped by the neglect of its agents and officers. o. --)"), !% April !*)).&
TAXATION Reviewer
Exe!tions( The ourt ruled in Commissioner of Internal evenue vs. C.A., et. al. G.. >o. !!$*), - 7eb !**$ that like other principles of law, the non-application of estoppel to the government admits of ex(eptions in the interest of )usti(e and fair play* as where in)usti(e will result to the taxpayer.
1. !ssessments are prima fa(ie presumed (orre(t and made in "ood faith.
Esto!!el Aainst t%e Tax!a*er $hile the principle of estoppel may not be invoked against the government, this is not necessarily true in case of the taxpayer. In CI vs. #uyac, !5 Phil )!* , the taxpayer made several reAuests for the reinvestigation of its tax liabilities such that the government, acceding to the taxpayers reAuest, postponed the collection of its liability. The taxpayer cannot later on be permitted to raise the defense of prescription inasmuch as his previous reAuests for reinvestigation have the effect of placing him in estoppel.
Nature and +inds of !ssessments !n assessment is the offi(ial a(tion of an administrative offi(er determinin" the amount of tax due from a taxpayer* or it may be the noti(e to the effe(t that the amount therein stated is due from the taxpayer that the payment of the tax or defi(ien(y stated therein. (8isaya +an 2ransportation Co. vs CI, !5% Phil !"")&
Classi&iations( a.
,.
Sel&)assess+ent) Tax is assessed by the taxpayer himself. The amount is reflected in the tax return that is filed by him and the tax is paid at the time he files his return. (#ec. %- AJ K!J, !**$ >IC& 'e&iien* Assess+ent- This is an assessment made by the tax assessor whereby the correct amount of the tax is determined after an examination or investigation is conducted. The liability is determined and isC therefore, assessed for the following reasons! 1. The amount ascertained exceeds that which is shown as tax by the taxpayer in his returnC . . The taxpayer did not file any return at all. (#ec. %- 8J J!J an J !**$ >IC&
Illeal an$ :oi$ Assess+ents) This is an assessment wherein the tax assessor has no power to act at all (@ictorias /illin3 vs. C2A, +4!", !" /ar !*-)& $. Erroneo#s Assess+ent / This is an assessment wherein the assessor has the power to assess but errs in the exercise of that power (Ibid.3 (.
Prini!les Governin Tax Assess+ents
The taxpayer has the duty of proving otherwise (Interprovincial Autobus vs. CI, *) Phil *5& In the absence of any proof of any irregularities in the performance of official duties, an assessment will not be disturbed. (#y Po. @s. C2A, G.. >o )!-, ) Au3 !*)) *ll presumptions are in favor of tax assessments (9ayrit vs. Cru', +4"**!5, - #ept. !*))& 0ailure to present proof of error in the assessment will justify judicial affirmation of said assessments. (CI vs C.C. G.. >o. !5!%! an !5%%-", !5 /ar !**%& * party challenging an appraiser&s finding of value is reAuired to prove not only that the appraised value is erroneous but also what the proper value is (Caltex vs. C.C. G.. >o. !5$)!, !5 6uly !**)&
. *ssessments should not be based on presumptions no matter how logical the presumption might be. In order to stand the test of judicial scrutiny it must be based on a(tual fa(ts .
>. *ssessment is discretionary on the part of the ommissioner. Mandamus will not lie to (ompel him to assess a tax after investi"ation if he finds no "round to assess. Mandamus to (ompel the Commissioner to assess will result in the en(roa(hment on exe(utive fun(tions , /eralco #ecuirities Corp. vs. #avellano, +4"-!)! an +4"-$), " Oct !**&.
=xceptL %he -IR Commissioner may be (ompelled to assess by mandamus if in the exer(ise of his dis(retion there is eviden(e of arbitrariness and "rave abuse of dis(retion as to "o beyond statutory authority , /acea vs. /acarai3, G.. >o. ))*, ) 6une !**" .
8. The authority vested in the ommissioner to assess taxes may be delegated. !n assessment si"ned by an employee for and in behalf of the Commissioner of Internal Revenue is valid. /owever* it is settled that the power to ma&e final assessments (annot be dele"ated. %he person to whom a duty is dele"ated (annot lawfully dele"ate that duty to another. , City +umber vs. 9omin3o, +4!)-!!, "5 6an !*-&.
?. *ssessments must be directed to the right party. /en(e* if for example* the taxpayer bein" assessed is an estate of a de(edent* the administrator should be the party to whom the assessment should be sent , epublic vs. ela ama, +4 !!5), * >ov. !*--& * and not the heirs of the de(edent
TAXATION Reviewer
9eans E+!lo*e$ in t%e Assess+ent o& Taxes A. Exa+ination o& Ret#rns( Confidentiality Rule The Tax ode reAuires that after the return is filed, the ommissioner or his duly authori#ed representative shall examine the same and assess the correct amount of tax. The tax or the deficiency of the tax so assessed shall be paid upon notice and demand from the ommissioner or from his duly authori#ed representative. *ny return, statement or declaration filed in any office authori#ed to receive the same shall not be withdrawn. %owever, within three (>3 days from the date of such filing, the same may be modified, changed or amended, provided that no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. (#ec -AJ, !**$ >IC& *lthough Sec. 21 of the 12 .
.
$hen the inspection of the return is authori#ed upon the written order of the 5resident of the 5hilippines. $hen inspection is authori#ed under the 0inance )egulation > of the Secretary of 0inance. $hen the production of the tax return is material evidence in a criminal case wherein the ;overnment is interested in the result. (Cu
he can obtain through testimony or otherwise. *ssessments made as such are deemed prima facie correct and sufficient for all legal purposes. (#ec. - 8J, !**$ >IC& -est viden(e 0btainable refers to any data, record, papers, documents, or any evidence gathered by internal revenue officers from government offices or agencies, corporations, employers, clients or patients, tenants, lessees, vendees and from all other sources, with whom the taxpayer had previous transactions or from whom he received any income, after ascertaining that a report reAuired by law as basis for the assessment of any internal revenue tax has not been filed or when there is reason to believe that any such report is false, incomplete or erroneous.
* case in point on the use of the best evidence obtainable is #y Po vs C2A. In that case, there was a demand made by the ommissioner on the Silver up $ine ompany owned by petitioner&s deceased husband 5o Hien Seng. The demand was for the taxpayer to submit to the HI) for examination the factory&s books of accounts and records, so HI) investigators raided the factory and sei#ed different brands of alcoholic beverages. The investigators, on the basis of the wines sei#ed and the sworn statements of the factory&s employees on the Auantity of raw materials consumed in the manufacture of liAuor, assessed the corresponding deficiency income and specific taxes. The Supreme ourt, on appeal, upheld the legality of the assessment.
C. Inventory1%a&in"* Surveillan(e and Presumptive #ross Sales and Re(eipts
The ommissioner is authori#ed at any time during the taxable year to order the inventory-taking of goods of any taxpayer as a basis for assessment. If there is reason to believe that a person is not declaring his correct income, sales or receipts for internal revenue tax purposes, his business operation may be placed under observation or surveillance. The finding made in the surveillance may be used as a basis for assessing the taxes for the other months or Auarters of the same or different taxable years. (#ec. - CJ, !**$ >IC&
3. Assess+ent 3ase$ on t%e 3est Evi$ene -,taina,le 2. %ermination of %axable Period
The law authori#es the ommissioner to assess taxes on the basis of the best evidence obtainable in the following cases! 1.
The ommissioner shall declare the tax period of a taxpayer terminated at any time when it shall come to his knowledge!
if a person fails to file a return or other document at the time prescribed by lawC or he willfully or otherwise files a false or fraudulent return or other document.
a.
$hen the method is used, the ommissioner makes or amends the return from his knowledge and from such information as
c.
.
b.
That the taxpayer is retiring from business subject to taxC That he intends to leave the 5hilippines or remove his property therefromC That the taxpayer hides or conceals his propertyC or
TAXATION Reviewer
d.
That he performs any act tending to obstruct the proceedings for the collection of the tax for the past or current Auarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately.
The written decision to terminate the tax period shall be accompanied with a reAuest for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or Auarter, or such portion thereof as may be unpaid. Said taxes shall be due and payable immediately and shall be subject to all the penalties prescribed unless paid within the time fixed in the demand made by the ommissioner (#ec. - J, !**$ >IC 3
8asic Concept an 2heory
The method is an extension of the basic accounting principle! assets minus liabilities euals net worth . The taxpayer&s net worth is determined both at the beginning and at the end of the same taxable year. The increase or decrease in net worth is adjusted by adding all non-deductible items and subtracting therefrom nontaxable receipts. The theory is that the unexplained increase in net worth of a taxpayer is presumed to be derived from taxable sources.
Leal So#re o& a#t%orit* &or #se o& t%e 9et%o$ E. 7ixin o& Real Pro!ert* :al#es 0or purposes of computing any internal revenue tax, the value of the property shall be whichever is the higher of ! (13 the fair market value as determined by the ommissionerC or (3 the fair market value as shown in the schedule of values of the 5rovincial and ity *ssessors for real tax purposes (#ec - =J, !**$ >IC&.
7. In#ir* into 3an 'e!osits 6xamination of bank deposits enables the ommissioner to assess the correct tax liabili ties of taxpayers. %owever, bank deposits are confidential under ).*. 18B?.
The ommissioner&s authority to use the net worth method and other indirect methods of establishing taxable income is found in Sec. 8>, 12
=oreover, Sec. /4H7, 12
1.
a decedent to determine his gross estateC and
. any taxpayer who has filed an application for compromise of his tax liability under Sec. B8 (*3 (P3 of the Tax ode by reason of his financial incapacity to pay his tax liability. In this case, the application for compromise shall not be considered unless and until he waives in writin3 his privilege under ).*. 18B?, or under other general or special laws, and such waiver shall constitute the authority of the ommissioner to inAuire into bank deposits of the taxpayer (#ec. -7J, !**$ >IC&.
Net Wort% 9et%o$ in Investiation The basis of using the
,a T%at t%e tax!a*erKs ,oos o& ao#nts $o not learl* re&let %is ino+e" or t%e tax!a*er %as no ,oos" or i& %e %as ,oos" %e re&#ses to !ro$#e t%e+ ,Inadequate Re(ords.
The ;overnment may be forced to resort to the net worth method of proof where the few records of the taxpayer were destroyedC for, to reAuire more would be tantamount to holding that skillful concealment is an inevitable barrier to proof.
>,? T%at t%ere is evi$ene o& a !ossi,le so#re or so#res o& ino+e to ao#nt &or t%e inrease in
TAXATION Reviewer
net wort% or t%e ex!en$it#res ,Need for eviden(e of the sour(es of in(ome .
In all leading cases on this matter, courts are unanimous in holding that when the tax case is civil in nature, direct proof of sources of income is not essential-that the government is not reAuired to negate all possible non-taxable sources of the alleged net worth increases. The burden of proof is upon the taxpayer to show that his net worth increase was derived from non-taxable sources. *s stated by the Supreme ourt, in civil cases, the assessor need not prove the specific source of income. This reasonable on the basic assumption that most assets are derived from a taxable source and that when this is not true, the taxpayer is in a position to explain the discrepancy. (Pere' vs. C2A, supra 3 Dowever, when the taxpayer is criminally prosecuted for tax evasion, the need for evidence of a likely source of income becomes a prereAuisite for a successful prosecution. The burden of proof is always with the ;overnment. onviction in such cases, as in any criminal case, rests on proof beyond reasonable doubt.
>? T%at t%ere is a &ixe$ startin !oint or o!enin net wort%" i.e." a $ate ,einnin wit% a taxa,le *ear or !rior to it" at w%i% ti+e t%e tax!a*erBs &inanial on$ition an ,e a&&ir+ativel* esta,lis%e$ wit% so+e $e&initeness.
This is an essential condition, considered to be the cornerstone of a net worth case. If the starting point or opening net worth is proven to be wrong, the whole superstructure usually fails. The courts have uniformly stressed that the validity of the result of any investigation under this method will depend entirely upon a correct opening net worth.
>$? T%at t%e ir#+stanes are s#% t%at t%e +et%o$ $oes not re&let t%e tax!a*erBs ino+e wit% reasona,le a#ra* an$ ertaint* an$ !ro!er an$ #st a$$itions o& !ersonal ex!enses an$ ot%er
non)$e$#ti,le ex!en$it#res were +a$e an$ orret" &air an$ e#ita,le re$it a$#st+ents were iven ,* wa* o& eli+inatin non)taxa,le ite+s. ,Proper ad)ustments to (onform to the in(ome tax laws
5roper adjustments for non-deductible items must be made. The following non-deductibles, as the case may be, must be added to the increase or decrease in the net worth!
1. . >.
personal, living or family expensesC premiums paid on any life insurance policyC losses from sales or exchanges of property between members of the familyC 8. income taxes paidC ?. estate, inheritance and gift taxesC /. other non-deductible taxesC 2. election expenses and other expenses against public policyC . non-deductible contributionsC . gifts to othersC 1B. net capital loss, and the like
9n the other hand, non-taxable items should be deducted therefrom. These items are necessary adjustments to avoid the inclusion of what otherwise are non-taxable receipts. They are!
1. . >. 8. ?. /.
inheritance, gifts and beAuests receivedC non-taxable capital gainsC compensation for injuries or sicknessC proceeds of life insurance policiesC sweepstakes winningsC interest on government securities and the like
Increase in net worth are not taxable if they are shown not to be the result of unreported income but to be the result of the correction of errors in the taxpayer&s entries in the books relating to indebtedness to certain creditors, erroneously listed although already paid. (7ernane' Dermanos Inc. vs. CI, +4!%%!, "5 #ept. !*-*&
TAXATION Reviewer
En&ore+ent o& 7or&eit#res an$ P enalties
corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed (#ec. $bJ, !**$ >IC& such as the ?N surcharge and the BN interest per annum on the delinAuency (#ecs. ) an * CJ, !**$ >IC&
Stat#tor* -&&enses an$ Penalties
1.
A$$itions to t%e Tax
*dditions to the tax are increments to the basic tax incident due to the taxpayer&s non-compliance with certain legal reAuirements, like the taxpayer&s refusal or failure to pay taxes andKor other violations of taxing provisions.
*dditions to the tax consist of the!
(13 civil penalty, otherwise known as surchar3e, which may either be ?N or ?B N of the tax depending upon the nature of the violationC
(3 interest either for a deficiency tax or delinAuency as to paymentC
(>3 other civil penalties or administrative fines such as for failure to file certain information returns and violations committed by withholding agents. (#ecs. $ to %, !**$ >IC&
S#r%are The payment of the surcharge is manatory and the ommissioner of Internal )evenue is not vested with any authority to waive or dispense with the collection thereof. In one case, the Supreme ourt held that the fact that on account of riots directed against the hinese on certain dates, they were prevented from paying their internal revenue taxes on time, does not authori#e the ommissioner to extend the time prescribed for the payment of taxes or to accept them without the additional penalty (+im Co Chui vs. Posaas, $ Phil -5&
The ommissioner is not vested with any authority to waive or dispense with the collection therof. (CI vs. CA, supra&. The penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the ;overnment. (Philippine efinin3 Company vs. C.A., G.. >o. !!))$*, ) /ay !**-&.
*n extension of time to pay taxes granted by the ommissioner does not excuse payment of the surcharge (CI vs. Cu
General Consi$erations on t%e A$$ition to tax a. *dditions to the tax or deficiency tax apply to all taxes, fees, and charges imposed in the Tax ode.
b. The amount so added to the tax shall be collected at the same time, in the same manner, and as part of the tax.
c. If the withholding agent is the government or any of its agencies, political subdivisions or instrumentalities, or a government owned or controlled
The following cases, however, show the instances when the imposition of the ?N surcharge had been waived!
!.
.
$here the taxpayer in good faith made a mistake in the interpretation of the applicable regulations thereby resulting in delay in the payment of taxes. (Connel 8ros. Co. vs. CI, +4!%$5, - 9ec. !*-"& * SubseAuent reversal by the HI) of a prior ruling relied upon by the taxpayer may also be a ground for
TAXATION Reviewer
dispensing with the ?N surcharge. (CI vs. epublic Cement Corp., +4"%-$$, !5 Au3. !*)"& >. $here a doubt existed on the part of the Hureau as to whether or not ).*. ?8>1 abolished the income tax exemptions of corporations (including electric power franchise grantees3 except those exempt under Sec. 2 (now, Sec. >B, 12 o. -5!-, % #ept. !*)%& 8. In the case of failure to make and file a return or list within the time prescribed by law, not due to willful neglect, where such return or list is voluntarily filed by the taxpayer without notice from the I) or other officers, and it is shown that the failure to file it in due time was due to a reasonable cause, no surcharge will be added to the amount of tax due on the return. In such case, in order to avoid the imposition of the surcharge, the taxpayer must make a statement showing all the facts alleged as reasonable causes for failure to file the return on time in the form of an affidavit, which should be attached to the return.
(13 The amount of the tax due on any return reAuired to be filed, or (3 The amount of the tax due for which no return is reAuired, or (>3 * deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the ommissioner.
. Interest on Exten$e$ Pa*+ent Imposed when a person reAuired to pay the tax is Aualified and elects to pay the tax on installment under the provisions of the ode, but fails to pay the tax or any installment thereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the ommissioner has authori#ed an extension of time within which to pay a tax or a deficiency tax or any part thereof. (#ec. *J, !**$ >IC&
A$+inistrative -&&enses 1. 0ailure to 0ile ertain Information )eturns . 0ailure of a $ithholding *gent to ollect and )emit Taxes
Interest This is an increment on any unpaid amount of tax, assessed at the rate of twenty percent (BN3 per annum, or such higher rate as may be prescribed y rules and regulations, from the date prescribed for payment until the amount is fully paid. (#ec. * AJ, !**$ >IC&
Interest is classified into! 1.
'e&iien* interest *ny deficiency in the tax due, as the term is defined in this code, shall be subject to the interest of BN per annum, or such higher rate as may be prescribed by rules and regulations, which shall be assessed and collected from the date prescribed for its payment until the full payment thereof (#ec. * 8J, !**$ >IC&
2. pay!
'elin#en* interest This kind of interest is imposed in case of failure to
>. 0ailure of a $ithholding *gent to )efund 6xcess $ithholding Tax
So#res o& reven#es( 1. Income tax . 6state Tax and dono&r tax >. *T 8. 9ther percentage taxes ?. 6xcise tax /. Jocumentary stamp taxes 2. 9ther as imposed and provided by HI) )6=6JI6S 90 T%6 ;96)<=6
•
6numeration of the )emedies I. *dministrative 1. Jistraint of 5ersonal 5roperty . +evy of )eal 5roperty >. Tax +ien 8. ompromise ?. 0orfeiture /. 9ther *dministrative )emedies II. Eudicial
TAXATION Reviewer
1. . •
ivil *ction riminal *ction
Jistraint of 5ersonal 5roperty
Jistraint- Sei#ure by the government of personal property, tangible or intangible, to enforce the payment of faces, to be followed by its public sale, if the taxes are not voluntarily paid. DI
b.
*ctual @ There is taking of possession of personal property out of the taxpayer into that of the government. In case of intangible property. Taxpayer is also diverted of the power of control over the property onstructive @ The owner is merely prohibited from disposing of his personal property.
.
>. 8.
5osting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained. Sale at public auction to highest bidder Jisposition of proceeds of the sale.
$ho may effect distraint 1. commissioner or his authori#ed representative . )J9
%ow *ctual Jistraint 6ffected 1.
In case of Tangible 5roperty! a.
*ctual vs. =ade on the property only of a delinAuent taxpayer. There is actual taking or possession of the property. 6ffected by having a list of the distraint property or by service or warrant of distraint or garnishment. *n immediate step for collection of taxes where amount due is definite.
onstructive Jistraint =ay be made on the property of any taxpayer whether delinAuent or not Taxpayer is merely prohibited from disposing of his property. 6ffected by reAuiring the taxpayer to sign a receipt of the property or by leaving a list of same Such immediate step is not necessaryC tax due may not be definite or it is being Auestioned.
b. c. .
Taxpayer is delinAuent in the payment of tax. SubseAuent demand for its payment. Taxpayer must fail to pay delinAuent tax at time reAuired. 5eriod with in to assess or collect has not yet prescribed. In case of constructive distraint, reAuisite no. 1 is • not essential (see Sec. B/ T3
$hen remedy not available! $here amount involved does not exceed 51BB (Sec. B? T3.
a.
Stocks and other securities Serving a copy of the warrant upon taxpayer and upon president, manager, treasurer or other responsible officer of the issuing corporation, company or association.
b.
Jebts and credits 1. +eaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent. . $arrant shall be sufficient authority for such person to pay I) his credits or debts. Hank *ccounts @ garnishment 1. Serve warrant upon taxpayer and president, manager, treasurer or responsible officer of the bank. . Hank shall turn over to I) so much of the bank accounts as may be sufficient.
c.
%ow constructive Jistraint 6ffected 1.
)eAuire taxpayer or person in possession to a. Sign a receipt covering property distrained b. 9bligate him to preserve the same properties. c. 5rohibit him from disposing the property from disposing the property in any manner, with out the authority of the I).
.
$here Taxpayer or person in possession refuses to sign!
In keeping with the provision on the abatement of the collection of tax as the cost of same might even be more than 51BB. 5rocedure! 1.
Service of warrant of distraint upon taxpayer or upon person in possession of taxpayer&s personal property.
opy of an account of the property distrained, signed by the officer, left either with the owner or person from whom property was taken, at the dwelling or place of business and with someone of suitable age and discretion Statement of the sum demanded. Time and place of sale.
In case of intangible property!
)eAuisites! 1. . >. 8.
due
*mount Involved In excess of 51,BBB,BBB.BB 51,BBB,BBB.BB or less
TAXATION Reviewer
a.
9fficer shall prepare list of the property distrained. b. In the presence of two witnesses of sufficient age and discretion, leave a copy in the premises where property is located.
b.
c.
;rounds of onstructive Jistraint 1. . >. 8. ?.
d.
Taxpayer is retiring from any business subject to tax. Taxpayer is intending to leave the 5hilippinesC or To remove his property there from. Taxpayer hides or conceals his property. Taxpayer acts tending to obstruct collection proceedings.
Time to redeem! one year from date of sale or forfeiture - Hegins from registration of the deed of sale or declaration of forfeiture. - annot be extended by the courts. 5ossession pending redemption @ owner not deprived of possession 5rice! *mount of taxes, penalties and interest thereon from date of delinAuency to the date of sale together with interest on said purchase price at 1?N per annum from date of purchase to date of redemption.
Jistraint and +evy compared
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Hank accounts may be distrained with out violating the confidential nature of bank accounts for no inAuiry is made. HI) simply sei#es so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from. If at any time prior to the consummation of the sale, all proper charges are paid to the officer conducting the same, the goods distrained shall be restored to the owner. $hen the amount of the bid for the property under distraint is not eAual to the amount of the tax or is very much less than the actual market value of articles, the I) or his deputy may purchase the distrained property on behalf of the national government.
1. . >. 8.
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+evy of )eal 5roperty +evy @ *ct of sei#ure of real property in order to enforce the payment of taxes. The property may be sold at public sale, if after sei#ureC the taxes are not voluntarily paid. The reAuisites are the same as that of distraint. •
5rocedure! 1.
. >.
8. ?. /.
International )evenue officer shall prepare a duly authenticated certificate showing a.
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•
Hoth are summary remedies for collection of taxes. Hoth cannot be availed of where amount involved is not more than 51BB. Jistraint @ personal property +evy @ real property Jistraint @ forfeiture by government, not provided +evy @ forfeiture by government authori#ed where there is no bidder or the highest bid is not sufficient to pay the taxes, penalties and costs. Jistraint @ Taxpayer no given the right of redemption +evy @ Taxpayer can redeem properties levied upon and soldKforfeited to the government.
It is the duty of the )egister of Jeeds concerned upon registration of the declaration of forfeiture, to transfer the title to the property with out of an order from a competent court The remedy of distraint or levy may be repeated if necessary until the full amount, including all expenses, is collected.
6nforcement of Tax +ien
Tax +ien! * legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes. 1. . 6xtent! Mpon all property and rights to property belonging to the taxpayer. 8. 6ffectivity against third persons! 9nly when notice of such lien is filed by the I) in the )egister of Jeeds concerned.
)edemption of property sold or forfeited 6xtinguishment of Tax +ien a.
5erson entitled! Taxpayer or anyone for him
TAXATION Reviewer
1. . >. 8.
5ayment or remission of the tax 5rescription of the right of the government to assess or collect. 0ailure to file notice of such lien in the office of register of Jeeds, purchases or judgment creditor. Jestruction of the property subject to the lien. In case and 8, the taxpayer is still liable.
6nforcement of Tax +ien vs. Jistraint * tax lien is distinguished from disttraint in that, in distraint the property sei#ed must be that of the taxpayer, although it need not be the property in respect to the tax is assessed. Tax lien is directed to the property subject to the tax, regardless of its owner.
This is superior to judgment claim of private individuals or parties *ttaches not only from time the warrant was served but from the time the tax was due and demandable.
Jelegation of 5ower to ompromise ;)! The power to compromise or abate shall not be delegated by the commissioner. 6! The )egional 6valuation Hoard may compromise the assessment issued by the regional offices involving basic taxes of 5 ?BB D or less. )emedy in case of failure to comply! The I) may either! 1. enforce the compromise, or . )egard it as rescinded and insists upon the original demand. ompromise 5enalty 1. It is a certain amount of money which the taxpayer pays to compromise a tax violation. . It is pain in lieu of a criminal prosecution. >. Since it is voluntary in character, the same may be collected only if the taxpayer is willing to pay them.
•
6nforcement of forfeiture
ompromise
ompromise! * contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced.
0orfeiture! Implies a divestiture of property with out compensation, in conseAuence of a default or offense. Includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer.
)eAuisites! 1. 1. . >.
Taxpayer must have a tax liability. There must be an offer by taxpayer or I), of an amount to be paid by taxpayer. There must be acceptance of the offer in settlement of the original claim.
.
$hen taxes may be compromised! >. 1. . >.
* reasonable doubt as to the validity if the claim against the taxpayer existsC The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. riminal violations, except! a. Those already filed in court b. Those involving fraud. 8.
+imitations! 1.
.
=inimum compromise rate! a. 1BN of the basic tax assessed @ in case of financial incapacity. b. 8BN of basic tax assessed @ other cases. Subject to approval of 6valuation Hoard a. $hen basic tax involved exceeds 51,BBB,BBB.BB or b. $here settlement offered is less than the prescribed minimum rates.
6ffect! Transfer the title to the specific thing from the owner to the government. $hen available! a. . cigars 8. cigarettes, and other manufactured products of tobacco ?. playing cards
TAXATION Reviewer
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*ll apparatus used in or about the illicit production of such articles. b. To be sold or destroyed @ depends upon the discretion of I) 1. *ll other articles subject to exercise tax, (wine, automobile, mineral products, manufactured oils, miscellaneous products, non-essential items a petroleum products3 manufactured or removed in violation of the Tax ode. . Jies for printing or making I) stamps, labels and tags, in imitation of or purport to be lawful stamps, labels or tags. $here to be sole! a. 5ublic sale! provided, there is notice of not less than B days. b. 5rivate sale! provided, it is with the approval of the Secretary of 0inance. )ight of )edemption! a. 5ersonal entitled @ taxpayer or anyone for him b. Time to redeem @ with in one (13 year from forfeiture c. *mount to be paid @ full amount of the taxes and penalties, plus interest and cost of the sale d. To whom paid @ ommissioner or the )evenue ollection 9fficer e. 6ffect of failure to redeem @ forfeiture shall become absolute.
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8. ?.
)eAuiring filing of bonds @ in the following instances! a. 6state and donor&s tax b. 6xcise taxes c. 6xporter&s bond d. =anufacturer&s and importer&s bond )eAuiring proof of filing income tax returns Hefore a license to engage in trade, business or occupation or to practice a profession can be issued. ;iving reward to informers @ Sum eAuivalent to 1BN of revenues, surcharges or fees recovered andKor fine or penalty imposed and collected or 51, BBB,BBB.BB per case, whichever i s lower. Imposition of surcharge and interest. =aking arrest, search and sei#ure +imited to violations of any penal law or regulation administered by the HI), committed with in the view of the Internal )evenue 9fficer or 66.
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2.
. . 1B. 11.
1. 1>.
18. •
Jeportation in case of aliens @ on the following grounds a. Dnowingly and fraudulently evades payment of I) taxes. b. $illfully refuses to pay such tax and its accessory penalties, after decision on his tax liability shall have become final and executory. Inspection of books Hooks of accounts and other accounting records of taxpayer must be preserved, generally within three years after date the tax return was due or was filed whichever is later. Mse of
Eudicial )emedies
ivil and riminal *ctions! 1. Hrought in the name of the ;overnment of the 5hilippines. . onducted by +egal 9fficer of HI) >. =ust be with the approval of the I), in case of action, for recovery of taxes, or enforcement of a fine, penalty or forfeiture. *. ivil *ction *ctions instituted by the government to collect internal revenue taxes in regular courts ()T or =Ts, depending on the amount involved3 $hen assessment made has become final and executory for failure or taxpayer to! a. Jispute same by filing protest with I) b. *ppeal adverse decision of I) to T* H.
riminal *ction * direct mode of collection of taxes, the judgment of which shall not only impose the penalty but also order payment of taxes. *n assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion, provided there is a prima facie showing of wil lful attempt to evade.
TAXATION Reviewer •
6ffect of *cAuittal on Tax +iability! Joes not exonerate taxpayer his civil liability to pay the tax due. Thus, the government may still collect the tax in the same action. )eason! Tax is an obligation, does not arise from a criminal act.
H.3 6xceptions! (Sec. ic3 1.
6ffect of Satisfaction of Tax +iability on riminal +iability . $ill not operate to extinguish taxpayer&s criminal liability since the duty to pay the tax is imposed by statute, independent of any attempt on past of taxpayers to evade payment. This is true in case the criminal action is based on the act to taxpayer of filing a false and fraudulent tax return and failure to pay the tax.
$here no return was filed - within ten (1B3 years after the date of discovery of the omission. $here a return was filed but the same was false or fraudulent @ within ten (1B3 years from the discovery of falsity or fraud.
0raudulent return
•
B, 1//3 b. The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the sole object of avoiding the tax. * mere mistake is not a fraudulent intent. (*#nar case, *ug. >, 1283 c. * fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cogni#ance of in the civil or criminal action for the collection thereof. (Sec. paragraph (a33 0raud may be established by the following ! (Hadges of 0raud3 a. Intentional and substantial understatement of tax liability of the taxpayer. b. Intentional and substantial overstatement of deductions of exemption c. )ecurrence of the foregoing circumstances. InstancesKircumstances negating fraud! a. $hen the ommissioner fails impute fraud in the assessment noticeKdemand for payment. b. $hen the ommissioner failed to allege in his answer to the taxpayer&s petition for review when the case is appealed to the T*. c. $hen the ommissioner raised the Auestion of fraud only for the first time in his memorandum which was filed the T* after he had rested his case.
* transcript sheets are not returns, because they do not contain information necessary and reAuired to permit the computation and assessment of taxes (Sinforo *lca vs. ommissioner, Jec. , 1/83
5)6S)I5TI6 56)I9JSKST*TMT6 90 +I=IT*TI9<
vs. 0alse return The filing thereof is intended and It merely implies a Jeceitful with the aim of evading the deviation from truth of correct tax due. fact whether intentional.
5urpose! 0or purposes of Taxation, statue of limitation is primarily designed to protect the rights of the taxpayer&s against unreasonable investigation of the taxing authority with respect to assessment and collection of Internal )evenue Taxes. I. 5rescription of ;overnment&s )ight to *ssess Taxes! *. ;eneral )ule! Internal )evenue Taxes shall be assessed within three (>3 years after the last day prescribed by law for the filing of the return or from the day the return was filed, in case it is filed beyond the period prescribed thereof. (Section B> of the Tax ode3
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B, 123 *n affidavit executed by a revenue office indicating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment. ( I) vs. 5ascoi )ealty orp. Eune , 13
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TAXATION Reviewer
d. e.
$here the HI) itself appeared, "not sure' as to the real amount of the taxpayer&s net i ncome. * mere understatement of income does not prove fraud, unless there is a sufficient evidence shaving fraudulent intent.
the collection of the tax may be filed without assessment, at anytime within ten years after the discovery of the falsity or fraud.
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$here the commissioner and the taxpayer, before the expiration of the three (>3 year period of limitation have agree in writing to the extension of said period.
years3 would apply ()ep. vs. )et., =arch >1, 1/3 .
>.
$here there is a written waiver or renunciation of the original >-year limitation signed by the taxpayer.
. *ssessment of unpaid taxes, where the bases of which is not reAuired by law to be reported in a return such as excise taxes. (armen vs. *yala Securities orp.,
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;eneral )ule! 1. $here an assessment was made @ *ny internal revenue tax which has been assessed within the period of limitation may be collected by distraint or levy or by proceeding in court within ? years following the date of assessment. . $here no assessment was made and a return was filed and the same is not fraudulent or falsethe tax should be collected within > years after the return was due or was filed, whichever is later. 6xceptions! 1. $here a fraudulentKfalse return with intent to evade taxes was filed a proceeding in court for
vs.
an
Taxpayer although made beyond such prescriptive period. 8.
$here the government makes another assessment on the basis of reinvestigation reAuested by the taxpayer @ the prescriptive period for collection should be counted from the last assessment. ()ep. vs. +ope#, =arch >B, 1/>3
?.
$here the assessment is revised because of an amended return @ the period for collection is counted from the last revised assessment.
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$here a tax obligation is secured by a surety bond @ the government may proceed thru a court action to forfeit a bond and enforce such contractual obligation within a period of ten years.
2.
$here the action is brought to enforce a compromise entered into between the
II. 5rescription of ;overnment&s )ight to ollect Taxes *.
$hen the taxpayer omits to file a return @ a court proceeding for the collection of such tax may be filed without assessment, at anytime within 1B years after the discovery of the omission. $aiver of statute of limitations @ any internal revenue tax, which has been assessed within the period agreed upon, may be collected be distinct or levy of by a proceeding in court within the period agreed upon in writing before the expiration of ?-year period.
TAXATION Reviewer
commission and the taxpayer @ the prescriptive period is ten years. .
a.
$hen tax is deemed collected for purposes of the prescriptive period.
1.
ollection by summary remedies @ It is effected by summary methods when the government avail of distraint and levy procedure. ollection by judicial action @ The collection begins by filing the complaint with the proper court. ()T3 $here assessment of the commissioner is protected Q appealed to the T* @ the collection begin when the government file its answer to taxpayer&s petition for review.
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b.
III. )ules of 5rescription In riminal ases *.
)ule! *ll violations of any provision of the tax code shall prescribe after five (?3 years.
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* mere reAuest for reinvestigation without any action or the part of the ommissioner does not interrupt the running of the prescriptive period. The reAuest must not be a mere proformer. Substantial issues must be raised.
$hen it should commenceR ! The five (?3 year prescriptive period shall begin to run from the a. Jay of the commission of the violation, if know. b. If not known, from the time of discovery and the institution of judicial proceeding for its investigation and punishment. $hen it is interrupted! a. $hen a proceeding is instituted against the guilty person b. $hen the offender is absent from the 5hilippines. $hen it should run again ! $hen the proceeding is dismissed for reason not onstituting jeopardy. $hen does the defense of prescription may be raised! a. In civil case @ If not raised in the lower court, it is bailed permanently. - If can not be raised for the first time on appeal. b. In criminal case @ It can be raised even if the case has been decided by the lower court but pending decision on appeal.
c.
$hen the taxpayer cannot be located in the address given by him in the return.
. =ember of his household with sufficient discretion and no property could be located. e.
I. Interruption of the 5rescriptive 5eriod $here before the expiration of the time prescribed for the assessment of the tax, both the commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed prior to the expiration of the period agreed upon. . The running of statute of limitations on making an assessment and the beginning of distraintKlevy or a proceeding in court for collection shall be suspended for the period.
$hen the taxpayer reAuests for reinvestigation which is granted by commissioner.
Juring which the ommissioner is prohibited from making the assessment or beginning distraintKlevy or a proceeding in court and for /B days thereafterC e.g. 0iling a petition for review in the T* from the decision of the ommissioner. The commissioner is prevented from filing an ordinary action to collect the tax. $hen T* suspends the collection of tax liability of the taxpayer pursuant to Section 11 of )* 11? upon proof that its collection may jeopardi#es the government and Kor the taxpayer.
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1.
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$hen the taxpayer is out of the 5hilippines.
In criminal cases for violation of tax code @ the period shall not run when the offender is absent from the 5hilippines.
TAXATION Reviewer
1. . >.
8.
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The law on prescription remedial measure should be interpreted liberally in order to protect the taxpayer. The defense of prescription must be raised by the taxpayer on time, otherwise it is deemed waived. The Auestion of prescription is not jurisdictional, and as defense it must be raised reasonably otherwise it is deemed waived. The prescriptive provided in the tax code over ride the statute of non-claims in the settlement of the deceased&s estate. In the event that the collection of the tax has already prescribed, the government cannot invoke the principle of 6Auitable recumbent by setting- off the prescribed tax against a tax refused to which the taxpayer is entitled.
Issuance of Assessment
5rocedure
Issuance of written a 5reliminary *ssessment IC&
T*O5*6)&S )6=6JI6S Mnder Sec. of the 12
b.
0iling of a petition or reAuest for reconsideration or reinvestigation (*dministrative 5rotest3C 6ntering into compromise
(3 *fter 5ayment a. 0iling of claim for tax refundC and b. 0iling of claim for tax credit
a.
b.
c.
6#$iial (13 ivil action a. b. c.
*ppeal to the ourt of Tax *ppeals *ction to contest forfeiture of chattelC and *ction for Jamages
(3 riminal *ction a.
0iling of complaint against erring Hureau of Internal )evenue officials and employees.
A'9INISTRATI:E PR-TEST Re#est &or reonsi$eration- a plea for the re-evaluation of an assessment on the basis of existin3 recors without nee of aitional evience . It may involve a Auestion of fact or law or both. Re#est &or reinvestiation- a plea for reinvestigation of an assessment on the basis of newly4iscovere or aitional evience that a taxpayer intends to present in the reinvestigation. It may also involve Auestion of fact or law or both.
d. e.
$hen the finding for the deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the returnC or $hen a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agentC or $hen a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable Auarter or Auarters of the succeeding taxable yearC or $hen the excise tax due on excisable articles has not been paidC or $hen an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital eAuipment, machineries, and spare parts, has been sold, traded or transferred to non-exempt persons.
If the taxpayer fails to respond within fifteen (1?3 days from the date of receipt of the 5*<, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued, calling for payment of the taxpayer&s tax liabili ty, inclusive of the applicable penalties (".!.. evenue e3ulations >o. !4** ate #ept. -, !***&.
Issuance of a 0ormal +etter of Jemand and *ssessment
TAXATION Reviewer
Shall state the facts, the laws, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of eman an assessment notice shall be voi.
0ailure of taxpayer to state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based shall render his protest void and without force and effect.
0ormal +etter of Jemand and *ssessment
ContentsL
a.
If sent by personal delivery, the taxpayer or his duly authori#ed representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand showing the following! (a3 his nameC (b3 signatureC (c3 designation and authority to act for and in behalf of the taxpayerC if acknowledged or received by a person other than the taxpayer himselfC and (d3 date of receipt thereof. (".!.. evenue e3ulations >o. !4** ate #ept. -, !***&.
'is!#te$ Assess+ent
Taxpayer or his duly authori#ed representative may administratively protest against a 0ormal +etter of Jemand and *ssessment notice within thirty (>B3 days from date of receipt thereof.
If the protest is denied in whole or part, or is not acted upon within one hundred eighty (1B3 days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the T* within >B days from receipt of the said decision, or from lapse of the one hundred (1B3-day period! otherwise, the decision shall become final and executory
#everal issues in the assessment notice but taxpayer only isputesMprotests valiity of some of the iss ues
Taxpayer reAuired to pay the deficiency tax or taxes
attributable to the undisputed issues. ollection letter to be issued calling for the payment of
deficiency tax, including applicable surcharge andKor interest.
payment of deficiency taxes on undisputed issues 5rescriptive period for assessment or collection of taxes on disputed issues shall be suspended.
o. !4)%, ate >ov. $, !*)%.& * reAuest for reconsideration or reinvestigation of an assessment shall be accompanied by a waiver of the Statute of +imitations in favor of the ;overnment. =ffect of taxpayer’s failure to file an aministrative protest or to appeal 8I’s ecision to the C2A
*s provided in Sec. of the Tax ode, if the taxpayer fails to file an administrative protest within the reglementary >B-day from receipt of the assessment notice, assessment becomes final.
TAXATION Reviewer
*fter the lapse of the >B-day period, the assessment can
0ailure to discharge burden of giving proof is fatal to claim
It must be shown that payment was an independent single
no longer be disputed either administratively or judicially through an appeal in the T*. *ssessed already tax collectible.
TAX RE7=N' There is actually a reimbursement of the tax
+e3al 8asis
+egal 5rinciple of Auasicontracts or solutio inebiti (see *rt. 18 Q 1?8 of the ivil ode3. The ;overnment is within the scope of the principle of solutio inebiti (I) vs. 0ireman&s 0und Insurance o3
act of voluntary payment of a tax believed to be due, collectible and accepted by the government, and which therefore, become part of the state moneys subject to expenditure and perhaps already spent or appropriated (CI vs. +i ao, +4!!)$%, 9ec. TAX CRE'IT ), !*-"&. The government issues a tax credit memo covering the amount determined to be #tatutory euirements for efun reimbursable which can be Claims applied after proper verification, against any sum that may be due and a. Written lai+ &or re&#n$ or tax collectible form the taxpayer re$it &ile$ ,* t%e tax!a*er wit% t%e Co++issioner This reAuirement is +an$ator*.
)easons( (a3 to afford the commissioner an opportunity to
correct the action of subordinate officer and (b3 to notify the government that the taxes sought to be refunded are under Auestion and that, therefore, such notice should then be
borne in mind in estimating the revenue available for expenditure (8ermeBo vs. CI )$ Phil *-&. 6xcept! Tax credit or tax refund where on the face of the
#cope of Claims
Mnder Sec. B8 and B of the 12
return upon which payment is made, such payment appears clearly to have been erroneous. (#ec. *, !**$ >IC&.
(a3 6rroneously or illegally assessed or collected internal revenue taxes Taxpayer pays under the mistake of fact, as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were made * tax is illegally collected if payments are made under duress. (b3 5enalties imposed without authority (c3 *ny sum alleged to have been excessive or in any manner wrongfully collected The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed.
>ecessity of Proof for efun Claims
,. Cateorial $e+an$ &or rei+,#rse+ent
. Clai+ &or re&#n$ or tax re$it +#st ,e &ile$ or t%e s#it !roee$in t%ereo& +#st ,e o++ene$ in o#rt wit%in two >2? *ears &ro+ $ate o& !a*+ent o& tax or !enalt* rear$less o& an* s#!ervenin event. (#ec. 5 (c& H * !**$ >IC&
)eAuirement a condition precedent and non-compliance
therewith bars recovery (Phil. Acetylene Co. Inc, vs. Commissioner, C2A Case >o. !"!, >ov. $, !*-&. )efers not only to the "administrative' claim that the
taxpayer should file within years from date of payments with the HI), but also the judicial claim or the action for refund the taxpayer should commence with the T* (see Gibbs vs.. Collector of Internal evenue, !5$ Phil "&. Taxpayer may file an action for refund in the T* even
)efund claim partakes of the nature of an exemption which cannot be allowed unless granted in the most explicit and categorical language. (CI vs. 6ohnson an #ons
before the ommissioner decides his pending claim in the
TAXATION Reviewer
HI) (Commissioner of Internal evenue vs. Palanca 6r., +4 !---, Oct. *, !*--&. Suspension of the -yaer prescriptive period may be had when! (13 there is a pending litigation between the two parties (government and taxpayer3 as to the proper tax to be paid and of the proper interpretation of the taxpayer&s charter in relation to the disputed taxC and (3 the commissioner in that li tigated case agreed to abide by the decision of the Supreme ourt as to the collection of taxes relative thereto (Panay =lectric Co., Inc. vs. Collector of Internal evenue !5" Phil. )!*&
6ven if the -year period has lapsed the same is not
jurisdictional and may be suspended for reasons of eAuity and other special circumstances. (CI vs. Phil. American +ife Ins. Co., G.. >o. !5%5), /ay *, !**%&. -year prescriptive period for filing of tax refund or credit claim computed from date of payment of tax of penalty except in the following!
orporations -year prescriptive period for overpaid Auarterly income tax is counted not from the date the corporation files its Auarterly income tax return, but from the date the final adjusted return is filed after the taxable year (Commissioner of Internal evenue vs. 2/? #ales, Inc., G.. >o. )"$"-, 6an. !%, !**&.
Interest on 2ax efun
The ;overnment cannot be reAuired to pay interest on taxes refunded to the taxpayer unless! 1. T%e Co++issioner ate$ wit% !atent ar,itrariness *rbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CI vs. @ictorias /illin3 Corp., Inc. +4 !*-5$, >ov. *, !*--&. 2. In ase o& Ino+e Tax wit%%el$ on t%e waes o& e+!lo*ees. *ny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within > months from the fifteenth (1? th3 day of *pril. )efund or credit after such time earn interest at the rate of /N per annum, starting after the lapse of the >month period to the date the reund or credit is made ( #ec $* (c& (& !**$ >IC&
APPEAL to t%e CTA
*dverse decision or ruling rendered by the ommissioner
of Internal )evenue in disputed assessment or claim for tax refund or credit, taxpayer may appeal the same within thirty (>B3 days after receipt. (Sec. 11, ).*.
In the absence of appeal, the decision becomes final and
executory. Hut where the taxpayer adversely affected has not received the decision or ruling, he could not appeal the same to the T* within >B days from notice. %ence, it could not become final and executory. ()epublic vs. Je la )ama, 1 S)* /13 =otion for reconsideration suspends the running of the >B
Taxes payable in installment -year period is counted form the payment of the last installment (CI vs Palanca, 6r., supra&
$ithholding Taxes 5rescriptive period counted not from the date the tax is withheld and remitted to the HI), but from the end of the taxable year (Gibbs vs. Commissioner of Internal evenue, supra&
@day period of perfecting an appeal. =ust advance new grounds not previously alleged to toll the reglementary periodC otherwise, it would be merely pro forma. ()oman atholic *rchbishop vs. oll., +-1//>, Ean. >1, 1/3.
)eAuirements for *ppeal in Jisputed *ssessment *T )egistered 5erson whose sales are #ero-rated or effectively #ero-rated -year period computed from the end of the taxable Auarter when the sales transactions were made (#ec. !! (A& !**$ >IC&.
a.
Tax assessed has not been paidC
TAXATION Reviewer
b.
c. d.
Taxpayer has filed with the ommissioner of Internal )evenue a petition for the reconsideration or cancellation of the assessmentC 0inal decision or ruling has been rendered on such petitionC Suit or proceeding in the T* is made within >B days from receipt of the decision
6ffect of 0ailure to *ppeal *ssessment
a.
b.
Taxpayer barred, in an action for collection of the tax by the government, from using defense of excessive or illegal assessment. *ssessment is considered correct.
)eAuirements for *ppeal in )efund and Tax redit
a. b.
c.
Tax has been paidC Taxpayer has filed with the I) a written claim for refund or tax credit within years from payment of the tax or penaltyC and Suit or proceeding is instituted in the T* also within the same prescriptive period of two years from the date of payment regardless of any supervening cause. (see Secs. B8, 12
ACTI-N C-NTESTING 7-R7EIT=RE -7 CHATTEL
Taxpayer may file an action for damages against any internal revenue officer by reason of any act done in the performance of official duty or neglect of duty. In case of willful neglect of duty, taxpayer&s recourse is under *rt 2 of the ivil ode.
)evenue officer acting negligently or in bad faith or with willful oppression would be personally liable. %e ceases to be an officer of the law and becomes a private wrongdoer.
7ILING -7 CRI9INAL C-9PLAINT AGAINST RE:EN=E -77ICERS
* taxpayer may file a criminal complaint against any official, agent or employee of the HI) or any other agency charged with the enforcement of the provisions of the Tax ode who commits any of the following offenses!
13 3
>3 83 ?3
In case of sei#ure of personal property under claim for forfeiture, the owner desiring to contest the validity of the forfeiture may bring an action! a.
Hefore sale or destruction of the property to recover the property from the person sei#ing the property or in possession thereof upon filing of the proper bond to enjoin the sale. b. *fter the sale and within / months to recover the net proceeds reali#ed at the sale (see. Sec. >1, 12
/3 23 3
3 ACTI-N 7-R 'A9AGES AGAINST RE:EN=E -77ICIALS
6xtortion or willful oppression through the use of his officeC $illful oppression and harassment of a taxpayer who refused, declined, turned down or rejected any of his offers mentioned in no. ?C Dnowingly demanding or receiving sums or compensation not authori#ed or prescribed by lawC $illfully neglecting to give receipts as by law reAuired or to perform any other duties enjoined by lawC 9ffering or undertaking to accomplish, file or submit a report or assessment on a txpayer without the appropriate examination of the books of account or tax liability, or offering or undertaking to submit a report or assessment less than the amount due the government for any consideration or compensationC or conspiring or colluding with another or others to defraud the revenues or otherwise violate the provisions of the tax codeC
TAXATION Reviewer
1B3 $ithout the authority of law, demanding or accepting money or other things of value fore the compromise or settlement of any charge or complaint for any violation of the Tax ode. (see. Sec. /, 12
Extra#$iial 1.
En&ore+ent or tax lien * tax lien attaches on the goods, regardless of the ownership while still in the custody or control of the government 5roceeds of sale are applied to the tax due. *ny deficiency or excess is for the account or credit, respectively of the taxpayer This is availed of when the importation is neither nor improperly made
c.
sei#ed property, other than contraband, after liability to sale shall have been established by proper administrative or judicial proceedings in conformity with the provision of this code! and
d.
*ny articles subject to a valid lien for customs duties, taxes or other charges collectible by the Hureau of ustoms, after the expiration of the period allowed for the satisfaction of the same.
6#$iial Ation The tax liability of the importer constitutes a personal debt to the government, enforceable by action (Sec. 1B8, T3 This is availed of when the tax lien is lost by the release of the goods.
3. Tax!a*erBs Re+e$ies 2.
Sei<#res A$+inistrative Reo#rse ;enerally applied when the penalty is fine or forfeiture which is imposed when the importation is unlawful and it may be exercised even where the articles are not or no longer in ustoms ustody, unless the importation is merely attempted.
Claim for refunNa written claim for refund may be submitted by the importer!
1.
In the case of attempted importation, administrative fine or forfeiture may be affected onlyC
.
In abatement uses such as! a.
on missing packagesC
b.
deficiencies in the contents of packages or shortage before arrival of the goods in the 5hilippinesC
c.
articles lost or destroyed after such arrival,
d.
articles lost or destroyed
Sale o& Pro!ert*
e.
dead or injured animalsC and
5roperty in the customs custody shall be subject to sale under the following conditionsC
f.
for manifest classical errorsC (see section 12B112B, T3
a.
while the goods are still within the customs jurisdiction, or
b.
in the hands or under the control of the importer or person who is aware thereof.
a.
abandoned articlesC
b.
articles entered under warehousing entry not withdrawn nor the duties and taxes paid thereon within the period provided under Section 1B, TC
.
Eudicial relief In drawback cases where the goods are re-exported a.
5rotest see the earlier discussions on "ustoms 5rotest ases'
TAXATION Reviewer
b.
In sei#ure cases
'istraint- Sei#ure by the government of personal property, tangible or intangible, to enforce the payment of faces, to be followed by its public sale, if the taxes are not voluntarily paid.
see earlier discussion on the subject c.
c.
*ctual @ There is taking of possession of personal property out of the taxpayer into that of the government. In case of intangible property. Taxpayer is also diverted of the power of control over the propertyC
d.
onstructive @ The owner is merely prohibited from disposing of his personal property.
Settlement of case by the payment of fine or redemption of forfeited property see earlier discussions on the subject
liability for customs duties, fees or other money chargesC sei#ures, detention or release of property affectedC
c3
fines forfeitures or other penalties imposed in relation theretoC and
d3
other matters arising under the customs +aw or other laws administered by the )evenue of ustoms.
Re+e$ies o& t%e Govern+ent 6numeration of the )emedies Aministrative
1.
Jistraint of 5ersonal 5roperty
.
+evy of )eal 5roperty
>.
Tax +ien
8.
ompromise
?.
0orfeiture
/.
9ther *dministrative )emedies
*ctual Jistraint. =ade on the property only of a delinAuent taxpayer. There is actual taking or possession of the property. 6ffected by having a list of the distraint property or by service or warrant of distraint or garnishment. *n immediate step for collection of taxes where amount due is definite.
Re#isites( ?.
Taxpayer is delinAuent in the payment of tax.
/.
SubseAuent demand for its payment.
2.
Taxpayer must fail to pay delinAuent tax at time reAuired.
.
5eriod with in to assess or collect has not yet prescribed. In case of constructive distraint, reAuisite no. 1 is not essential (see Sec. B/ T3
W%en re+e$* not availa,le( $here amount involved does not exceed 51BB (Sec. B? T3. In keeping with the provision on the abatement of the collection of tax as the cost of same might even be more than 51BB. Proe$#re( ?.
Service of warrant of distraint upon taxpayer or upon person in possession of taxpayer&s personal property.
/.
5osting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained.
2.
Sale at public auction to highest bidder
.
Jisposition of proceeds of the sale.
6uicial
2.
ivil *ction
.
riminal *ction
'istraint o& Personal Pro!ert*
onstructive Jistraint =ay be made on the property of any taxpayer whether delinAuent or not Taxpayer is merely prohibited from disposing of his property. 6ffected by reAuiring the taxpayer to sign a receipt of the property or by leaving a list of same Such immediate step is not necessaryC tax due may not be definite or it is being Auestioned.
TAXATION Reviewer
>.
8.
$ho may effect distraint commissioner or his authori#ed representative
due
)J9
*mount Involved In excess of 51,BBB,BBB.BB 51,BBB,BBB.BB or less
8.
b.
9bligate him to preserve the same properties.
c.
5rohibit him from disposing the property from disposing the property in any manner, with out the authority of the I).
$here Taxpayer or person in possession refuses to sign! a.
9fficer shall prepare list of the property distrained.
b.
In the presence of two witnesses of sufficient age and discretion, leave a copy in the premises where property is located.
How At#al 'istraint E&&ete$ >.
In case of Tangible 5roperty! Gro#n$s o& Constr#tive 'istraint a.
b. c.
opy of an account of the property distrained, signed by the officer, left either with the owner or person from whom property was taken, at the dwelling or place of business and with someone of suitable age and discretion
/.
Taxpayer is retiring from any business subject to tax.
2.
Taxpayer is intending to leave the 5hilippinesC or
.
To remove his property there from.
.
Taxpayer hides or conceals his property.
Statement of the sum demanded. Time and place of sale. 1B. Taxpayer acts tending to obstruct collection proceedings.
8.
In case of intangible property!
Stocks and other securities 8.
Hank accounts may be distrained with out violating the confidential nature of bank accounts for no inAuiry is made. HI) simply sei#es so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from.
?.
If at any time prior to the consummation of the sale, all proper charges are paid to the officer conducting the same, the goods distrained shall be restored to the owner.
/.
$hen the amount of the bid for the property under distraint is not eAual to the amount of the tax or is very much less than the actual market value of articles, the I) or his deputy may purchase the distrained property on behalf of the national government.
Serving a copy of the warrant upon taxpayer and upon president, manager, treasurer or other responsible officer of the issuing corporation, company or association. b.
Jebts and credits >.
8.
c.
+eaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent. $arrant shall be sufficient authority for such person to pay I) his credits or debts.
Hank *ccounts @ garnishment Lev* o& Real Pro!ert* >.
8.
Serve warrant upon taxpayer and president, manager, treasurer or responsible officer of the bank. Hank shall turn over to I) so much of the bank accounts as may be sufficient.
+evy @ *ct of sei#ure of real property in order to enforce the payment of taxes. The property may be sold at public sale, if after sei#ureC the taxes are not voluntarily paid. The reAuisites are the same as that of distraint. Proe$#re(
How onstr#tive 'istraint E&&ete$ 2. >.
)eAuire taxpayer or person in possession to a.
Sign a receipt covering property distrained
International )evenue officer shall prepare a duly authenticated certificate showing a.
TAXATION Reviewer
b.
*mount of tax and
c.
5enalty due.
+evy @ forfeiture by government authori#ed where there is no bidder or the highest bid is not sufficient to pay the taxes, penalties and costs. 1B. Jistraint @ Taxpayer no given the right of redemption
.
.
enforceable through out the 5hilippines
9fficer shall write upon the certificate a description of the property upon which levy is made. Service of written notice to! c.
The taxpayer, and
d.
)J where property is located.
+evy @ Taxpayer can redeem properties levied upon and soldKforfeited to the government.
/.
1B. *dvertisement of the time and place of sale.
It is the duty of the )egister of Jeeds concerned upon registration of the declaration of forfeiture, to transfer the title to the property with out of an order from a competent court The remedy of distraint or levy may be repeated if necessary until the full amount, including all expenses, is collected.
11. Sale at public auction to highest bidder.
En&ore+ent o& Tax Lien
1. Jisposition of proceeds of sale.
Tax Liena legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes.
The excess shall be turned over to owner. Re$e+!tion o& !ro!ert* sol$ or &or&eite$ e.
5erson entitled! Taxpayer or anyone for him
f.
Time to redeem! one year from date of sale or forfeiture
-
Hegins from registration of the deed of sale or declaration of forfeiture.
-
annot be extended by the courts.
g.
5ossession pending redemption @ owner not deprived of possession
h.
5rice! *mount of taxes, penalties and interest thereon from date of delinAuency to the date of sale together with interest on said purchase price at 1?N per annum from date of purchase to date of redemption.
2.
* lien in favor of the government of the 5hilippines when a person liable to pay a tax neglects or fails to do so upon demand. .
Hoth are summary remedies for collection of taxes.
2.
Hoth cannot be availed of where amount involved is not more than 51BB.
.
Jistraint @ personal property
D.
Jistraint @ forfeiture by government, not provided
Extent( Mpon all property and rights to property belonging to the taxpayer.
.
E&&etivit* aainst t%ir$ !ersons( 9nly when notice of such lien is filed by the I) in the )egister of Jeeds concerned.
Extin#is%+ent o& Tax Lien ?.
5ayment or remission of the tax
/.
5rescription of the right of the government to assess or collect. 0ailure to file notice of such lien in the office of register of Jeeds, purchases or judgment creditor.
2.
+evy @ real property .
'#ration( 6xists from time assessment is made by the I) until paid, with interests, penalties and costs.
'istraint an$ Lev* o+!are$ /.
Nat#re(
.
Jestruction of the property subject to the lien.
TAXATION Reviewer
In case and 8, the taxpayer is still liable.
8.
Subject to approval of 6valuation Hoard c.
$hen basic tax involved exceeds 51,BBB,BBB.BB or
d.
$here settlement offered is less than the prescribed minimum rates.
En&ore+ent o& Tax Lien vs. 'istraint * tax lien is distinguished from disttraint in that, in distraint the property sei#ed must be that of the taxpayer, although it need not be the property in respect to the tax is assessed. Tax lien is directed to the property subject to the tax, regardless of its owner. .
8.
'eleation o& Power to Co+!ro+ise General ule ! The power to compromise or abate shall not be delegated by the commissioner.
This is superior to judgment claim of private individuals or parties *ttaches not only from time the warrant was served but from the time the tax was due and demandable.
The )egional 6valuation Hoard may =xception! compromise the assessment issued by the regional offices involving basic taxes of 5 ?BB D or less. Re+e$* in ase o& &ail#re to o+!l*(
Co+!ro+ise The I) may either! ompromiseUa contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced.
>.
enforce the compromise, or
8.
)egard it as rescinded and insists upon the original demand.
Re#isites( 8.
Taxpayer must have a tax liability.
?.
There must be an offer by taxpayer or I), of an amount to be paid by taxpayer.
8.
It is a certain amount of money which the taxpayer pays to compromise a tax violation.
/.
There must be acceptance of the offer in settlement of the original claim.
?.
It is pain in lieu of a criminal prosecution.
/.
Since it is voluntary in character, the same may be collected only if the taxpayer is willing to pay them.
Co+!ro+ise Penalt*
W%en taxes +a* ,e o+!ro+ise$( 8.
* reasonable doubt as to the validity if the claim against the taxpayer existsC
?.
The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
/.
riminal violations, except! a.
Those already filed in court
b.
Those involving fraud.
En&ore+ent o& &or&eit#re 0orfeitureUimplies a divestiture of property with out compensation, in conseAuence of a default or offense. It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer. .
6ffect! Transfer the title to the specific thing from the owner to the government.
.
$hen available! a.
Li+itations( >.
If highest bid is for an amount insufficient to pay the taxes, penalties and costs.
=inimum compromise rate!
a.
1BN of the basic tax assessed @ in case of financial incapacity.
$ith in two days thereafter, a return of the proceeding is duly made.
1B. %ow enforced! b.
8BN of basic tax assessed @ other cases.
TAXATION Reviewer
c.
d.
In case of personal property @ by sei#ure and sale or destruction of the specific forfeited property. In case of real property @ by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may reAuire.
11. $hen forfeited property to be destroyed or sold! c.
Time to redeem @ with in one (13 year from forfeiture
h.
*mount to be paid @ full amount of the taxes and penalties, plus interest and cost of the sale
i.
To whom paid @ ommissioner or the )evenue ollection 9fficer
j.
6ffect of failure to redeem @ forfeiture shall become absolute.
To be destroyed @ by order of the I) when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law! (at least B days after sei#ure3
1.
distilled spirits
-t%er A$+inistrative Re+e$ies
.
liAuors
>.
cigars
a.
6state and donor&s tax
8.
cigarettes, and other manufactured products of tobacco
b.
6xcise taxes
c.
6xporter&s bond
d.
=anufacturer&s and importer&s bond
?. /.
d.
g.
8.
playing cards *ll apparatus used in or about the illicit production of such articles.
?.
8.
*ll other articles subject to exercise tax, (wine, automobile, mineral products, manufactured oils, miscellaneous products, non-essential items a petroleum products3 manufactured or removed in violation of the Tax ode. Jies for printing or making I) stamps, labels and tags, in imitation of or purport to be lawful stamps, labels or tags.
)eAuiring proof of filing income tax returns Hefore a license to engage in trade, business or occupation or to practice a profession can be issued.
To be sold or destroyed @ depends upon the discretion of I) >.
)eAuiring filing of bonds @ in the following instances!
/.
;iving reward to informers @ Sum eAuivalent to 1BN of revenues, surcharges or fees recovered andKor fine or penalty imposed and collected or 51, BBB,BBB.BB per case, whichever is lower.
2.
Imposition of surcharge and interest.
.
=aking arrest, search and sei#ure +imited to violations of any penal law or regulation administered by the HI), committed with in the view of the Internal )evenue 9fficer or 66.
1. $here to be sold! . c.
d.
c.
Dnowingly and fraudulently evades payment of I) taxes.
5rivate sale! provided, it is with the approval of the Secretary of 0inance.
d.
$illfully refuses to pay such tax and its accessory penalties, after decision on his tax liability shall have become final and executory.
1>. )ight of )edemption! f.
Jeportation in case of aliens @ on the following grounds
5ublic sale! provided, there is notice of not less than B days.
5ersonal entitled @ taxpayer or anyone for him
1B. Inspection of books
TAXATION Reviewer
Hooks of accounts and other accounting records of taxpayer must be preserved, generally within three years after date the tax return was due or was filed whichever is later.
'.
Cri+inal Ation * direct mode of collection of taxes, the judgment of which shall not only impose the penalty but also order payment of taxes.
11. Mse of
1. 9btaining information on tax liability of any person
1>. Inventory @ Taking surveillance.
of
stock-in-trade
and making
18. 5rescribing presumptive gross sales or receipt!
c.
5erson failed to issue receipts and invoices
d.
)eason to believe that records do not correctly reflect declaration in return.
E&&et o& A#ittal on Tax Lia,ilit*( Joes not exonerate taxpayer his civil liability to pay the tax due. Thus, the government may still collect the tax in the same action. )eason! Tax is an obligation, does not arise from a criminal act. E&&et o& Satis&ation o& Tax Lia,ilit* on Cri+inal Lia,ilit*
1?. 5rescribing real property values 1/. InAuiring into bank deposit accounts of
$ill not operate to extinguish taxpayer&s criminal liability since the duty to pay the tax is imposed by statute, independent of any attempt on past of taxpayers to evade payment.
c.
* deceased person to determine gross estate
This is true in case the criminal action is based on the act to taxpayer of filing a false and fraudulent tax return and failure to pay the tax.
d.
*ny taxpayer who filed application for compromise by reasons of financial incapacity his tax liability.
12. )egistration of Taxpayers. 6#$iial Re+e$ies Civil an Criminal ActionsL
Presri!tive Perio$s 8 Stat#te -& Li+itation
1.
Hrought in the name of the ;overnment of the 5hilippines.
.
onducted by +egal 9fficer of HI)
P#r!ose(
>.
=ust be with the approval of the I), in case of action, for recovery of taxes, or enforcement of a fine, penalty or forfeiture.
0or purposes of Taxation, statue of limitation is primarily designed to protect the rights of the taxpayer&s against unreasonable investigation of the taxing authority with respect to assessment and collection of Internal )evenue Taxes.
C.
Civil Ation
Presri!tion o& Govern+entBs Ri%t to Assess Taxes(
*ctions instituted by the government to collect internal revenue taxes in regular courts ()T or =Ts, depending on the amount involved3
General uleL Internal )evenue Taxes shall be assessed within three (>3 years after the last day prescribed by law for the filing of the return or from the day the return was filed, in case it is filed beyond the period prescribed thereof. (Section B> of the Tax ode3
$hen assessment made has become final and executory for failure or taxpayer to!
c.
Jispute same by filing protest with I)
d.
*ppeal adverse decision of I) to T*
1.
* return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.
TAXATION Reviewer
.
>.
8.
?.
In case a return is substantially amended, the government right to assess the tax shall commence from the filing of the amended return (I) vs. 5hoenix, =ay B, 1/?C Dei Q o. vs. ollector, 8 S)* 23 In computing the prescriptive period for assessment, the latter is deemed made when notice to this effect is released, mailed or sent by the ommissioner to the correct address of the taxpayer. %owever, the law does not reAuire that the demandKnotice be received within the prescriptive period. (Hasilan 6states, Inc. vs. ommissioner 1, S)* 12C )epublic vs. * *pril >B, 123
d.
Intentional and substantial understatement of tax liability of the taxpayer.
e.
Intentional and substantial deductions of exemption
f.
)ecurrence of the foregoing circumstances.
* transcript sheets are not returns, because they do not contain information necessary and reAuired to permit the computation and assessment of taxes (Sinforo *lca vs. ommissioner, Jec. , 1/83
a.
$hen the ommissioner fails impute fraud in the assessment noticeKdemand for payment.
b.
$hen the ommissioner failed to allege in his answer to the taxpayer&s petition for review when the case is appealed to the T*.
c.
$hen the ommissioner raised the Auestion of fraud only for the first time in his memorandum which was filed the T* after he had rested his case.
d.
$here the HI) itself appeared, "not sure' as to the real amount of the taxpayer&s net income.
e.
* mere understatement of income does not prove fraud, unless there is a sufficient evidence shaving fraudulent intent.
Exe!tions( >Se. 222 i? $here no return was filed - within ten (1B3 years after the date of discovery of the omission.
/.
$here a return was filed but the same was false or fraudulent @ within ten (1B3 years from the discovery of falsity or fraud.
2.
$here the commissioner and the taxpayer, before the expiration of the three (>3 year period of limitation have agreed in writing to the extension of said period. Note( Li+itations( c.
The agreement extending the period of prescription should be in writing and duly signed by the taxpayer and the commissioner.
d.
The agreement to extend the same should be mode before the expiration of the period previously agreed upon.
Nat#re o& 7ra#$( a.
b.
c.
0raud is never presumed and the circumstances consisting it must be alleged and proved to exist by clear Q convincing evidence ()epublic vs. Deir, Sept. >B, 1//3 The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the sole object of avoiding the tax. * mere mistake is not a fraudulent intent. (*#nar case, *ug. >, 1283 * fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cogni#ance of in the civil or criminal action for the collection thereof. (Sec. paragraph (a33
7ra#$ +a* ,e esta,lis%e$ ,* t%e &ollowin ( >3a$es o& 7ra#$?
of
Instanes8Cir#+stanes neatin &ra#$(
*n affidavit executed by a revenue office indicating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment. ( I) vs. 5ascoi )ealty orp. Eune , 13
?.
overstatement
.
$here there is a written waiver or renunciation of the original >-year limitation signed by the taxpayer. Note( Li+itations( d.
The waiver to be valid must be executed by the parties before the lapse of the prescriptive period.
e.
* waiver is inefficient I it is executed beyond the original three year.
f.
The commissioner can not valid agree to reduce the prescriptive period to less than that granted by law.
I+!resri!ti,le Assess+ents(
TAXATION Reviewer
1.
.
$here no return is reAuired by law, the tax is imprescriptible.
>.
*ssessment of unpaid taxes, where the bases of which is not reAuired by law to be reported in a return such as excise taxes. (armen vs. *yala Securities orp.,
8.
a proceeding in court within the period agreed upon in writing before the expiration of ?-year period.
$here the law does not provide for any particular period of assessment, the tax sought to be assessed becomes imprescriptible.
11. $here the government makes another assessment on the basis of reinvestigation reAuested by the taxpayer @ the prescriptive period for collection should be counted from the last assessment. ()ep. vs. +ope#, =arch >B, 1/>3 1. $here the assessment is revised because of an amended return @ the period for collection is counted from the last revised assessment. 1>. $here a tax obligation is secured by a surety bond @ the government may proceed thru a court action to forfeit a bond and enforce such contractual obligation within a period of ten years.
*ssessment of compensating and documentary stamp tax.
Presri!tion o& Govern+entBs Ri%t to Collet Taxes
18. $here the action is brought to enforce a compromise entered into between the commission and the taxpayer @ the prescriptive period is ten years. 0.
J. ;eneral )ule! 1.
.
6.
$here an assessment was made @ *ny internal revenue tax which has been assessed within the period of limitation may be collected by distraint or levy or by proceeding in court within ? years following the date of assessment. $here no assessment was made and a return was filed and the same is not fraudulent or false- the tax should be collected within > years after the return was due or was filed, whichever is later.
$hen tax is deemed collected for purposes of the prescriptive period. 8.
ollection by summary remedies @ It is effected by summary methods when the government avail of distraint and levy procedure.
?.
ollection by judicial action @ The collection begins by filing the complaint with the proper court. ()T3
/.
$here assessment of the commissioner is protected Q appealed to the T* @ the collection begin when the government file its answer to taxpayer&s petition for review.
6xceptions! .
$here a fraudulentKfalse return with intent to evade taxes was filed a proceeding in court for the collection of the tax may be filed without assessment, at anytime within ten years after the discovery of the falsity or fraud. years3 would apply ()ep. vs. )et., =arch >1, 1/3
.
$hen the taxpayer omits to file a return @ a court proceeding for the collection of such tax may be filed without assessment, at anytime within 1B years after the discovery of the omission.
1B. $aiver of statute of limitations @ any internal revenue tax, which has been assessed within the period agreed upon, may be collected be distinct or levy of by
R#les o& Presri!tion in Cri+inal Cases )ule! *ll violations of any provision of the tax code shall prescribe after five (?3 years.
Jay of the commission of the violation, if know.
d.
If not known, from the time of discovery and the institution of judicial proceeding for its investigation and punishment. W%en it is interr#!te$(
TAXATION Reviewer
c. d.
$hen a proceeding is instituted against the guilty person
$hen the offender is absent from the 5hilippines.
e.
W%en it s%o#l$ r#n aain(
$hen the warrant of distraint or levy is duly served upon any of the following person!
$hen the proceeding is dismissed for reason not onstituting jeopardy.
8.
taxpayer
W%en $oes t%e $e&ense o& !resri!tion +a* ,e raise$(
?.
his authori#ed representative
c.
In civil case @ If not raised in the lower court, it is bailed permanentlyC if can not be raised for the first time on appeal.
/.
=ember of his household with sufficient discretion and no property could be located.
d.
In criminal case @ It can be raised even if the case has been decided by the lower court but pending decision on appeal.
f.
$hen the taxpayer is out of the 5hilippines.
g.
In criminal cases for violation of tax code @ the period shall not run when the offender is absent from the 5hilippines.
Interr#!tion o& t%e Presri!tive Perio$ 8.
?.
$here before the expiration of the time prescribed for the assessment of the tax, both the commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed prior to the expiration of the period agreed upon.
The running of statute of limitations on making an assessment and the beginning of distraintKlevy or a proceeding in court for collection shall be suspended for the period.
/.
The law on prescription remedial measure should be interpreted liberally in order to protect the taxpayer.
2.
Juring which the ommissioner is prohibited from making the assessment or beginning distraintKlevy or a proceeding in court and for /B days thereafterC e.g.
.
The defense of prescription must be raised by the taxpayer on time, otherwise it is deemed waived. The Auestion of prescription is not jurisdictional, and as defense it must be raised reasonably otherwise it is deemed waived.
a.
0iling a petition for review in the T* from the decision of the ommissioner. The commissioner is prevented from filing an ordinary action to collect the tax.
.
b.
$hen T* suspends the collection of tax liability of the taxpayer pursuant to Section 11 of )* 11? upon proof that its collection may jeopardi#es the government and Kor the taxpayer.
1B. In the event that the collection of the tax has already prescribed, the government cannot invoke the principle of 6Auitable recumbent by setting- off the prescribed tax against a tax refused to which the taxpayer is entitled.
c.
$hen the taxpayer reAuests for reinvestigation which is granted by commissioner.
d.
$hen the taxpayer cannot be located in the address given by him in the return.
The prescriptive provided in the tax code over ride the statute of non-claims in the settlement of the deceased&s estate.
VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV S9=6 I=59)T*
TAXATION Reviewer
including the execution of judgments in all cases decided in its favor by the ourt of Tax *ppeals and the ordinary courts. The Hureau shall give effect to and administer the supervisory and police powers conferred to it by this ode or other laws. SEC. . Chief 0ffi(ials of the -ureau of Internal Revenue. - The Hureau of Internal )evenue shall have a chief to be known as ommissioner of Internal )evenue, hereinafter referred to as the ommissioner and four (83 assistant chiefs to be known as Jeputy ommissioners. SEC. . Power of the Commissioner to Interpret %ax 3aws and to 2e(ide %ax Cases . - The power to interpret the provisions of this ode and other tax laws shall be under the exclusive and original jurisdiction of the ommissioner, subject to review by the Secretary of 0inance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this ode or other laws or portions thereof administered by the Hureau of Internal )evenue is vested in the ommissioner, subject to the exclusive appellate jurisdiction of the ourt of Tax *ppeals. SEC. J. Power of the Commissioner to 0btain Information* and to Summon* xamine* and %a&e %estimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the ommissioner is authori#ed! (*3 To examine any book, paper, record, or other data which may be relevant or material to such inAuiryC (H3 To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Hangko Sentral ng 5ilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headAuarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships, and their membersC (3 To summon the person liable for tax or reAuired to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the ommissioner or his duly authori#ed representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimonyC (J3 To take such testimony of the person concerned, under oath, as may be relevant or material to such inAuiryC and (63 To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inAuire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting the ommissioner the authority to inAuire into bank deposits other than as provided for in Section /(03 of this ode. SEC. F. Power of the Commissioner to Ma&e assessments and Pres(ribe additional Requirements for %ax !dministration and nfor(ement . 4 (*3 =xamination of eturns an 9etermination of 2ax 9ue. - *fter a return has been filed as reAuired under the provisions of this ode, the ommissioner or his duly authori#ed representative may authori#e the examination of any taxpayer and the assessment of the correct amount of tax! Provie, however; That failure to file a return shall not prevent the ommissioner from authori#ing the examination of any taxpayer. *ny return, statement of declaration filed in any office authori#ed to receive the same shall not be withdrawn! Provie, 2hat within three (>3 years from the date of such filing, the same may be modified, changed, or amended! Provie, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. (H3 7ailure to #ubmit euire eturns, #tatements, eports an other 9ocuments. $hen a report reAuired by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is
TAXATION Reviewer
reason to believe that any such report is false, incomplete or erroneous, the ommissioner shall assess the proper tax on the best evidence obtainable. In case a person fails to file a reAuired return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the ommissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. (3 Authority to Conuct Inventory4tain3, surveillance an to Prescribe Presumptive Gross #ales an eceipts. - The ommissioner may, at any time during the taxable year, order inventorytaking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for assessing the taxes for the other months or Auarters of the same or different taxable years and such assessment shall be deemed prima facie correct. $hen it is found that a person has failed to issue receipts and invoices in violation of the reAuirements of Sections 11> and >2 of this ode, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return reAuired to be filed under the provisions of this ode, the ommissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. (J3 Authority to 2erminate 2axable Perio. - $hen it shall come to the knowledge of the ommissioner that a taxpayer is retiring from business subject to tax, or is intending to leave the 5hilippines or to remove his property therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current Auarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately, the ommissioner shall declare the
tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a reAuest for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or Auarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the ommissioner. (63 Authority of the Commissioner to Prescribe eal Property @alues. - The ommissioner is hereby authori#ed to divide the 5hilippines into different #ones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each #one or area. 0or purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of! (13 the fair market value as determined by the ommissioner, or (3 the fair market value as shown in the schedule of values of the 5rovincial and ity *ssessors. (03 Authority of the Commissioner to inuire into 8an 9eposit Accounts. -
TAXATION Reviewer
taxpayers. $ithin one hundred twenty (1B3 days from Eanuary 1, 1, the ommissioner shall create national and regional accreditation boards, the members of which shall serve for three (>3 years, and shall designate from among the senior officials of the Hureau, one (13 chairman and two (3 members for each board, subject to such rules and regulations as the Secretary of 0inance shall promulgate upon the recommendation of the ommissioner. Individuals and general professional partnerships and their representatives who are denied accreditation by the ommissioner andKor the national and regional accreditation boards may appeal such denial to the Secretary of 0inance, who shall rule on the appeal within sixty (/B3 days from receipt of such appeal. 0ailure of the Secretary of 0inance to rule on the *ppeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant. (%3 Authority of the Commissioner to Prescribe Aitional Proceural or 9ocumentary euirements. - The ommissioner may prescribe the manner of compliance with any documentary or procedural reAuirement in connection with the submission or preparation of financial statements accompanying the tax returns. SEC. D. !uthority of the Commissioner to 2ele"ate Power . - The ommissioner may delegate the powers vested in him under the pertinent provisions of this ode to any or such subordinate officials with the rank eAuivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the ommissioner! Provie, however , That the following powers of the ommissioner shall not be delegated! (a3 The power to recommend the promulgation of rules and regulations by the Secretary of 0inanceC (b3 The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the HureauC (c3 The power to compromise or abate, under Sec. B8 (*3 and (H3 of this ode, any tax liability! Provie, however, That assessments issued by the regional offices involving basic deficiency taxes of 0ive hundred thousand pesos (5?BB,BBB3 or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the ommissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the )egional Jirector as hairman, the *ssistant )egional Jirector, the heads of the +egal, *ssessment and
ollection Jivisions and the )evenue Jistrict 9fficer having jurisdiction over the taxpayer, as membersC and (d3 The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. SEC. 20. Period of 3imitation 4pon !ssessment and Colle(tion. ) 6xcept as provided in Section , internal revenue taxes shall be assessed within three (>3 years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period! Provie, That in a case where a return is filed beyond the period prescribed by law, the three (>3-year period shall be counted from the day the return was filed. 0or purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. SEC. 20. !uthority of the Commissioner to Compromise* !bate and Refund or Credit %axes. 1 The ommissioner may >A? Co+!ro+ise t%e Pa*+ent o& an* Internal Reven#e Tax" w%en( (13 * reasonable doubt as to the validity of the claim against the taxpayer existsC or (3 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts! 0or cases of financial incapacity, a minimum compromise rate eAuivalent to ten percent (1BN3 of the basic assessed taxC and 0or other cases, a minimum compromise rate eAuivalent to forty percent (8BN3 of the basic assessed tax. $here the basic tax involved exceeds 9ne million pesos (51,BBB.BBB3 or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the 6valuation Hoard which shall be composed of the ommissioner and the four (83 Jeputy ommissioners. >3? A,ate or Canel a Tax Lia,ilit*" w%en( (13 The tax or any portion thereof appears to be unjustly or excessively assessedC or (3 The administration and collection costs involved do not justify the collection of the amount due. *ll criminal violations may be compromised except! (a3 those already filed in court, or (b3 those involving fraud.
TAXATION Reviewer
>C? redit 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 unfit for use and refund their value upon proof of destruction. B of this ode! Provie , That the original copy of the Tax redit ertificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation! Provie, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made. The ommissioner shall submit to the hairmen of the ommittee on $ays and =eans of both the Senate and %ouse of )epresentatives, every six (/3 months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others! names and addresses of taxpayers whose cases have been the subject of abatement or compromiseC amount involvedC amount compromised or abatedC and reasons for the exercise of power! Provie , That the said report shall be presented to the 9versight ommittee in ongress that shall be constituted to determine that said powers are reasonably exercised and that the government is not unduly deprived of revenues. CHAPTER II CI:IL RE9E'IES 7-R C-LLECTI-N -7 TAXES
SEC. 20J. Remedies for the Colle(tion of 2elinquent %axes. 1 The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinAuency shall be! (a3 Hy distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real property and interest in rights to real propertyC and (b3 Hy civil or criminal action. 6ither of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes! Provie, however, That the remedies of distraint and levy shall not be availed of where
the amount of tax involve is not more than 9ne hundred pesos (51BB3. The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the ommissioner. The Hureau of Internal )evenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon. SEC. 20F. Constru(tive 2istraint of the Property of a %axpayer. 1 To safeguard the interest of the ;overnment, the ommissioner may place under constructive distraint the property of a delinAuent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the 5hilippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. The constructive distraint of personal property shall be affected by reAuiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same Cin any manner whatever, without the express authority of the ommissioner. In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (3 witnessed, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. SEC. 20D. Summary Remedies. 1 >A? 2istraint of Personal Property. - Mpon the failure of the person owing any delinAuent tax or delinAuent revenue to pay the same at the time reAuired, the ommissioner or his duly authori#ed representative, if the amount involved is in excess of 9ne million pesos (51,BBB,BBB3, or the )evenue Jistrict 9fficer, if the amount involved is 9ne million pesos (51,BBB,BBB3 or less, shall sei#e and distraint any goods, chattels or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property of such persons Cin sufficient Auantity to satisfy the tax, or charge, together with any increment thereto incident to delinAuency, and the expenses of the distraint and the cost of the s ubseAuent sale. * report on the distraint shall, within ten (1B3 days from receipt of the warrant, be submitted by the distraining officer to the )evenue Jistrict 9fficer, and to the )evenue )egional Jirector! Provie, That
TAXATION Reviewer
the ommissioner or his duly authori#ed representative shall, subject to rules and regulations promulgated by the Secretary of 0inance, upon recommendation of the ommissioner, have the power to lift such order of distraint! Provie, further, That a consolidated report by the )evenue )egional Jirector may be reAuired by the ommissioner as often as necessary. >3? 3evy on Real Property. - *fter the expiration of the time reAuired to pay the delinAuent tax or delinAuent revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the distraint of personal property belonging to the delinAuent. To this end, any internal revenue officer designated by the ommissioner or his duly authori#ed representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the 5hilippines. +evy shall be affected by writing upon said certificate a description of the property upon which levy is made. *t the same time, written notice of the levy shall be mailed to or served upon the )egister of Jeeds for the province or city where the property is located and upon the delinAuent taxpayer, or if he be absent from the 5hilippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in Auestion. In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinAuency, the ommissioner or his duly authori#ed representative shall, within thirty (>B3 days after execution of the distraint, proceed with the levy on the taxpayerWs real property. $ithin ten (1B3 days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the ommissioner or his duly authori#ed representative! Provie, however, That a consolidated report by the )evenue )egional Jirector may be reAuired by the ommissioner as often as necessary! 5rovided, further, That the ommissioner or his duly authori#ed representative, subject to rules and regulations promulgated by the Secretary of 0inance, upon recommendation of the ommissioner, shall have the authority to lift warrants of levy issued in accordance with the provisions hereof. SEC. 20. Pro(edure for 2istraint and #arnishment. 1 The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale. Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities. Jebts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient authority to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the ommissioner the amount of such debts or credits. Hank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Mpon receipt of the warrant of garnishment, the bank shall tun over to the ommissioner so much of the bank accounts as may be sufficient to satisfy the claim of the ;overnment. SEC. 20. Sale of Property 2istrained and 2isposition of Pro(eeds. 1 The )evenue Jistrict 9fficer or his duly authori#ed representative, other than the officer referred to in Section B of this ode shall, according to rules and regulations prescribed by the Secretary of 0inance, upon recommendation of the ommissioner, forthwith cause a notification to be exhibited in not less than two (3 public places in the municipality or city where the distraint is made, specifyingC the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (B3 days after notice. 9ne place for the posting of such notice shall be at the 9ffice of the =ayor of the city or municipality in which the property is distrained. *t the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the ommissioner, through duly licensed commodity or stock exchanges. In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. Mpon receipt of the copy of the bill of sale, the corporation, company or association shall make the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and issue, if reAuired to do so, the corresponding certificates of stock or other securities. *ny residue over and above what is reAuired to pay the entire claim, including expenses, shall be returned to the owner of the property sold. The expenses chargeable upon each sei#ure and sale shall embrace only the actual expenses of sei#ure and preservation of the property pending Cthe sale, and no charge shall be imposed for the services of the local internal revenue officer or his deputy. SEC. 210. Release of 2istrained Property 4pon Payment Prior to Sale. 1 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner.
TAXATION Reviewer
SEC. 211. Report of Sale to -ureau of Internal Revenue. 1 $ithin two (3 days after the sale, the officer making the same shall make a report of his proceedings in writing to the ommissioner and shall himself preserve a copy of such report as an official record. SEC. 212. Pur(hase by #overnment at Sale 4pon 2istraint. 1 $hen the amount bid for the property under distraint is not eAual to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the ommissioner or his deputy may purchase the same in behalf of the national ;overnment for the amount of taxes, penalties and costs due thereon. 5roperty so purchased may be resold by the ommissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of 0inance, the net proceeds therefrom shall be remitted to the B3 days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in the barrio or district in which the real estate lies and Cby publication once a week for three (>3 weeks in a newspaper of general circulation in the municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. *t any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall determine and as the notice of sale shall specify. $ithin five (?3 days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the )evenue ollection 9fficer, the )evenue Jistrict officer and the )evenue )egional Jirector. The )evenue ollection 9fficer, in consultation with the )evenue district 9fficer, shall then make out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest! Provie, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property. The )evenue ollection 9fficer, upon approval by the )evenue Jistrict 9fficer may, out of his collection, advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this ode, including Cthe preservation or transportation in case of personal property, and the advertisement and subseAuent sale, both in cases of personal and real property including improvements found on the latter. In his monthly collection
reports, such advances shall be reflected and supported by receipts. SEC. 21. Redemption of Property Sold. 1 $ithin one (13 year from the date of sale, the delinAuent taxpayer, or any one for him, shall have the right of paying to the )evenue Jistrict 9fficer the amount of the public taxes, penalties, and interest thereon from the date of delinAuency to the date of sale, together with interest on said purchase price at the rate of fifteen percent (1?N3 per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said )evenue Jistrict 9fficer that he has thus redeemed the property, and the )evenue Jistrict 9fficer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties. The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. SEC. 21J. 5orfeiture to #overnment for 6ant of -idder. 1 In case there is no bidder for real property exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal )evenue 9fficer conducting the sale shall declare the property forfeited to the ;overnment in satisfaction of the claim in Auestion and within two (3 days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the )egister of Jeeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the ;overnment without the necessity of an order from a competent court. $ithin one (13 year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the ommissioner or the latterWs )evenue ollection 9fficer the full amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall become absolute. SEC. 21F. Resale of Real state %a&en for %axes. 1 The ommissioner shall have charge of any real estate obtained by the ;overnment of the 5hilippines in payment or satisfaction of taxes, penalties or costs arising under this ode or in compromise or adjustment of any claim therefore, and said ommissioner may, upon the giving of not less than twenty (B3 days notice, sell and dispose of the same of public auction or with prior approval of the Secretary of 0inance, dispose of the same at private sale. In either case, the proceeds of the sale shall be deposited with the
TAXATION Reviewer
the collection of any national internal revenue tax, fee or charge imposed by this ode. SEC. 21. Nature and xtent of %ax 3ien. 1 If any person, corporation, partnership, joint-account ( cuentas en participacion 3, association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the ;overnment of the 5hilippines from the time when the assessment was made by the ommissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer! Provie, That this lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the ommissioner in the office of the )egister of Jeeds of the province or city where the property of the taxpayer is situated or located. SEC. 220. 5orm and Mode of Pro(eedin" in !(tions !risin" under this Code. 1 ivil and criminal actions and proceedings instituted in behalf of the ;overnment under the authority of this ode or other law enforced by the Hureau of Internal )evenue shall be brought in the name of the ;overnment of the 5hilippines and shall be conducted by legal officers of the Hureau of Internal )evenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this ode shall be filed in court without the approval of the ommissioner. SEC. 221. Remedy for nfor(ement of Statutory Penal Provisions. 1 The remedy for enforcement of statutory penalties of all sorts shall be by criminal or civil action, as the particular situation may reAuire, subject to the approval of the ommissioner. SEC. 222. x(eptions as to Period of 3imitation of !ssessment and Colle(tion of %axes. 1 (a3 In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (1B3 years after the discovery of the falsity, fraud or omission! 5rovided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cogni#ance of in the civil or criminal action for the collection thereof. (b3 If before the expiration of the time prescribed in Section B> for the assessment of the tax, both the ommissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subseAuent written agreement made before the expiration of the period previously agreed upon. (c3 *ny internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a3 hereof may be collected by distraint or levy or by a proceeding in court within five (?3 years following the assessment of the tax. (d3 *ny internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b3
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (?3 -year period. The period so agreed upon may be extended by subseAuent written agreements made before the expiration of the period previously agreed upon. (e3 Provie, however, That nothing in the immediately preceding and paragraph (a3 hereof shall be construed to authori#e the examination and investigation or inAuiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree. SEC. 22. Suspension of Runnin" of Statute of 3imitations. 1 The running of the Statute of +imitations provided in Sections B> and 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 ommissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (/B3 days thereafterC when the taxpayer reAuests for a reinvestigation which is granted by the ommissionerC 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! Provie, that, if the taxpayer informs the ommissioner of any change in address, the running of the Statute of +imitations will not be suspendedC when the warrant of distraint or levy is duly served upon the taxpayer, his authori#ed representative, or a member of his household with sufficient discretion, and no property could be locatedC and when the taxpayer is out of the 5hilippines. SEC. 22. Remedy for nfor(ement of 5orfeitures. ) The forfeiture of chattels and removable fixtures of any sort shall be enforced by the sei#ure and sale, or destruction, of the specific forfeited property. The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may reAuire. SEC. 22J. 6hen Property to be Sold or 2estroyed. 1 Sales of forfeited chattels and removable fixtures shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes. Jistilled spirits, liAuors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used I or about the illicit production of such articles may, upon forfeiture, be destroyed by order of the ommissioner, when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law. *ll other articles subject to excise tax, which have been manufactured or removed in violation of this ode, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the di scretion of the ommissioner. 0orfeited property shall not be destroyed until at least twenty (B3 days after sei#ure.
TAXATION Reviewer
SEC. 22F. 2isposition of funds Re(overed in 3e"al Pro(eedin"s or 0btained from 5orfeitures. 1 all judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the ommissioner or his authori#ed deputies as the taxes themselves are reAuired to be paid, and except as specially provided, shall be accounted for and dealt with the same way. SEC. 22D. Satisfa(tion of 7ud"ment Re(overed !"ainst any Internal Revenue 0ffi(er. 1 $hen an action is brought against any Internal )evenue officer to recover damages by reason of any act done in the performance of official duty, and the ommissioner is notified of such action in time to make defense against the same, through the Solicitor ;eneral, any judgment, damages or costs recovered in such action shall be satisfied by the ommissioner, upon approval of the Secretary of 0inance, or if the same be paid by the person used shall be repaid or reimbursed to him.
TITLE X STAT=T-RM -77ENSES AN' PENALTIES CHAPTER I A''ITI-NS T- TAX
SEC. 2D. #eneral Provisions. 1 (a3 The additions to the tax or deficiency tax prescribed in this hapter shall apply to all taxes, fees and charges imposed in this ode. The *mount so added to the tax shall be collected at the same time, in the same manner and as part of the tax. (b3 If the withholding agent is the ;overnment or any of its agencies, political subdivisions or instrumentalities, or a government-owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed herein. (c3 the term person , as used in this hapter, includes an officer or employee of a corporation who as such officer, employee or member is under a duty to perform the act in respect of which the violation occurs. SEC. 2. Civil Penalties. 1 (*3 There shall be imposed, in addition to the tax reAuired to be paid, a penalty eAuivalent to twenty-five percent (?N3 of the amount due, in the following cases! (13 0ailure to file any return and pay the tax due thereon as reAuired under the provisions of this ode or rules and regulations on the date prescribedC or
(3 Mnless otherwise authori#ed by the ommissioner, filing a return with an internal revenue officer other than those with whom the return is reAuired to be filedC or (>3 0ailure to pay the deficiency tax within the time prescribed for its payment in the notice of assessmentC or (83 0ailure to pay the full or part of the amount of tax shown on any return reAuired to be filed under the provisions of this ode or rules and regulations, or the full amount of tax due for which no return is reAuired to be filed, on or before the date prescribed for its payment. (H3 In case of willful neglect to file the return within the period prescribed by this ode or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (?BN3 of the tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery of the falsity or fraud! Provie, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the ommissioner pursuant to the rules and regulations to be promulgated by the Secretary of 0inance, shall constitute prima facie evidence of a false or fraudulent return! Provie, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (>BN3 of that declared per return, and a claim of deductions in an amount exceeding (>BN3 of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein. SEC. 2. Interest. 1 >A? In #eneral. 1 There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (BN3 per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. >3? 2efi(ien(y Interest. 1 *ny deficiency in the tax due, as the term is defined in this ode, shall be subject to the interest prescribed in Subsection (*3 hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. >C? 2elinquen(y Interest. 1 In case of failure to pay! (13 The amount of the tax due on any return to be filed, or (3 The amount of the tax due for which no return is reAuired, or (>3 * deficiency tax, or any surcharge or i nterest thereon on the due date appearing in the notice and demand of the ommissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (*3 hereof until the amount is fully paid, which interest shall form part of the tax.
TAXATION Reviewer
>'? Interest on xtended Payment. 1 If any person reAuired to pay the tax is Aualified and elects to pay the tax on installment under the provisions of this ode, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the ommissioner has authori#ed an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid. SEC. 2J0. 5ailure to 5ile Certain Information Returns. 1 In the case of each failure to file an information return, statement or list, or keep any record, or supply any information reAuired by this ode or by the ommissioner on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the ommissioner, be paid by the person failing to file, keep or supply the same, 9ne thousand pesos (1,BBB3 for each failure! Provie, however , That the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty-five thousand pesos (5?,BBB3.
,CIR vs !l"ue ;=: SCR! 9 It is sai that taxes are what we pay for civili'e society. Eithout taxes, the 3overnment woul be paraly'e for lac of the motive power to activate an operate it . %ence, despite the natural reluctance to surrender part of oneWs hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. 2his symbiotic relationship is the rationale of taxation an shoul ispel the erroneous notion that it is an arbitrary metho of exaction by those in the seat of power . ,!meri(an -ible So(iety vs. City of Manila ;>; P/I3 ?:@
It was contended that said ordinances imposing license fee on the distribution and sale of bibles and other religious literature, impair the free exercise of religion, specifically the right to disseminate religious information. As between taxation an reli3ion, the latter prevails . ,3lado( vs. Commissioner of Internal Revenue ;< SCR! A9A
SEC. 2J1. 5ailure of a 6ithholdin" !"ent to Colle(t and Remit %ax. 1 *ny person reAuired to withhold, account for, and remit any tax imposed by this ode or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this hapter, be liable upon conviction to a penalty eAual to the total amount of the tax not withheld, or not accounted for and remitted. SEC. 2J2. 5ailure of a 6ithholdin" !"ent to refund x(ess 6ithholdin" %ax. 1 *ny employerKwithholding agent who fails or refuses to refund excess withholding tax shall, in addition to the penalties provided in this Title, be liable to a penalty to the total amount of refunds which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return
The exemption under Sec. (>3 *rt. I of the onstitution only covers taxes assessed on cemeteries, churches, and parsonages or convents, appurtenant thereto and all lands, buildings and improvements used exclusively for religious purposes. These taxes are property taxes as contra-distinguished from excise taxes. In the case at bar, what&s being assessed was a donee&s gift tax not on the properties themselves. 2he 3ift tax was an excise tax upon the use mae of the properties, upon the exercise of the privile3e of receivin3 the properties. 2his in of tax is not within the exemptin3 provision of the constitution. Therefore, the petitioner as substituted by the %ead of the Jiocese, is liable to pay the said gift tax. The exemption under Sec. (>3 *rt. I of the onstitution only covers property taxes assessed on cemeteries, churches, and parsonages or convents, appurtenant thereto and all lands, buildings and improvements used exclusively for religious purposes.
CASES an$ '-CTRINES ,!bra Balley Colle"e vs. !quino ;@A SCR! ;>@ ,3ut8 vs !raneta 9: Phil ;<: If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. 2axation may be mae the implement of the states police power . It is inherent in the power to tax that a State be free to select the subjects of taxation and it has been repeatedly held that "irregularities which result from a singling out of one particular class for taxation or exemption infringe no onstitutional limitation.'
The sugar industry&s promotion, protection and advancement therefore redound greatly to the general welfare. Thus, the contention of plaintiff that the *ct was promulgated not for public purpose cannot be upheld.
2he phrase 0use exclusively for eucational purposes1 is not limite to property actually inispensable therefor but extens to facilities, which are inciental to an reasonably necessary to the accomplishment of sai purposes
,-ishop of Nueva Se"ovia vs. Provin(e of Ilo(os Norte =; P/I3 ?=A
6xemption from payment of land tax, which refers to lots used as home of the priest who preside over the church must include not only the lot actually occupied by the church but also the adjacent ground destined to meet the ordinary incidental uses of man.
TAXATION Reviewer
,San Mi"uel -rewery* In(. vs. City of CebuCebu Portland Cement Co. vs. Na"a* Cebu 5ebruary A>* ;9D?
This is because ouble taxation is not prohibite by the Constitution. 0urthermore, there is double taxation only when the same person is taxed by the same jurisdiction for the same purpose. In the first case, the annual business tax is a license tax to engage in the business of wholesale liAuor in ebu ity. Such license tax constitutes a regulatory measure in the exercise of police power, whereas that which is imposed by the ordinance is a typical tax or revenue measure.
S#,et 9atter( riminal *ctionC Tax *ssessment
CIR : PASC-R REALTM 'E:BT C-RP et. al. >GR No. 121J" 6#ne 2" 1?
S#,et 9atter( riminal *ction
7ats( The I) authori#ed certain HI) officers to examine the books of accounts and other accounting records of 5ascor )ealty and Jevelopment orp. (5)J3 for 1/, 12 and 1. The examination resulted in recommendation for the issuance of an assessment of 52,8,8>8./? and 5>,B1?,>/.>? for 1/ and 12, respectively. 9n =arch 1, 1?, ommissioner filed a criminal complaint for tax evasion against 5)J, its president and treasurer before the J9E. 5rivate respondents filed immediately an urgent reAuest for reconsideration on reinvestigation disputing the tax assessment and tax liability. 9n =arch >, 1?, private respondents received a subpoena from the J9E in connection with the criminal complaint. In a letter dated, =ay 12, 1?, the ommissioner denied private respondent&s reAuest for reconsideration (reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the T* on a petition for review. The ommissioner&s motion to dismiss on the ground of the T*&s lack of jurisdiction inasmuch as no formal assessment was issued against private respondent was denied by T* and ordered the ommissioner to file an answer but did not instead filed a petition with the * alleging grave abuse of discretion and lack of jurisdiction on the part of T* for considering the affidavitKreport of the revenue officers and the endorsement of said report as assessment which may be appealed to he T*. The * sustained the T* decision and dismissed the petition. Iss#es( 1. .
Hel$(
2he filin3 of the criminal complaint with the 9O6 cannot be construe as a formal assessment.
$hether or not the criminal complaint for tax evasion can be construed as an assessment. $hether or not an assessment is necessary before criminal charges for tax evasion may be instituted.
CIR : CA G.R. No. 1122" 6#ne " 1F 7ats( * task force was created on Eune 1, 1> to investigate tax liabilities of manufacturers engaged in tax evasion schemes. 9n Euly 1, 1>, the I) issued )ev. =emo irc. 2-> which reclassified certain cigarette brands manufactured by private respondent 0ortune Tobacco orp. (0ortune3 as foreign brands subject to a higher tax rate. 9n *ugust >, 1>, 0ortune Auestioned the validity of said reclassification as being violative of the right to due process and eAual protection of laws. The T*, on September , 1> resolved that said reclassification was of doubtful legality and enjoined its enforcement. In the meantime, on *ugust >, 1>, 0ortune was assessed deficiency income, ad valorem and *T for 1 with payment due within >B days from receipt. 9n September 1, 1>, private respondent moved for reconsideration of said assessment. =eanwhile on September 2, 1>, the ommissioner filed a complaint with the J9E against private respondent 0ortune, its corporate officers and other corporations and their respective corporate officers for alleged fraudulent tax evasion for non-payment of the correct income, ad valorem and *T for 1. The complaint was referred to the J9E Task 0orce on revenue cases which found sufficient basis to further investigate the charges against 0ortune. * subpoena was issued on September , 1> directing private respondent to submit their counter-affidavits. Hut it filed a verified motion to dismiss or alternatively, a motion to suspend but was denied and thus treated as their counter-affidavit. *ll motions filed thereafter were denied. Eanuary 8, 18, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction praying the I)&s complaint and prosecutor&s orders be dismissedKset aside or alternatively, that the preliminary investigation be suspended
