Tax II Transcript

Tax II Notes 2005 Edition Mendoza
This reviewer consists of my notes during Tax II of School Year 2005-2006. I incorporated the questions that were not asked during class but were part of the old transcript for academic purposes. So, basically, this is an UPDATE on the past reviewer/s. This reviewer is dedicated to the FAB (Paul, Kat, Joei and Jaypee)
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A: Estate tax takes effect after death while gift tax takes effect during the lifetime. Q: What is the relation of estate tax to income tax? We are not talking about estates as a tax payer. A: One American author said that what is not caught in life shall be caught in death. Q: What forms part of gross estate? A: All properties of the decedent, real or personal, tangible or intangible (when resident or citizen). But in case of non-resident alien, it includes all those within and if the situs is here in the Phils. Q: Is it accurate to say that only assets owned by the decedent at the time of his death would form the gross estate and that assets or interests of 3rd parties would not form part of the gross estate? A: No. Gross estate includes not only assets of decedent at the time of his death but also lifetime transfers such as transfers in contemplation of death, revocable transfers and a general power of appointment. Sometimes a property never owned by the decedent forms part of the estate under a general power of appointment. Q: Is the gross estate the same in all kinds of decedents? A: No, the property of a non-resident alien decedent property without the Philippines is not subject to estate tax. Q: X, a citizen, dies in Makati. He has property in Philippines, the US and Canada. Philippines US Canada Deposits Deposits Deposits Real property Real property Real property Stock Stock Stock What is subject to estate tax? A: When you encounter this type of problem, the first step is to determine who the decedent is. In this case X is a citizen, therefore; everything is subject to estate tax. Q: Same situation but what if X was a non-resident citizen?
I ESTATE TAX
Sec. 84-97; Sec. 104 June 21 Tuesday 7-9pm Q: What is an estate tax? A: An estate tax is a tax on the privilege of transmitting property at death which is measured by the value of the property at the time of the death of the decedent. De Leon: Estate tax is the tax on the right to transmit property at death and on certain transfers by the decedent during his life time which is made by law the equivalent of testamentary dispositions. Q: When does the estate tax accrue? A: It accrues at the time of death irrespective of whether the heirs took possession or enjoyment of the property. Q: What does estate tax consist of? A: It consists of property transmitted at death and lifetime transfers but regarded as testamentary dispositions. Q: Suppose A dies, leaving 3 heirs. A had 3 apartments. A dies. Each of his heirs inherited at least one of the apartments. Is the estate tax payable by the heirs? A: No. Estate tax is a transfer of a net estate to the heirs but not a transfer of the net estate to a specific heir. Q: How do you reconcile the fact that estate tax is a tax on the privilege to transfer but the law contemplates estate tax as a transfer of a net estate? A: Massacre Question! Didnt get the answer!! =( Q: Distinguish estate from gift tax.
Nad Pugeda 3C 2005-2006
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A: Law only mentions citizen; therefore citizen contemplates a nonresident also. Everything will still be subject to estate tax. Q: Same situation but X was an alien resident? A: A citizen and alien resident decedent are treated alike. Their properties within and without the Philippines are subject to estate tax. Q: Supposing the X, resident aliens flew to the US and resided there, leaving property in the Philippines. X died there. A: X would now be considered a non-resident alien. Therefore, only property in the Philippines would be subject to estate tax. Q: American non-resident has PLDT shares of stock in the US. Are they subject to estate tax? A: Yes. The situs rule is applicable here. Stocks are taxable in the situs of the corporation Q: What are the properties without that would be considered within? A: Sec 104 provides that xxx considered as situated in the Philippines 1. Franchise which must be exercised in the Philippines 2. Shares, obligations, bonds issued by any domestic corporation 3. Shares, obligations, bonds by any foreign corporation 85% of the business located in the Philippines 4. Shares, obligations, bonds by a foreign corporation having a business situs in the Philippines 5. Shares, rights in any partnership, business, or industry established in the Philippines Therefore, properties of these kinds owned by the non-resident alien are subject to tax even if they are without. Q: Foreign Corporation issues stock but does business abroad. Would these stock form part of the decedents gross estate? A: Yes, if they acquired business situs in the Philippines. Q: X, is an American non-resident who owns AOL stocks. AOL has 100% subsidiary in the Philippines. X died. Would the AOL shares form part of his gross estate?
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A: No, law requires doing business for the shares of a foreign corporation to be included in the gross estate of a decedent. Equity investment is not doing business Q: X, a non resident alien, died abroad. He had promissory notes. 2 were issued by Philippine individual debtors. The value of the promissory notes is P1m. Will the promissory notes form part of the gross estate? A: No, Law says shares, obligations or bonds of a corporation not individuals. Q: What about the argument that the debtors are Filipinos? A: The decedents interest is located abroad. DECEDENTS INTEREST Q: What is the decedents interest? A: Sec 85 (A) Decedents Interest - To the extent of the interest therein of the decedent at the time of his death. Q: Why should you know decedents interest when gross estate includes lifetime transfers? A: To know the extent of interest like dividends. Q: Dividends were declared December 15. Payable the following quarter of the taxable year. Decedent died December 20. Would the dividends form part of the gross estate of the decedent? A: Yes. In determining the decedents interest when it comes to dividends, what is important is the date of declaration of dividends, and not the date of the receipt of dividends. Q: If the decedent was entitled to a year end bonus paid in December but he died in July. The bonus was paid in December. Would the bonus be part of the gross estate? A: No, because it did not accrue at the time of the decedents death. But it is considered an income of an estate but not a part of the gross estate. Q: Suppose decedent is a contractor. He has a building contract. He did a flyover. The contractor is to be paid in 2 years by 4 installments but before the payment of the 3 rd installment, he died. What would be part of his estate?
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A: The payment for the 3 rd and 4th installment did not accrue at the time of his death but after the death. It will not form part of the gross estate because the law says the value at the time of death, the property at the time of death. It would form part of the estate not for estate tax purposes. It goes to the estate as income of the estate subject to income tax, and not as part of the estate for estate tax purposes. Q: Supposing A and B had a joint account or lets say an and/or account. A died. Would the death of A make his interest in the account part of his estate? A: Yes. In order for B to claim the whole amount, B would have to show that A was stripped of his right over the account and such was transferred to B after As death. An example would be a survivorship agreement wherein the parties agree that the death of one party would mean that the account would be owned entirely by the surviving party. Q: A, B, and C bought a property. It was only C who paid the purchase price. C died. Will the property form part of Cs estate or only 1/3 of the property? A: Only 1/3 because of the existence of co-ownership, unless it is shown that C actually owned the entire interest. Other evidence could be shown in order to prove decedents interest. TRANSFER IN CONTEMPLATION OF DEATH Q: What is transfer in contemplation of death? A: It means that it is the thought of death, as a controlling motive, which induces the disposition of the property Q: Are transfers in contemplation of death the same as in expectation of death? A: No, because everyone expects to die but not everyone contemplates an impending death. Q: Supposing X, age 80, goes dancing. X tells his grandson, aged 20, that because he is old, he will give him his P2m property. 2 weeks after, X died. Would the property form part of Xs gross estate? A: We have to look at circumstances to determine whether or not a property would form part of the gross estate. Circumstances like age, proximity of death, health, etc But remember the
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circumstance of Age overcomes the circumstance of being healthy. In this case, since X is already 80 years old, we could say that his age overcomes the fact that he is healthy and by taking into consideration the proximity of the date of giving and the death, we could say that this is a transfer in contemplation of death. Q: What is the reason why these life transfers form part of the gross estate? A: Because it really is a testamentary disposition. Q: X, 60 years old, sells his P10m property to his grandson for P1m. He told his grandson that he will die anytime soon. After selling the property, X died. Will the property form part of the gross estate of X? A: Yes, the sale was not for an adequate consideration. Even in transfers for insufficient consideration, it should be in contemplation of death or else it would be gift tax. Q: Same situation but X sold it for P9m. A: No, because there is an adequate consideration. consideration takes it away from the gross estate. This
Q: Supposing A, suffering from mental impairment but still sane enough to execute a transfer, transfers his property to his son, B. A tells his son I am transferring this to you, because Im mentally ill, I may soon become insane. Not only did he become insane, he died. Would this be a transfer in contemplation of death? A: No, because it in contemplation of incapacity and not death. June 23 Thursday 8-9pm -Free CutJune 27 Monday Happy Birthday Nad! June 28 Tuesday 7-9pm -Free CutJune 30 Thursday 8-9pm
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Q: X gives property to Y and tells Y that he is giving the property so that Y can improve his life. 30 days after, X died. Would this be considered as a transfer in contemplation of death? A: No, because death was never the impelling cause, never the controlling motive, never the particular concern that prompted the transfer. If the reason for the transfer is the thought of a better living, the thought of a good life, it would not be in contemplation of death. Case Alert! US v Wells Contemplation of death v Contemplation of Life. Case Alert! Spiegel Case Case Alert! Puig Case Q: What if X, who was very ill but never knew about it, transfers his property to Y. X died after. Would this be a transfer in contemplation of death? A: No, the decedent should have knowledge of his ill condition Q: How is transfer in contemplation of death made? A: By trust or otherwise REVOCABLE TRANSFER Q: What is this revocable transfer? A: You give but you retain control, possession, and enjoyment. Property is no longer in the name of the decedent, but for tax purposes it forms part of the gross estate of the decedent. Q: Why does it form part of the gross estate? A: Under the law, the property could be owned by the decedent anytime. They are considered as not having left the decedent/ grantor Q: X made a revocable transfer of property to Y. 2 years after, X was suffering from terminal cancer. X makes a deed to the effect that the revocable nature/essence of the earlier transfer is made irrevocable. X died. Would the property form part of Xs gross estate?
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A: Yes, because in effect it became a transfer in contemplation of death. Q: Same situation, but what if X didnt die. He lived for another 5 years, then died on the 6th year. A: This would be very difficult to argue that it was done in contemplation of death, because he lived for another 5 years. US jurisprudence would tell you to look at the intent of the decedent. In this case, X made the transfer irrevocable because he thought he was going to die. Therefore, it could be said that the transfer was done in contemplation of death. Q: How do you establish intent? A: From the circumstances Q: Suppose X made a revocable transfer of a property worth P9m to his son but the son only paid X P8m. X died. Would the property form part of his estate? A: No, because there is adequate consideration which means that it left the estate. GENERAL POWER OF APPOINTMENT Q: What is a general power of appointment? A: De Leon: It refers to the right of the decedent to designate any person including himself who shall enjoy or possess certain property from the estate Q: What are the requisites for the taxability of appointed property? A: De Leon: The requisites are: 1. The existence of a general power of appointment 2. An exercise of such power by the decedent by will or by deed 3. The passing of the property by virtue of such existence. Q: How is a general power of appointment made? A: Sec 85 (D) provides: 1. by will 2. by deed in contemplation of death 3. by deed to take effect at death 4. by deed where decedent retained for himself several rights pertaining to his property
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Q: What are the rights that the decedent retained for himself in a general power of appointment? A: Sec 85 (D) provides: 1. possession of enjoyment of property 2. income or fruits of the property 3. right to designate the person who may have right to possession, enjoyment, or to the fruits Q: Can the decedent designate or appoint any person in the general power of appointment such that he may appoint even himself despite the fact that this property was transferred to the donee? A: Yes, the decedent may be appointed if he wanted to. That is the reason why it is part of the decedents estate. Q: A creates a trust with B. A tells him that he can possess, enjoy, and use the property and upon his death he can choose who to transfer the property to. B chooses C. B dies after. What is the tax consequence? A: The property would form part of Bs gross estate because B could have given it to himself. Our tax law presumes that the property was given to him Q: Same situation but what if A said to B that upon your death, I will give it to C. A: This is a special power of appointment because B does not have the power to designate. Q: Same situation but C dies. What is the tax consequence? A: The property does not form part of the gross estate of C because the power of appointment is still with B. B never transferred the property because he can enjoy it until his death. Q: Same situation but A dies. What is the tax consequence? A: The property will form part of the gross estate of A. Remember A is still the owner. Q: Distinguish special from a general power of appointment? A: De Leon: It is general when it authorizes the decedent to appoint any person he pleases, including himself, thus having as full dominion over the property as though he owned it.
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It is special when he can appoint only among a restricted or designated class of persons other than himself. Q: Are properties transferring under a special power of appointment part of the gross estate? A: No, because the decedent cannot appoint himself INSURANCE PROCEEDS Q: Are insurance proceeds part of the gross estate? A: Yes, but, as provided in Sec 85 (E), only to the extent of the amount receivable by the estate of the deceased, his executor, or administrator. Q: X takes a policy on his own life. The Beneficiary is his estate. Proceeds are P1m. Will these form part of the gross estate? A: Yes Q: Same situation but the revocable beneficiary is Y. Will the proceeds form part of Xs gross estate? A: Proceeds go to Y as beneficiary, but for estate tax purposes, it shall be computed as part of the gross estate of X. Q: Same situation but Y was an irrevocable beneficiary. Will the proceeds still form part of Xs gross estate? A: No, it will not form part of the gross estate for estate tax purposes. But remember, to be irrevocable, it must be expressly stated. Q: What if the irrevocable beneficiary dies. A: It does not form part of the gross estate of the beneficiary. US jurisprudence makes a distinction if it has a reversionary provision or it was absolute. If it had a reversionary provision, then it will revert back to the insured. It would not form part of the beneficiarys gross estate. If it was absolute, then 2 schools of thought (didnt quite get what sir said) July 5, 2005 Tuesday 7-9pm TRANSFER FOR INSUFFICIENT CONSIDERATION Q: When is transfer for insufficient consideration part of the gross estate?
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A: For purposes of computing the net estate, the difference between the fair market value and the actual consideration paid will form part of the gross estate. For purposes of gift tax, the difference is considered a gift, which is taxable. Q: X transferred a property worth P9m to Y for only P1m. X died. What would form part of Xs gross estate? A: P8m is part of the gross estate for estate tax purposes. For purposes of gift tax, the difference is considered a gift, which is taxable. Q: A has a 20 karat diamond ring. A was in dire need of money so she sells the ring to B, who is her special friend. She sold it for only P2k. A died 3 weeks after. Would the ring be part of As gross estate? A: No, in order for a transfer to be included in the gross estate, the transfer must be in contemplation of death, otherwise, the excess would be considered as a gift. In this situation, A sold the ring to B because she was in dire need of money. Therefore, it could not be said that it was done in contemplation of death even if she died 3 weeks after the sale. Q: A has a house and lot located in Tanay worth P10m. A, in need of money, sold it to B, a special friend for only P300k. A died 3 weeks after. Would the real property form part of As gross estate? A: We first have to determine whether it was a capital asset or not. If it was a capital asset, it would not be subject to estate tax, but to Sec 24 (D) (6% of the fair market value or gross selling price, whichever is higher) Q: Same situation, but the transfer was done in contemplation of death. Gift tax talks about Sec 24 (D), but Estate tax does not mention Sec 24 (D). So why would this transfer still be subject to Sec 24 (D)? A: Sec 24 (D) is not a transfer for insufficient consideration, because the property is deemed to be transferred for its fair market value or the gross selling price, whichever is higher. Q: A owned a property worth P10m, then he transferred the property to B. A died the next day. After 3 months, B sold the property for P50m. What would be the value included in the estate? A: 10m, the value at the time of the decedents death. The law says that it should be the value of the property at the time of death.
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DEDUCTIONS 1. ELITE Expenses, Losses, Indebtedness, Taxes, Etc a. Funeral Expenses Q: Supposing A, during his lifetime, bought 3 memorial lots worth P300k each. A died. The heirs used one of the lots for his burial. Would the lot used for his burial be deducted as funeral expense? A: Yes, only the actual lot used for the funeral, because the expense incurred for the use of the lot was incurred by the estate. All the 3 lots formed part of the estate of A, but only 1 lot was used as an expense by the estate. Q: What about monuments and tombstones? Would they be deductible as funeral expense? A: Yes. According to the book of Reyes, the cut-off point is internment. Expenses, related to the death, which accrue after internment are not considered funeral expenses. Thus, the expenses on the card of thanks or the mass for the dead after 40 days from death are not funeral expenses. Q: Supposing A died. B, his son, texted all the relatives informing them of As death. B sent a text message to a friend. B said in the text Hi how are you? I miss you. By the way, my father just died. Would these be deducted as funeral expense? A: Yes. Funeral expenses should not be confined to its ordinary or usual meaning. They even include telecommunication expenses incurred in informing the relatives of the deceased. Q: During the march from the wake to the burial place, there was a drum, bugle and even an ati-atihan. The value of these amounted to P50k. It was said that the decedent loved these kind of entertainment. Would these be deductible as funeral expenses? A: Again, the cut-off point is internment and as long as they were related to the death of the decedent, it would then be deductible. Also, it should be paid by the estate. Q: During As funeral, B, his relative paid all the funeral expenses out of his own pocket. Are these expenses deductible? A: No, because the expenses must come from the estate.
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b. Judicial Expenses Q: What are Judicial Expenses? A: They are expenses for the testamentary or intestate proceeding. Q: What if you do not have a judicial, testate or intestate proceeding? A: Then the expenses incurred could not be deducted under judicial expenses. It is required by the law for there to be a judicial proceeding. However, in 1 case, the SC allowed notarial fees to be deducted in an extra-judicial settlement. Q: Suppose a CPA and a Lawyer were hired, would the cost of hiring them be deductible? A: Yes, as long as it is important for the settlement of the estate. Q: Suppose a lawyer was hired to protect an heirs interest in the estate. Would this be deductible? A: No, because it is not an expense necessary for the settlement of the estate. Q: What if the heir argued that it was necessary to determine the amount in settlement? A: The rule is that the expense has to be for the benefit of the estate and not for the individual heirs. Q: Suppose A was designated by the probate court as an administrator of the decedents estate. However, as a condition for the office, the probate court required A to post a bond having a premium amount worth P30k, is this amount deductible to the estate? A: No. This is not for the settlement of the estate but in the nature of a qualification for office. Q: Supposing notarial fees were paid for the extrajudicial settlement of the estate, would this be deductible? A: Yes, in the case of Pajonar, the SC ruled that expenses necessary for the settlement of the estate should be deducted, although the law specifies judicial expenses. Case Alert! Pajonar
Nad Pugeda 3C 2005-2006 TAXMAN
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c.
Claims against the estate
Q: What are claims against the estate? What are the requirements for it to be considered a claim against the estate? A: Reyes: A person, at some time during his lifetime, must have contracted obligations. If enforceable against him when alive, the obligations will be claims against his estate when he shall be dead. Q: A died. Supposing P1m was spent for funeral expenses. According to the law, the maximum amount of funeral expenses that can be deducted is P200k. Can the excess (P800k) be deducted as a claim against the estate? A: No, because: 1. Claims must be existing at the time of the death of the decedent. 2. This would violate the statutory limitations. When you are talking about deductions, statutory limits must be followed. Funeral expenses owed by the estate can be filed against the estate under Rule 86 of the Rules of Court. But the deductions are limited. You have to make a distinction between claims against the estate that must be paid and claims against the estate that may be deducted. In this case, they are claims that must be paid. Q: What is required if the claim against the estate arose out of a debt instrument? A: The debt instrument must be notarized at the time the indebtedness was incurred. Q: X loaned money from Y. X issued a promissory note. The Promissory note was notarized 3 years after the debt was incurred. A year after, X died. Would the debt be deductible as a claim against the estate? A: No, because the promissory note was only notarized after the debt was incurred. The law requires the debt instrument to be notarized at the time the indebtedness was incurred. Q: Supposing the administrator argues that it was notarized a year before the death of the decedent. Thus, it is considered an existing debt at the time of the death of the decedent.

A: When it comes to deductions, tax laws are strictly construed. Since the law says at the time it was incurred; therefore, it cannot be deducted. Q: What if the loan was contracted within 3 years prior to the death of the deceased? A: The administrator or executor will be required to submit a statement showing the disposition of the proceeds of the loan. Q: What is the purpose of the within 3 years rule? A: To avoid fabrication d. Claims against Insolvent Persons Q: What are claims against insolvent persons? A: If the decedent died leaving an estate in which receivables from insolvent debtors are included. These receivables may be deducted as claims against insolvent persons. Q: What are the requirements? A: The full amount of the uncollectible receivable must first be included in the gross estate before they can be claimed as deductions. Also, you must show that the debtor is financially incapable of paying. e. Unpaid Mortgages Q: Suppose A mortgaged a property worth P5m. A died. Would this be deductible? A: Yes, include the fair market value of the property undiminished by the indebtedness in the gross estate before claiming the unpaid mortgages as a deduction because the fair market value of the property could be much higher than the mortgage indebtedness. f. Taxes
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Q: X died. The estate pays income tax on the income earned by the property. Is this deductible? A: No, because the income received was after the death. If before the death, then it is deductible. Q: What is the distinction between the previous situation and one where you dont have a judicial proceeding? A: For estate tax purposes, there really is no difference. In both cases, you have assets earning revenue, both are taxable on the net and what forms part of the estate are the same. The difference will be in the income prior to the settlement. In the situation with a judicial proceeding, the estate is the taxpayer while in a situation with an extra-judicial settlement, the heirs, as co-owners, are liable for the taxes. Remember in tax I, the estate is a tax payer only if there is a judicial proceeding. g. Losses Q: What are the conditions for losses to be deductible from the gross estate? A: The conditions are: 1. Arising from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement; 2. Not compensated by insurance or otherwise; 3. Not claimed as a deduction in an income tax return of the estate subject to income tax; 4. Occurring during the settlement of the estate 5. Occurring before the last day for the payment of the estate tax (6 months after decedents death or after extension of 30 days) Q: What if the losses were incurred prior to the death or at the time of the death of the decedent? Would this be deductible as losses? A: No, the law says during settlement Q: A, administrator, withdrew from the bank P500k, which was the income of the estate. Because he was suffering from dementia, he forgot where he placed the P500k. Would this be deductible as loss? A: No, the P500k is income of the estate and income does not form part of the gross estate for estate tax purposes. Granting arguendo that the P500k is not income of the estate but part of the gross estate, it would still not be deductible as a loss because the conditions are not present in this situation.
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Q: What taxes are deductible? A: Taxes accruing before the death but not including any income tax upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate tax because these are chargeable to the income of the estate.

2. Vanishing Deductions Q: What are these vanishing deductions? A: Reyes book: Property may change hands within a very short period of time by reason of the early death of the owner who received it by inheritance or gift. This subjects the property to a very heavy burden in taxes, because the transfer tax is imposed on each transfer. To provide a relief, vanishing deduction is allowed to reduce the gross estate. Q: What conditions are required for vanishing deduction to be allowed? A: Reyes: The conditions are: 1. The present decedent died within 5 years from receipt of the property from a prior decedent or donor; 2. The property on which vanishing deduction is being claimed must be located in the Philippines; 3. The property must have formed part of the taxable estate of the prior decedent, or of the taxable gift of the donor; 4. The estate tax on the prior succession or the donors tax on the gift must have been finally determined and paid; 5. The property on which vanishing deduction is being claimed must be identified as the one received from the prior decedent, or from the donor, or something acquired in exchange thereof; 6. No vanishing deduction on the property was allowable to the estate of the prior decedent. Q: A died in 1995. At the time of his death his property was worth P10m. B, his son inherited this property. In 1997, B died. The property was worth P15m at that time. What value shall be considered as the basis of the vanishing deduction? A: P10m. The initial value to take as the basis of the vanishing deduction is the value of the property in the prior estate, or the value of such property in the present estate, whichever is lower. In this case, the value in 1995 is lower than the value in 1997. Remember the rule, for taxation purposes, always the value higher; while for deduction purposes, always the lower value. Q: Same situation, but the property of A was located in the US. Would vanishing deductions still apply?
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A: No, one of the conditions set by law is that the property should be located in the Philippines. 3. Transfer for Public Use Q: When should the disposition take effect? A: After the death of the decedent Q: Suppose decedent made a transfer in favor of an NGO. Would this be deductible as transfer for public use? A: No, it should be for the government, not for a non-government organization. 4. Family Home Q: What is this Family Home deduction? A: It is a deduction allowed in the amount equivalent to the current fair market value of the decedents family home. The maximum is P1m. The family home must be certified to as such by the barangay captain of the locality where it is located for it to be deducted. Q: Can a decedent have 2 family homes? A: Yes, but he cannot be able to claim them both as family home deduction. Q: How is a family home defined for estate tax purposes? A: A family home of a married person or an unmarried head of family is the dwelling house where a person and his family reside, and the land on which it is situated. Q: Suppose the decedent lived in an ancestral home for 5 years. The house belonged to his mother, but was constructed by his uncle. Is it deductible? A: No, the family home must be owned by the decedent Q: A is an unmarried head of the family. He had this residence in his hometown but he never used it because he stayed in Manila. He even had it rented for P10k/month. Can this be deducted. A: The law does not really say anything about this, but BIR opinions say that the decedent must have actually resided at the time of his death. At least decedent actually dwelled in the home. Again, we have to remember the rule that deductions are strictly construed.
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Q: A, decedent, had a house in his hometown Batangas and in his wifes hometown Cebu. The spouses transferred back and forth. A died while he was staying in the family residence in Cebu. The value of both houses is P5m each. Would the value be material in determining the family home deduction? A: No, because the law provides a P1m ceiling. The value would only be material if it is less than P1m. So it would not really matter which house would be considered since both of them are P5m and only P1m can be deducted. Q: What if the family home was bought by conjugal funds, is it deductible? A: Yes, the share of the surviving spouse in the family home is deducted from the gross estate to arrive at the net estate. Q: Suppose a wife was legally separated from her husband. The husband retained in his custody the family home. The wife died. Is the family homed deductible to the wifes estate? A: Yes, it is within the statutory limitations Nad: what about the argument that BIR opinions say that the decedent must have actually resided at the time of his/her death? Q: How about the share of the surviving spouse in the conjugal funds, is it deductible? A: Yes, the surviving spouse exclusive property is not included in the decedent spouses estate. 5. Standard Deduction Q: What is this Standard Deduction? Why is it standard? A: Because decedent will automatically be entitled to the P1m deduction. Sir said it is called standard for lack of a better term. During the legislative deliberation, the legislators decided to have this standard deduction to make it fair to the poor people. If the poor peoples estate is worth P2m, then at least only P1m will be taxed. 6. Medical Expenses Q: What is this medical expenses? A: They are the medical expenses incurred by the decedent within one year prior to his death which shall be substantiated with
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receipts. Provided, that in no case shall the deductible medical expenses exceed P500k Q: What if the medical expenses amount to P1m, would the excess of P500k be claimed as a claim against the estate? A: No, if it is already covered by one category of deductions, you cant put it under a different category because this would violate the statutory limitations. Q: What if you did not claim as medical expenses, but instead you claimed it as a claim against the estate? A: In medical expenses you have to show medical bills. Note: There is this revenue regulation that states if medical expenses are incurred more than 1 year prior to death and still unpaid, then it cannot be deducted as a claim against the estate. 7. Amount under RA 4917 Q: What is this RA 4917 deduction? A: Any amount received by the heirs from the decedents employer as a consequence of the death of the decedent-employee in accordance with RA 4917 shall be deductible from the gross estate of the decedent. Q: X died. The heirs were given the separation benefit. Is this deductible? A: No, the law provides that only benefits under RA 4917 are allowed as deductions. RA 4917 will form part of the gross estate, but not deductible. Law only talks about 4917 and not any other benefits under any retirement plan. EXEMPT TRANSMISSIONS Q: What are these exempt transmissions? A: Exemption of Certain Acquisitions and Transmissions: 1. The merger of usufruct in the owner of the naked title; 2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicomissary. 3. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor;
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4. All bequests, devises, legacies, or transfers to social welfare, cultural, and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, that not more than 30% of the said bequests, devises, legacies, or transfers shall be used by such institutions for administration purposes.
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A: The value of the usufruct is included in the gross estate of B. (Sec. 88 (A)) Q: Same question, but B dies ahead of A. A: Sec. 88 (A) also applies. July 7, 2005 Thursday 8-9pm
For #s 1-3, the value of the property need not be included in gross estate, while for # 4, the value must be included and the same will be deducted. Q: A, the owner gives usufruct to B. A dies. What is the estate tax consequence? A: Forms part of the estate of A, because A is still the owner. Q: Same situation but what if B dies? A: It is not taxable because the right of the usufruct is included in the gross estate of the decedent. Q: A, the decedent tells B, his son that he can determine who is to enjoy the property upon his death. B chooses C as the substitute heir. B dies. A: Law only says fideicommissary substitution. Under the law on Succession, the requirement is that the substitute heir must not be more than 1 degree. Q: What is the difference between the 2nd and the 3rd exempt transmission? A: The 2nd exempt transmission has a substitute provision while the 3rd exempt transmission allows any beneficiary who receives it under decedent. Q: X dies. His estate is worth P20m. The beneficiary leaves it to the beautiful cat foundation. Is it an exempt transmission? A: If it falls under charitable Q: Suppose A transfers property to trust. This property would be enjoyed by B but the title is given to C. A dies. Would the property be part of the estate? A: If it is revocable, it would form part of As estate Q: Same situation, but B dies?
TAX CREDIT Q: What is the purpose of this tax credit? A: The purpose of this tax credit is to provide relief to the taxpayer, because his property located abroad is subject to foreign and local estate tax. Q: Supposing A died with real property abroad and here. X paid estate tax abroad. What is the tax consequence? A: The limitation is the tax credit shall not exceed the tax payment. There is a formula regarding tax credit. VALUATION OF THE GROSS ESTATE Q: How is the estate valued for estate tax purposes? A: Fair market value at the time of the death Q: How do you determine the Fair market value? A: It would depend what the property is Real, Personal or shares of stock. Q: What if it is real property? A: The appraised value of real property as of the time of the death shall be, whichever is the higher of (1) the fair market value as determined by the Commissioner or (2) the fair market value as shown in the schedule of values fixed by the Provincial or City Assessors. Q: How about personal property? A: If the property is recently acquired by the decedent, the purchase price may indicate the fair market value. There is a problem if the personal property was not recently acquired like antique, collection of stamps, etc So you need a standard to determine the Fair market value. The BIR determines this standard based on circumstances like a comparison with pawnshops.
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Q: How about Shares of Stock? A: We have to distinguish between listed and not listed. It would be easy if the stock is listed, because you just have to look at the price of the listed stock at the Valuation date. The Valuation date is the date of the death of the decedent. If there are several transactions during the Valuation date, then you get the mean of all the prices. If there is no sales transaction during the Valuation date, then get the price before or after the Valuation date, whichever is nearer. If the stock is not listed, then we get the book value which maybe higher or lower than the par value. Q: Suppose at the time of the transfer the property was worth P10m, but at the time of the death it was P15m. What would be the value? A: P15m, because the law says the value at the time of the death. Note: If it was cash that was transferred, then the value considered will be the value at the time of the transfer. ADMINISTRATOR Q: Who pays the estate tax? A: The administrator of the estate is the one who will pay the estate tax Q: Supposing you have judicial proceeding, where the administrator paid. Will the heirs still be liable? A: They will be subsidiary liable Q: What if A and B had a joint account. A died. What would be the obligation of the bank? A: The bank has the obligation not to allow withdrawals unless certification/clearance from BIR allowing the other party to withdraw because withdrawal without clearance could hold them liable for perjury. There are some contrasting jurisprudence where it was held that the account goes to the surviving party. Q: When is there a need to file an estate tax return? A: Administrator has to file the estate tax return when a registerable property forms part of the gross estate.
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Obiter by Sir: When you have an estate that exceeds P2m, the BIR wont accept the estate tax return without certification from CPA that it was filed in accordance with BIR regulations. CPA is then happy because he gets extra income. Case Alert! Commissioner v Gonzales Issue as to the taxpayer administrator. The defense was that the liability should be limited to the part she holds (1/3). Supreme Court said whole liability because several liability of 2 or more administrators. Law says administrator is liable for estate tax. Anyway, tax shall be taken from the estate. (Read page 772-773 of the case) RECIPROCITY Q: What is this reciprocity provision? A: When the foreign country of the non-resident decedent allows a similar exemption to a non-resident Filipino, meaning the intangibles of the non-resident Filipino in that foreign country of the non-resident decedent would exempt the intangibles similarly Q: Who does it apply to? A: To non-resident aliens Obiter by sir: Estate tax is called death tax in some jurisdiction Case Alert! Rueda Q: Supposing you have an ambiguity like in this case, would the reciprocity provision still apply? A: No, remember, exemptions are strictly construed. Q: Can the estate of the non-resident alien decedent claim exemption even if there is just partial reciprocity? A: No, the SC held in the case of Fisher that reciprocity must be total with respect to transfer or death taxes of any and every character. If any of the 2 states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work. This is the underlying principle of the reciprocity clauses in both laws. Case Alert! Fisher
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Q: Supposing administrator would argue that the certificates were in the US, therefore outside jurisdiction, so not taxed? A: Case Alert! Vda de Gabriel Assessment must be served to the taxpayer. July 12 Tuesday 7-9pm
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Q: X rendered services to Y 5 years ago. Y now gives X a car voluntarily without any consideration. Is this considered as a gift for purposes of gift tax or for purposes of exclusion? A: Subject to gift tax. In cases of exclusion, it is not sufficient to just have absence of consideration. The element of disinterested generosity should be present. Q: Given that, how do you distinguish gift for gift tax purposes and gift for exclusion? A: Gift tax uses comprehensive language. It is very broad and could be through any devise. Exclusion is limited and it is necessary to have disinterested generosity. Q: I give you this car for no consideration, but I can get it back from you anytime next year. Would this be subject to gift tax? A: Not taxable as gift tax, because there is no cessation of control. There must be a completed gift for it to be subject to gift tax. It must be put beyond recall. Case Alert! Burnett Q: Differentiate revocable trust, revocable transfer and revocable gift. A: Revocable trust income never left the owner Revocable transfer property never left the owner Revocable Gift Deemed as if the gift never left the donor If the gift earns income, it will be taxable on the part of the donor If the donor dies, it will form part of the gross estate of the donor. Case Alert! Smith Q: What is the distinction between the Smith Case and the Burnett Case regarding the trust? A: In Burnett, it was a revocable trust. In Smith, it was irrevocable. So the question in the Smith case, would be the reversionary provision Q: How did the Court conclude from the language of the law the contingent element in Sec 98 (B)?
II GIFT TAX
Sec. 98 104 Q: What is this gift tax? What is the nature of this gift tax? A: De Leon: The donors tax is imposed on donations inter vivos or those made between living persons to take effect during the lifetime of the donor. Q: How is the gift tax related to estate tax? income tax? A: When a person during his lifetime makes a gift, he diminishes his gross estate thus, avoiding estate tax. As for income tax, De Leon discussed that without donors tax, the donor may escape progressive tax rates of income taxation through the simple expedient of splitting his income among numerous donees. Q: What property is contemplated in donors tax? A: real, personal, tangible, intangible Q: A owns a property yielding P10m/year. A gives half of the property to B. Half of this property yields P5m/year. Will this be subject to gift tax? How do you protect the income tax when the P5m/year will still be subject to income tax? A: Yes, it will still be subject to gift tax. Q: How is gift tax imposed? A: Sec 98 (B) the tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.
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A: Because the law says all transfers which would include contingent interest. So the problem would now be how do you measure the value of the interest since it is merely contingent. Q: X borrowed money from Y but with interest at 1% p.a. The current interest rate in the market is 9%. Could there be a gift in this loan transaction? A: Yes, which the 8% deficiency, as the 1% interest is very nominal Case Alert! Dickman Q: Do gratuitous free loans result in taxable gifts? A: Yes, in the case of Dickman, the gift tax is imposed upon the reasonable value of the use of the money loaned. The taxable gift that assertedly results from an interest-free demand loan is the value of receiving and using the money without incurring a corresponding obligation to pay interest along with the loans repayment. Q: You have a house in Baguio. You had it rented for P20k/month. Your first cousin, who is penniless, came to you and asked for help. You said she can use the house for free for 6 months. Is this subject to gift tax? A: This is the problem with the Dickman theory, if you let your friend borrow your car or the use of a house, then this would become taxable gifts. However, gift tax should not cover necessary conveniences within a familial setting. Q: So is the Dickman theory a rule that will accept no exception? A: No, Gift tax should not cover necessary conveniences within a familial setting. Q: Is the value of the property relevant? Will it also include familial matter of high value? A: Q: Father owns 100 shares of Meralco. He got it for P30/share. It is now worth P100/share. He gives it to son for only P40/share. Would this be covered by gift tax? A: Yes, it is subject to tax regardless of the familial relationship. It is not a necessary convenience. The Dickman case is more of a case that relies on factual circumstances like value and relationship.
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Q: Dad owns shares worth P70 per share. Son is engaged in trading securities. Dad told Son to sell his shares for P140/share such that the profit would belong to Son. Is there a taxable gift? A:
Q: Same question, but what if there is no filial relationship? A: No gift because it was a transaction in the ordinary course of business. In a purely business transaction, transactions with discounts and bargaining are beyond the scope of gift tax. Q: A starlet goes to a car shop and the owner of the shop sells a P1.2M car to her for only 200K, is there a taxable gift? A: It could be argued that it may be a business transaction where the starlet should opt to be a model for the car shop. If that is the case, then it is not deemed a gift. Business transactions are beyond gift tax coverage.
Q: What if A gives B a gift directly but B should also give A a gift directly. Would there be a taxable gift? A: No taxable gift because there is consideration involved in this situation Q: X would give his Bulacan land as a gift to Y provided that Y would give his Laguna land to X as a gift. Is there a taxable gift? A: No. There is no gift because the transfer was with consideration. It is a taxable exchange of property. If it is a capital asset, it is an exchange subject to Sec. 24 (D). Q: A rendered services to B. The value of the service is P50k. C pays A P100k. Is there a taxable gift? A: C made a direct gift to A the excess of P50k worth of services. C made an indirect gift to B when C paid Bs debt. Q: B rendered services to C worth P50k. C did not pay B. A paid B P100k for Bs services to C. A and C are strangers. What is the gift? A: A made a direct gift to B the excess of P50K worth of services. A made an indirect gift to C when A paid Cs debt.
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Q: Same question, but what if A made the gift without mentioning Bs services to C. A: the whole P100k is a direct gift to B. Q: A tells B that A will give B money if B would do something. A tells C that A will give C money if B will not do anything. B did not do anything. A gave the money to C. Who made the gift? A: B gave the gift. B had control on whether or not the conditions would be fulfilled. It would be the same effect as if B received the money then B gave it to C. B was an indirect donor. Q: X mortgaged his property worth P10M for a P10M loan. The following year, X donated this property to Y. Is there a gift? A: Yes if there was an appreciation of the values of the property, there is a gift to the extent of the appreciation of the value. But if the value of the property declined, there is no gift. There could be no gift of liability. Nad: But could this be considered a transfer for insufficient consideration? STRANGER RULE Q: What is the stranger rule? A: Sec 99 (B) When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the net gifts. For the purpose of this tax, a stranger is a person who is NOT a: 1. Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or 2. Relative by consanguinity in the collateral line within the 4 th degree of relationship 3. Any contribution in cash or kind to any candidate, political party or coalition of parties for campaign purposes shall be governed by the Election Code, as amended. Q: Supposing a corporation owned by X gave P100k to F, the son of X. Would this be subject to the 30% rule? A: Yes, the stranger rule is applicable because F does not fall under the list expressly provided by law. Q: What if it was reverse. F was the one who donated to the corporation? A: The Stranger rule is still applicable. Because the corporation does not fall under the list expressly provided by law.
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Q: X bought a property in 1995 for P1m. At present it costs P10m. X sells the property to Y for P2m. Would this be subject to gift tax? A: You have to first determine whether the property is a capital asset. If it is, then it would be subject to 6%. If not, the excess would be subject to gift tax as transfer for insufficient consideration. SUBJECTS OF GIFT TAX Q: Who are subject to gift tax? A: The law says any person, resident or non-resident Q: X, resident of Shanghai, went to Binondo, Philippines and bought a P1m necklace for his Chinese girlfriend. X gave it to his girlfriend when they were in the Carribean. Would this be subject to gift tax? A: No, the Philippines had no jurisdiction when the necklace was given. Situs of personal property follows the owner Citizen Resident Alien Nonresident Alien Domestic Corporation Foreign Corporation Within Without Sec. 104 re: intangibles Sec. 104 re: intangibles
Q: A, a resident alien, took a permanent job abroad. He subsequently donated his car to B, a Filipina. Would this be subject to gift tax? A: No, A was already considered a non-resident alien at the time he gave the gift to B. We have to look at the circumstances of the case to determine whether the person became non-resident. You also have to show abandonment of residence in the Philippines. VALUATION OF GIFT TAX Q: How do you value gift? Real property? Personal property? A: Same as in estate tax. For real property, the appraised value of real property as of time of the death shall be, whichever is the higher of (1) the market value as determined by the Commissioner or (2) the market value as shown in the schedule of values fixed by Provincial or City Assessors.
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the fair fair the

For personal property, if the property is recently acquired by the decedent, the purchase price may indicate the fair market value. There is a problem if the personal property was not recently acquired like antique, collection of stamps, etc So you need a standard to determine the Fair market value. The BIR determines this standard based on circumstances. For shares of stock (see the valuation of shares of stock under estate tax) Q: Would donors tax include conceptual or contingent property? A: It could be a conceptual or contingent property as long as you can value it, because if you cannot value it, it cannot be considered as property. (it could be a thing but not a property) Q: What if Kris Aquino donated her blood? Would this be subject to gift tax? A: No, because you need pecuniary estimation. You cannot argue that blood is capable of pecuniary estimation because it is sold in the black market, because the blood sold there is not regulated by the BIR. Q: When is the value of the gift considered for purposes of computing the gift tax? A: At the time of the giving Q: A gave B P50 at the time the Peso rate to a Dollar was still P45 to a $. Now the rate is P56 to a $. What value would be considered? A: The value when the rate was still P45 to a $, because that was the rate at the time of the donation. (Note: This is just an illustration for purposes of discussion because in reality there is no gift tax when you just give P50 ) Q: When is there a taxable gift? A: There must be cessation of control by the donor over the property given. Q: Suppose X gave Y a check dated June 30, 2004. On July 8, X died, but Y had not encashed the check. Is there a gift? A: No. there was no cessation of control and dominion on the part of the donor over the property transferred.
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EXEMPTIONS OF CERTAIN GIFTS (Sir did not discuss these, but this is found in the old reviewer) 1. Dowries Q: What are the requirements for gifts in consideration of marriage to be exempted from the donors tax? A: It should be: Given by parent To children Given before or within one year from celebration of marriage Limit: First P10k Q: If a gift is given after the celebration of marriage, can it be exempted from the tax? A: Yes, if given within 1 year from celebration of marriage Q: Suppose a child gave a donation to his widower father, can this donation be exempted? A: No, the law only contemplates gifts made by a parent to a child and not a child to a parent Q: X will give a property to Y on a condition that Y will marry X. They got married. X gave the property. A: This is prohibited by law Q: Dad will give X a gift if X will marry Dads daughter. The BIR taxed the transaction. However, Dad argued that the consideration was the marriage, therefore exempt. Is this exempted? A: It is not exempted. It is not a gift if there is a consideration. In this case, the consideration is the marriage. However, the consideration is not valid because marriage is incapable of pecuniary estimation Q: Suppose Dad makes a donation worth P100k but the funds came from the conjugal property, what would be the extent of the exemption? A: In the case of Tang Ho v Collector, the Supreme Court ruled that he wife must expressly join the husband in making the gift, and her part cannot be implied. Since the wife did not expressly join the husband in the donation, the donation would be deemed to be
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made only by the husband, so the exemption would only be P10k. However, if the wife expressly joins the husband in the donation, then they may both claim exemption, so it would be P20k 2. Gifts to Government Q: If the government agency is for profit, is it covered? A: No, only agencies not conducted for profit. 3. Gifts to Non-profit Institution Q: Suppose Nestle Phil. gave P200k to students but this would be administered by a NGO. Is this exempt? A: No, because the donee is not an institution Q: But what if the donation is in favor of the NGO, but the beneficiary would be the student, would this be exempt? A: Yes, as long as the disposition by the donor is in favor of an institution July 14 Thursday 8-9pm -Free CutJuly 19 Tuesday 7-9pm A: Case Alert! Kapatiran Case Case Alert! Tolentino Case
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Q: When can you invoke the non-impairment provision with tax law? A: Non-impairment applies when you have a tax exemption pursuant to a contract. However, in Tax I, exemptions granted to franchise can be impaired anytime. Q: Who are liable to pay VAT? A: Reyes book: Any person who: 1. sells, barters or exchanges goods or properties in the course of trade or business; or 2. sells services in the course of trade or business; or 3. imports goods, whether or not in the course of trade or business. Q: Supposing I sell to you my car for P1.5m. Will this be subject to VAT? A: No, the transaction must be in the course of business. Q: Y is engaged in the business of selling 2 nd hand cars. He buys a 2nd hand car and subsequently sells it. Will this be subject to VAT? A: Yes, because Y is in the business of selling 2 nd hand cars. Unless, Y can argue that the car he bought was not part of his business and at the time he bought it from another person, he had no intention to make the car part of his business. Q: There is this organization of lay ministers. In order to support their activities, they sold raffle tickets. It exceeded the new VAT law threshold of P1.5m. Will the sale be subject to VAT? A: No, because this is not an economic and commercial activity. The law, under Sec 105 par. 3, defines the phrase in the course of trade or business as the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person is engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
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III VALUE-ADDED TAX

Sec. 105-115, as amended by RA 9337 Q: What is VAT? What is the nature of VAT? A: Reyes: It is an indirect tax. While the law imposes the tax on the seller, the law allows the seller to shift it to the buyer (i.e. collect the tax from the buyer as a component of the price that he pays on the purchases Q: Is it an excise tax? A: Q: Is it a percentage tax?

Q: Will a non-profit organization be subject to VAT? A: As seen in the previously quoted provision of law, profit is immaterial for purposes of being subject to VAT. What is important is that the organization is in pursuit of an economic or commercial activity. Remember that VAT is a tax on the sale and not the profit. Q: Can the government be subject to VAT? Supposing DOJ renders an opinion by request of DENR. Later DENR paid the lawyers of DOJ due to this opinion. Will that be subject to VAT? A: No, this is not in pursuit of a commercial or an economic activity but simply a performance of a government function. The government cannot tax itself. Q: What are the requisites for liability to VAT? A: De Leon: The following conditions must be satisfied: 1. There must be a sale, barter, exchange or other disposition in the Philippines 2. The sale must be of taxable goods, properties or services 3. The sale must be made by a taxable person in the course or furtherance of his/its business Q: What is covered by the term goods and property? A: Any goods and property capable of pecuniary estimation Q: Supposing X sells to Y goods for P1m. As a way of promotion and because Y purchased the goods from X, the latter gave an extra P200k worth of goods to Y. What will be subject to VAT? A: Only the P1m, because the transaction is really just worth P1m. Y paid P1m for P1.2m worth of goods. Q: Supposing X sells to Y goods for P1m. 3 days after, X gives Y P200k worth of goods as a gift. What will be subject to VAT? A: Only the P1m, because the P200k is not part of the sale. It is considered a gift. What is taxed is a sale and not a gift. Nad: I dont think this is subject to gift tax, because it was done in the course of business, unless argued otherwise Q: What are the requisites for sale of real property subject to tax? A: The requisites are: 1. sale or lease 2. in the ordinary course of business
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3. 4.
gross annual receipts exceed P1.5m offered primarily for sale or lease (not capital asset)
Q: X sells his house and lot in order to buy another house and lot. Will this be subject to VAT? A: No, the house and lot were not sold in the ordinary course of business Q: X has P5m worth of goods. X exchanges these with Y for P5m worth of real property. Will this be subject to VAT? A: Yes, the law includes barter or exchange as long as it is done in the ordinary course of business. Q: If you sell your house, and you are a real estate dealer, is it subject to VAT? A: no, it excludes capital assets. Q: Suppose you sold a lot for the right of way, is the sale subject to VAT? A: No. Selling for a right of way is not primarily for sale. It is a forced sale. Q: If you have a property and then you leased it to a foreigner for $100K for the entire year. Would it be subject to VAT? A: Yes even if paid in foreign currency because it is not a foreign denominated sale. INCIDENTAL AND ISOLATED TRANSACTIONS Q: What is the concept of "incidental to the business"? A: It is when the transaction is not the main purpose of the business but somehow related to it. It is subject to VAT. Q: What is the difference between isolated transactions and incidental transactions? A: Isolated transactions are not subject to VAT but incidental transactions are subject to VAT. Q: Suppose a real estate dealer sold a parcel of land which is not a part of the bundle of the property he is selling, is it subject to VAT? A: No. This is not a transaction incidental to the business but rather an isolated transaction as the property was not held for sale to the customers.
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Q: MWSS entered a contract with concessionaires where the latter would operate the formers waterworks. The contract provides that at the end of the stipulated term, the concessionaires are required to sell the operation back to MWSS. BIR argued that it was an incidental sale. MWSS argued that it was an isolated sale. A: It is an isolated sale because the concessionaries are not in the business of selling business operations. It may not be incidental because the operation had already ceased. TRANSACTIONS DEEMED SALE Q: What are these so-called transactions deemed sale? A: Sec 106 (B): 1. Transfer, use or consumption not in the course of business of goods or properties originally in tended for sale or for use in the course of business; 2. Distribution or transfer to: a. Shareholders or investors as share in the profits of the VAT-registered persons; or b. Creditors in payment of debt; 3. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned; and 4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. Q: Why is the law making it VAT-able even though there is no sale? A: To lessen the impact of input taxes or else it would be prejudicial to the government Q: How does it lessen the impact of input taxes? A: Because without it there will only be input taxes and no output taxes. Q: Give me an example for each transaction deemed sale? A: Reyes book: 1st transaction: X sells household furniture. He removed from his store a living room set for use in his residential house. This is deemed a sale.
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2nd transaction letter A: X co. declared and paid a dividend out of inventory. This is deemed a sale Note: It should be stressed that it should be share in the profits of a VAT-registered person 2nd transaction letter B: X co. indebted to Y co. for raw materials. When X co. could not pay in money, Y co. agreed to receive the finished goods of X co. in payment. This is deemed a sale by X co. 3rd transaction: E co., a manufacturer, made sales, as follows: To Mr. F, on credit, with title to the goods passing to Mr. F, and to Mr. G, on consignment, with title to the goods to pass only upon actual sale of the consigned goods to a buyer. The goods consigned to Mr. G are still in the shelves of Mr. G. The sale of Mr. F is subject to the VAT because title to the goods has passed to Mr. F. The consignment to Mr. G, although title to the goods has not yet passed, will be subject to the VAT after 60 days from the date of consignment 4th transaction: H&I was a partnership in trade. H&I was dissolved and J&K was formed to continue the business of H&I. At the time H&I was dissolved, the books of accounts showed a merchandise inventory of P100k. The inventory shall be deemed sold by H&I. Q: Since there really is no sale, then what would be the tax base? A: The fair market value would be deemed the gross selling price Q: Y is the supplier of X. Y supplies P1m worth of goods to X. X was not able to pay Y the P1m within 1 month. So what he did was to pay Y the same goods given plus other goods. Would this be VATable? A: Yes, because there is cash at hand or property (????) Q: X is engaged in the business of auctioning cars. A, B and C delivers car to X for it to be sold by X on consignment. When it was sold it was sold in the name of X. Who is liable to the payment of VAT? A: X is deemed to be the seller. If not sold within 60 days, X is liable. If sold within 60 days, X is still liable (???) Q: Is it proper to say that even 0 rated sales are VAT-able? A: Yes. Reyes book: The tax is 0 percent of the gross selling price if:
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1. 2. 3. Export Sale; Foreign currency denominated sale; Sales to persons or entities whose exemption under special laws, or international agreements to which the Philippines is a signatory effectively subjects such sales to 0 rate. IMPORTATION
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Q: Why are export sales 0 % rated? A: Q: What if export sale delivered to a resident here. The buyer is a non-resident but it was delivered to a resident. Will this be 0 rated? A: Yes, see Sec 106 (2) (a) (2) Q: Sale to an export-oriented enterprise. Is this an export sale? A: Yes, see Sec 106 (2) (a) (2) Q: In Sec 106 (2) (a) (3), what is the 70%? 70% of what? A: 70% of the total annual production. See the Atlas Case too. Q: Sale of Fuel and other supplies to international carriers. Will this be 0 rated? A: Yes, this is one of the amendments found in the new VAT law. Q: What are the distinctions between 0 rated and exempt transactions? A: De Leon: 0 rated Transaction is completely free from VAT A VAT-payer can claim and enjoy a credit or refund for the input tax invoiced to him on his purchase Taxable Sales Exempt transactions Only removes the VAT at the exempt stage Not applicable
Q: Y imports printing equipment for P400k. It will be for his personal use. This is the only transaction he made for the taxable year. Will this be subject to VAT? A: The importation will be subject to VAT, because when it comes to importation the law does not distinguish whether or not the transaction was done in the course of trade or business. Q: What if Y argues that it is below the P1.5m threshold requirement as provided in the new VAT law? A: When it comes to importation, the law dispenses with the threshold requirement Q: What is the basis for saying that the law dispenses with the threshold requirement when it comes to importation? A: If you take a look at the new law, the threshold requirement only applies to sales of goods and not importation. Regardless of the amount or the purpose of the importation, it will always be subject to VAT Q: X imports a computer worth P1m. He is not in the business of selling computers. Subsequently, he sells it for P1m. Will this be subject to VAT? A: The importation will be subject to VAT, because when it comes to importation the law does not distinguish whether or not the transaction was done in the course of trade or business. The subsequent sale will not be subject to VAT, because it was not in the course of business. Reyes: However, if X was a tax-exempt person and he subsequently sells, transfers or exchanges in the Philippines such imported article to a non-exempt person or entity, the purchaser, transferee or assignee will be required to pay the VAT. Q: Who is subject to VAT in importation? A: The importer Q: Supposing a foreign corporation engaged in selling machineries has a branch in the Philippines. Buyer told branch that he would buy. Branch told the Parent. Parent delivered the machineries. Who is the importer?
Not taxable sales, register with VAT
may
not
Q: What is the difference between an exempt transaction and an exempt party? A: July 21 Thursday 8-9pm
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A: Consider the invoice, whoever is stated there as an importer is the importer. Consider also the fact that the parent and the branch are one and the same juridical person and that it is the buyer who made the importation possible. SALE OF SERVICES/ LEASE OF PROPERTIES Q: What are the requirements for sale of services to be subject to VAT? A: In all instances gross annual receipts should exceed P1.5m 1. Service for others 2. for a fee 3. in the Philippines Q: NAPOCOR engages the services of Y for P1m to do a feasibility study for a geothermal project. They entered into a contract in the Philippines. Y was asked to do research work in Japan. Will this be subject to VAT? A: No, the service must be performed in the Philippines Q: You were an economist asked by a friend to do research work. You were paid P300k, but since she was your very good friend, you gave the P300k back. Will this be subject to VAT? A: You can argue that it is not subject to VAT, because there was no consideration since you gave the money back. Q: Are franchises subject to VAT? A: Some franchise grantees may opt to be subject to VAT, while others are subject to a percentage tax. Franchise grantees that may opt to be subject to VAT are radio and/or television broadcasting companies whose annual gross receipts of the preceding year did not exceed P10m. Once the option is exercised, the option is irrevocable. Q: X wanted to lease your ship containers to be used in the Philippines. Your business is based in HK. The contract of lease was executed in HK. Will the lease be subject to VAT? A: Yes, You apply the requirements of sale of services, because the requirements for the taxability of sale of service also applies to the lease of properties.
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Reyes: Lease of property shall be subject to VAT irrespective of the place where the contract of lease or licensing agreement was executed, if the property is leased or used in the Philippines. Q: What is this so-called destination principle? A: This can be found in the Seagate case. The principle provides that if it is destined or to be consumed here, then it is taxable in the Philippines. If it is destined or to be consumed abroad, then it is not taxable in the Philippines. Case Alert! Seagate Case Alert! Toyo Case Case Alert! Contex July 26 Tuesday 7-9PM -Free CutJuly 28 Thursday 8-9pm Q: A inc. enters into a contract of service with B inc. The actual cost incurred by A inc is P300k. B inc. just reimbursed A for the cost. Would this be VATable? A: Yes, because the payment A gave to B was not only a reimbursement but was also considered a fee. There was a valid consideration involved in the contract of service. In the Comaserco case, it was held that it was immaterial whether profit is derived from rendering service as even non-profit institutions and the government may be subject to it Case Alert! Comaserco Q: Suppose that a contractor advanced costs for labor and materials. Then the contractor bills the owner P1.6m including the advanced payment. Is the total amount of payment subject to VAT even when there is just a mere reimbursement of cost or return to capital? A: No, the mere reimbursement of cost is not subject to VAT. Comaserco case does not apply because when the contractor adds the advanced cost in the total amount of payment, the contractor is NOT charging you, but it was a mere reimbursement. It is not for a
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fee but only for reimbursing. There is not VAT with regard to the advances of the contractor. Q: How do you distinguish the concept of reimbursement and the concept of fee? A: A fee is a payment for services actually rendered while reimbursement is merely a return of capital. Not all reimbursable items are strictly considered as fees. The Comaserco case should be construed strictly. Q: What is the new VAT rule regarding common carriers? A: It included transport of passengers as well as cargos. The old law only included transport of goods and cargo Q: So would this mean that common carriers involved in the transport of passengers by land are now VAT-able? A: No, because the law only mentions transport of passengers by sea and air. Q: How about lawyers? Or doctors? A: Yes, unfortunately, the law now includes professional services INPUT/OUTPUT TAXES Q: What is this input tax? Output tax? A: It is the VAT on purchases as compared to output taxes which is the VAT on sales. For example, A is engaged in the construction business. Whenever he buys cement to be used for his business, he pays input tax which is included in the price given to him by his supplier. Whenever he sells, the output tax is included in the price he gives to his cutomers. Q: How do you claim input tax credit? A: Q: Can any person claim input tax credit? A: The buyer and the seller must be both VAT registered, because input tax credit is based on the VAT invoice issued. You cannot have VAT invoices if you are not VAT registered. In addition, the VAT registered person must show the TIN (Taxpayers identification number) in the invoice issued. Q: What are tax credit certificates:
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A: It is the certificate applied to claim the input tax credit. With this certificate, a taxpayer may settle his other tax deficiencies except withholding tax, but he must use it within the 5 year period. Q: In order to claim input tax credit, must it always be related to the business? A: Yes, as seen in the previous example. The buying of cement is related to As construction business. Q: Suppose A is a VAT registered person who rents his house to B. B used the house partly for business and partly for residential purposes. What may B claim as input tax credit? A: B may only claim the portion that he used in the business for input tax credit. It must be related to the transaction in order to claim input tax credit. You cannot claim input VAT for personal purposes. Q: When do you have excess input tax credit? A: When at the end of any taxable quarter the input taxes exceed the output taxes. Q: What happens to this excess? A: The excess shall be carried over to the succeeding taxable quarter or quarters. Q: What are the limitations to this carrying over? A: Reyes: There are 2 limitations: 1. The input tax, inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed 70% of the output VAT 2. If the aggregate acquisition cost, excluding the VAT, of capital goods subject to depreciation exeeds P1m: a. If the estimated useful life is 5 years or more: The input tax shall be evenly spread over the month of acquisition over the 59 succeeding months b. If the estimated useful life is less than 5 years: The input tax shall be spread over its useful life.
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IV OTHER PERCENTAGE TAXES

Sec. 116-127 Q: What are percentage taxes? A: De Leon: A percentage tax is a business tax which is based on a given ration between the gross sales or receipts and the burden imposed upon the taxpayer Q: Is it an excise tax? A: In a sense it is like an excise tax, because it is a tax on a privilege. Q: Who are subject to percentage tax? A: Any person: 1. Whose sales or receipts are exempt under Sec 107 (z) from the payment of VAT and 2. Who is not a VAT registered person 3. Who is not a cooperative, provided, that cooperatives shall be exempt from the 3% gross receipts tax herein imposed Q: What is the tax treatment if you have a person engaged in the sale of goods whose gross sales or receipts are less than P100k. Clearly the person is exempt from VAT, because of the VAT threshold requirement of P1.5m, but why is he also exempt from percentage taxes? A: The law presumes that if the gross sales or receipts do not exceed P100k then it is not engaged in business although it may be subject to income tax. Q: What are the instances when a person is exempt to pay VAT and percentage tax, pay only VAT or pay only percentage tax? A: The instances are: 1. Exempted to pay both If the gross sales or receipts do not exceed P100k during any 12-month period 2. Pay percentage tax exceed P100k, but do not exceed P1.5m 3. Pay VAT exceed P1.5m Take note that the law does not expressly give a threshold of P100k for percentage taxes. It is only a presumption of the law that if the
gross sales or receipts do not exceed P100k then it is not engaged in business Tax on Domestic Carriers Q: Who are subject to the domestic carriers tax? A: Those subject to the tax on domestic carriers are: 1. Cars for rent or hire driven by the lessee (rent-a-car); 2. Transportation contractors, including persons who transport passengers for hire; 3. Other domestic carriers by land, air or water, for transport of passengers, except owners of bancas and animal drawn 2-wheeled vehicles; and 4. Keepers of garages Q: What do they transport? A: Persons or passengers Q: What about transport of cargos? A: Not subject to percentage tax but subject to VAT Franchise Tax Q: What franchises are subject to a franchise tax? A: Reyes: Certain franchise grantees are subject to franchise tax, a percentage tax. Other franchise grantees are subject to the VAT. The franchise tax is: 1. On gross receipts covered by the law granting the franchise 2. At the following rates: a. On radio and/or television broadcasting companies whose annual gross receipts of the preceding year did not exceed P10m 3% b. On electric, gas and water utilities 2% The radio and/or television broadcasting company whose annual gross receipts of the preceding year did not exceed P10m may opt to be registered under the VAT system. Once the option is exercised, the option is irrevocable. Overseas Communication Tax
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Q: What is this overseas communication tax? A: 10% of the amount paid by the user to the provider of the communication facility. The tax is on outgoing messages only. For example, A calls his son abroad. The toll charge for the call was P1000. The overseas communication tax would be 10% of P1000 which is P100 Amusement Tax Q: Would you rather be subject to VAT or Amusement Tax A: VAT, because the minimum rate in amusement tax is 15%. Unless youd rather pay the higher rate. Take note, however, that amusement tax for boxing exhibition is only 10% Q: Suppose you are a cockpit operator, although you do not look like one (directed to joyce), and you also have a restaurant within. Would it be subject to amusement tax? A: Yes, if the owner of the cockpit and the restaurant is the same. Q: If you have a restaurant with 24-hours ballroom dancing and singing, is it subject to VAT or the 18% amusement tax for night clubs? A: The main point here is the definition of night club. The principal purpose of a night club is to seek pleasure while the principal purpose of a restaurant is to dine. It may be contended that the singing and dancing may only be the incidental purpose. Stock Transaction Tax Q: What is this stock transaction tax? A: It is a tax on a sale, barter, exchange or other disposition of shares listed and traded thru a local stock exchange, other than by a dealer in securities. It is also a tax on the sale, barter, exchange or other disposition thru initial public offering of shares of stock in a closely held corporation. If it does not fall under here, then it is covered by capital gains tax. Q: What do you mean by closely held corporation? A: Any corporation at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20% individuals.
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Q: Supposing you sold to the IPO P200k worth of shares. What is the applicable tax rate? A: It is based on the gross selling price or gross value in money of the shares sold, bartered, exchanged or otherwise disposed of at of 1%. Q: Who is the taxpayer? A: The seller if the shares are listed and traded thru a local stock exchange. The issuing corporation in primary offering, and the seller in secondary offering in the case of disposition thru initial public offering. GROSS RECEIPTS Q: What does gross receipt contemplate? A: It means cash actually and constructively received. It should include everything. There should be no deduction, whatsoever, to arrive at the taxable gross receipts. Gross receipt should be construed in its ordinary meaning. August 2 Tuesday 7-9pm Case Alert! China Case Alert! Solid Bank
V EXCISE TAX
Sec. 128-132, RA 9224, RA 9334 Q: What is an excise tax? A: De Leon: Excise tax refers to taxes applicable to certain specified or selected goods or articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines Q: Is it a privilege tax despite it being a tax on selected goods?
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A: Yes, it is a privilege tax imposed on the privilege of engaging in the business of manufacturing or producing goods for local consumption or imported in the Philippines Q: Are all goods subject to excise tax? A: No, that is why the law specifically mentions selected. What the law selects is the only one taxed. Q: Who are liable to pay excise tax? A: For the goods manufactured or produced in the Philippine, the manufacturer; and for the goods imported into the Philippines, the importer. Q: When must the excise tax be paid? A: For the goods manufactured or produced in the Philippine, it should be paid before the goods are removed from the place of production; and for the goods imported into the Philippines, it should be paid before they are removed from the customs house Q: Can you have VAT on goods already subject to excise tax? A: Yes, VAT and excise tax can co-exist. That is why VAT can be called a tax on a tax. Q: What are the kinds of excise tax? A: Specific and Ad valorem Q: Distinguish A: De Leon: Specific tax derives its name from the fact that its rates are of a specific or fixed amount in pesos and/or centavos levied on the articles according to a certain physical unit of measurement. While ad valorem tax is based on the value or selling price of the manufactured or produced article. The rates or amounts fluctuate as the prices of the articles move up and down. Q: What are the advantages of one against the other? A: The advantages are: 1. Advantages of Ad Valorem a. Ad Valorem If there is inflation, the higher the taxes b. Specific Tax remains the same even if there is inflation 2. Advantages of Specific a. b.
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The manufacturer may simply undervalue the price to reduce the ad valorem tax Even if the manufacturer undervalues the price, the tax remains the same because only thing to look at is the quantity of goods.
Q: Tell me if specific or ad valorem. A: Alcohol Specific Tobacco Specific Petroleum Specific Vehicles Ad Valorem Mineral Products Ad Valorem Vehicles and Mineral products are the only 2 subject to ad valorem. However, you can argue that alcohol has some ad valorem aspects, but technically it is specific. Obiter of Sir: Law gives a tax rate, but gives BIR flexibility to make it higher Q: What is the concept of tobacco? A: It is specific. For tobacco, the rates are by the cigar. For cigarettes, you have to distinguish if it was made by the hand or by the machine, because if it is by the machine, the rates are per pack. Tobacco/cigarettes are different from other goods, like alcohol, because the tax itself would exceed the net retail price. It would seem that the legislators think that cigarettes are more sinful than alcohol. Trivia of Sir: There are 52 brands of cigarettes in the Philippines Q: What is the concept of Net Retail Price? A: It is indexed to inflation. The purpose is that the tax will remain the same despite inflation Therefore, if there is inflation, the net retail price can increase with the tax remaining the same. It is a compromise formula. Q: What is a variant? A: For example: Salem is an old brand. Salem menthol is a variant of an existing brand. As a taxpayer, look at your product
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and argue that it is subject to a lower rate, because it is a mere variant of an old brand and not a new brand. Q: What is the concept of vehicle? A: It is ad valorem because it is based on selling price. In the old law, it was based on engine size. The legislators changed it to encourage purchase of more expensive vehicles; unfortunately, the Filipinos do not buy the expensive cars except the politicians of course. Q: What is the concept of mineral products? A: Always 2% Q: A person has in possession articles subject to excise tax. Will he be liable for the tax? A: It would depend if he is the manufacturer or importer Q: What about if the person was in possession of exempt goods, but he is not exempt? A: He is liable. This is expressly provided in law Note of Sir: Documents of the manufacturer are considered as public. This is a rare situation where documents are considered public. This shows how important revenue is for the government.
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Sir: Some would say it is a tax on document. Some would say it is a tax on transaction. Some would say both. One time, it was even said to be a tax on the privilege of the transaction. Anyway you put it; it is really a tax on the document. But this is all just a theoretical discussion, because in real life, you just pay and then shut up. Q: Who pays the documentary stamp tax? A: De Leon: The tax is imposed against the person making, signing, issuing accepting, or transferring the document or facility evidencing the transaction. Q: When do you pay? A: Upon execution of the document Q: What if one of the parties is not liable for the documentary stamp tax? A: The law provides a situation where one party may be exempt, and the other is not. In this kind of situation, the party who is not exempt, will be liable to pay the documentary stamp tax. Sec 173 xxx provided, that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party there who is not exempt shall be the one directly liable for this tax. Q: Does documentary stamp tax apply to documents executed abroad? A: Under the present law, documentary stamp tax would apply to any document, even documents executed abroad as long as the obligation or right over the transaction arises from the Philippine sources or the property situated in the Philippines. (See Sec. 173) Q: What is the effect if the documentary stamp tax is not paid? A: Sec 201 an instrument xxx without being stamped shall: 1. not be recorded 2. nor shall any copy there or any record or transfer of the same be admitted or used in evidence in any court 3. no notary public or other officer authorized to administer oaths shall add his jurat or acknowledgment Q: What is the remedy for non payment? A: Require them to pay. Documents are non-admissible until paid.
VI DOCUMENTARY STAMP TAX

Sec. 173-201, RA 9243 Q: What is this documentary stamp tax? A: De Leon: Documentary stamp tax is a tax on documents, instruments and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right, or property incident thereto Q: Is it really imposed on the document? A: De Leon: It is really imposed on the transaction rather than on the document
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Q: Would a credit or debt instrument without the documentary stamp be valid? A: Yes, the non-affixture of the documentary stamp would not affect the validity of the document and in that case would not affect the validity of the credit. Q: Why was RA 9243 issued? A: This was issued in response to the clamor of the stock market. The law exempts additional transactions Q: Is gift transaction evidenced by a certain document subject to documentary stamp tax? A: No, the documentary stamp tax is a tax on an amount for another amount. There must be value for another value (or consideration). The purpose of the tax is to apply the consideration. Since there is no valuable consideration in donations, it cannot be imposed in this case. However, the acknowledgment of the notary public is subject to documentary stamp tax Q: How is documentary stamp tax paid? A: 3 steps: 1. First, you buy the documentary stamps (form of payment made) 2. Second, you affix the documentary stamps (to insure that the corresponding tax has been paid for such document) 3. Third, you cancel the affixed documentary stamps (to prevent use for similar documents for similar purposes) Q: What is the effect if the documentary stamps are affixed in the wrong document? A: The Supreme Court ruled in the case of CIR v Firemans Fund Ins that since tax was paid, the government cannot collect anymore or else it would result to double taxation If it was done in good faith and there was no proof to show the payment of the documentary stamp taxes, the fact that it was affixed to the wrong document would not subject the taxpayer to a documentary stamp liability.
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Q: What would be the tax treatment of a single transaction with multiple documents (example: a loan agreement with a promissory note with the note indicating the value of the loan)? A: The loan will be treated as one taxable document but the tax will be based on whichever yields a higher documentary stamp tax Q: Supposing the loan agreement has several promissory notes, or mortgaged agreements? A: Again, the law will treat this as one taxable transaction, as one taxable document. But the documentary stamp tax will be based on the total value of the loan as supported by the loan documents, whichever will yield a higher documentary stamp tax.
VII TAX REMEDIES OF THE GOVERNMENT

Sec 2-7, 202-227, 248(B), 276-277 Q: What is the concept of tax remedies for the government? A: The law gives the government to assess and collect tax. The government has the power to enforce payment of tax liability. The government tells the taxpayer to pay. Reyes: When a tax should have been paid was not paid, or was underpaid, intentionally or unintentionally, the law allows remedies for the state. Q: What about for the taxpayer? A: The remedies available to the taxpayer allow them to resist, refund or minimize tax liabilities. Reyes: When a taxpayer received an assessment for an internal revenue tax, or erroneously or illegally paid an internal revenue tax, the law allows remedies in favor of the taxpayer. Q: What are the remedies available to the government? A: The remedies available to the government are assessment and collection.
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Q: What is an assessment? A: De Leon: Assessment is a written notice to a taxpayer to the effect that the amount stated therein is due as a tax, and containing a demand for the payment thereof. Q: What is the importance of an assessment? A: It is necessary for the administrative remedies of the government to apply (such as distraint and levy). If there is no assessment, government can only avail of judicial remedies. Q: Who assesses the tax? A: De Leon: Generally, the taxpayer. Taxes are generally selfassessing because they do not need a letter of demand or assessment notice. The taxpayer is supposed to know how much he should pay as tax and when and where he should pay. Q: Is there a form for assessment purposes? A: No, the assessment can be written anywhere. As long as signed by the BIR Sir: Wag lang toilet paper Q: X issued a check to pay his tax debt. The check bounced, so the BIR sent him a notice to make good the check. Is that notice an assessment? A: Yes. As mentioned in the previous question, there is no standard form for the notice of assessment. Any notice sent to the taxpayer demanding the tax liability is an assessment. Q: What is the basis of the assessment power of the BIR? A: See Sec. 6 BIR has the power to examine and assess taxes after the filing of the tax return. The law also gives BIR certain powers in aid-ofassessment. CIR can get any information from anybody for purposes of ascertaining the liability of the taxpayer. Q: Can BIR and CIR make an assessment based on information only known to the commissioner? A: Law says personal knowledge and other information. In practice, BIR can assess you based on whatever evidence it has. It can even base it on chismis, because from there they can make a paper trail
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PERIOD Q: Summary of rules regarding period
A:
Return was not false or fraudulent Assessment With Assessment 3 years from the date of filing of the return (or from the last day required by law for filing, if the return was filed before such day) 5 years from the date of assessment, either by: 1. Summary proceedings, or 2. Judicial proceedings Without Assessment 3 years from the date of filing of the return ( or from the last day required by law for filing, if the return was filed before such last day) Collection should be by judicial proceeding only. ASSESSMENT No return was filed, or the return filed was false or fraudulent With Assessment 10 years from the date of discovery of the failure to file the return, or of the falsity or fraud in the return 5 years from the date of assessment, either by: 1. Summary proceedings, or 2. Judicial proceeding Without Assessment 10 years from the date of discovery of the failure to file return, or of the falsity or fraud in the return. Collection should be by judicial proceeding only.
Collection
Collection

to gather information. This is the job or purpose of informants. Whistle blowers make a lot of money through this. Q: What is the best evidence obtainable? A: CIR can resort to gathering any evidence that will assist him in making a proper assessment on the tax liability of the taxpayer if the taxpayer refuses to submit a tax report or any report he submits is inaccurate. Sec 6 (B) 2nd par. the CIR shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise. Q: When would the CIR resort to the best evidence obtainable? A: Sec 6 (B) provides: 1. When a report required 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 2. When there is reason to believe that any such report is a. False b. Incomplete c. Erroneous 3. In case a person a. Fails to file a required return or other document at the time prescribed by law b. Willfully or otherwise files a false or fraudulent return or document Q: How should the evidence be attained? A: It should be attained legally. If it is attained illegally, it is not admissible as evidence. Q: Suppose the corporate taxpayer invites the BIR Regional Director to a cocktail party tendered by the corporation. During the party, the BIR official went to the room of the President to make a personal call. In making the call, he saw some documents. Can the documents be the basis of making an assessment of tax liability? A: No. The BIR cannot make an assessment based on illegally seized evidence. It is not the best evidence obtainable. Case Alert! Sy po
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Q: May these kinds of assessment be considered correct? A: Yes. Under Sec 6 (B) xxx which shall be prima facie correct and sufficient for all legal purposes Q: If assessments are presumed to be correct, can the assessment be based on presumption since it is presumed to be correct? A: No, take a look at sec 5 and 6, these gives a notion that assessments should be based on facts and documents. Q: What is this presumptive gross receipts? I thought it shouldnt be presumed? A: Sec 6 (C) par. 2 xxx when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made, CIR, after taking into account the sales, receipts, income, or other taxable base of the other persons engaged in similar business under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts. Law simply calls it presumptive but it is based on actual facts gathered. Sec. 6 gives you how to get the facts, while sec 5 is about aid in assessments. Q: When may the BIR resort to the fixing of the presumptive gross receipt? A: When the taxpayer was not reporting the proper sales transaction. Q: What are the powers in aid of assessment? A: Sec 5 Q: What is the power of surveillance of the BIR? A: The BIR can do some surveillance for purposes of arriving at a base for which as assessment can be made. Sec. 6 (C) The CIR may place the business operations of any person under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales, or receipt for internal revenue tax purposes. Q: Suppose BIR conducted a surveillance for the period of January to March, can this surveillance cover the year before such surveillance?
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A: Yes. The results of the surveillance can be made a basis of assessment for the current taxable year and the prior taxable year. Sec. 6 (C) x x x The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years Q: Can the BIR see the bank accounts of the taxpayer? A: As a general rule, no. However, sec 6 (F) authorizes the CIR to inquire into the bank deposits of: 1. a decedent to determine his gross estate 2. any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. Q: Supposing tax payer investigated for VAT liability for the year 2002-2003. A subpoena was sent to the bank asking for the loan transactions of the tax payer for the year 2000 2001. Can the BIR do this despite the fact that what is being investigated is the 2002 2003 VAT liability? A: This is the exception the bank secrecy act. But here, if you invoke sec. 5: 1. It should be a tax inquiry 2. Information must be relevant and material Q: So the problem really is a question of materiality. You have to show the relevance. How do you show that? The BIR can say it was relevant because the loan transaction was used to import goods, thus VAT-able. But supposing it was used to buy a house and lot, would that still be considered relevant? A: No, but it may be considered relevant if the information will be used for income tax liability. Again, this is merely theoretical, because in real life, the BIR will ask anything. The theory of the law or the reason why they law provides that the information gathered should be relevant is to prevent a fishing expedition. Q: Supposing the BIR already has the facts, can they be compelled to make an assessment? A: As a general rule, no. a tax assessment is discretionary upon the CIR. Q: If that is the general rule, then what is the exception?
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A: If there is grave abuse of discretion, such as when the BIR found that there was basis to assess and yet it refused to make an assessment. Case Alert! Meralco Case where court said discretionary on the part of the BIR to make an assessment. You cannot compel the BIR to make an assessment Case Alert! Collector v Benipayo Assessment should be based on facts. Q: In the case of Benipayo, it was argued that the assessment was based on historical facts. So why did the court say it was an assumption? A: Because presumption of correctness cannot be based on another presumption Q: Supposing that there is a question of law, and the BIR asked DOJ for its opinion, can DOJs opinion be binding upon the BIR? A: No, because Sec. 4 provides that the power to interpret tax laws shall be under the exclusive and original jurisdiction of the CIR. Q: What is the remedy against BIRs interpretation? A: Sec. 4 subject to review by the Secretary of Finance. Q: What is the difference between the appeal or review with the Secretary of Finance and the appeal with the Court of Tax Appeals (CTA)? A: Appeal to Secretary of Finance interpretation of tax laws. Appeal to CTA disputed assessments, refunds, other matters arising under the Tax Code.(See Sec. 4) Period of Assessment Q: When must an assessment be made? A: In ordinary assessments, it should be within 3 years after the last day prescribed by law for the filing of the return In extraordinary assessment, tax may be assessed within 10 years from the discovery of fraud, falsity, or omission. Q: Supposing there was a revised return?
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A: If the return was amended, reckon the prescriptive period from the date of the amendment. Under Sec. 6, the law gives the taxpayer a right to revise his income tax return within 3 years from the filing of the original tax return provided there is no notice of audit or investigation served upon him. August 4 Thursday 8-9pm Q: Supposing: 04/14/2001 Income Tax Return was filed 03/15/2004 A revised return was filed 06/15/2005 An assessment was made Is the right to assess still there? A: Yes, the prescriptive period of 3 years begins from the date of the amendment. Q: Same example but supposing on 04/15/2002, there was a tax audit or an inquiry conducted? A: No, because this is an exception to the right of the taxpayer to revise his income tax return. Under Sec. 6, the law gives the taxpayer a right to revise his income tax return within 3 years from the filing of the original tax return provided there is no notice of audit or investigation served upon him. Q: What if CIR argues that the prescriptive period was suspended? A: It was not suspended because the law does not include tax audit or inquiry as a ground for suspension of the prescriptive period. Q: Supposing: 05/15/00 Income tax return filed 03/29/03 Assessment was made 05/15/04 The assessment was received by the tax payer Was there a valid assessment? A: Yes, regardless of the date received by the taxpayer, presumption of regularity on the performance of the duty of the government. Law says assessed and not received within 3 years from the filing of the return.
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Q: Same example but on 04/15/04 it reaches the address of the taxpayer, but he was not there. Is the taxpayer bound by the assessment? A: No, if he were bound it would constitute a violation of due process. It would be a deprivation of property without due process. The law provides under Sec. 228, assessment must be received for the taxpayer to be given a chance to dispute the assessment. Q: What if the BIR cannot locate the taxpayer? A: The assessment period is suspended. Case Alert! Basilan Case Alert! Nava Q: Supposing: 04/15/1995 Income tax return was filed 04/15/2005 Assessment Can you have a valid assessment? A: Yes, if false, fraud or failure to file an Income tax return. Law says upon discovery. This implies the right of assessment is imprescriptible, because BIR can argue that it discovered fraud whenever they want. Q: Doesnt this render the 3 years rule useless? A: No, because in the case of fraud, the government must prove fraud. If the government fails to prove it, then the 3 years will apply. Q: What is the exception to the rule that the government must prove fraud? A: When fraud assessment is final, i.e. when the tax payer does not make a reply to the fraud assessment Q: What is the BIRs authority to terminate taxable period? A: Sec. 6 (D) provides CIR 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 request for the immediate payment of the tax for the period so declared terminated x x x. Q: What are the circumstances when the BIR may terminate the taxable period?
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A: As provided by Sec. 6 (D): 1. When it shall come to the knowledge of the CIR that a taxpayer is retiring from the business subject to tax. 2. Intending to leave the Philippines 3. Intending to remove his property 4. Intending to hide or conceal his property 5. Performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year 6. Performing any act tending to render the proceedings totally or partially ineffective Case Alert! Aznar Fraud, Falsity and Failure to file a Tax Return Q: Distinguish Falsity from Fraud. A: In the case of Aznar, it was held that falsity merely implies deviation from the truth, whether intentional or not, while fraud implies intentional or deceitful entry with intent to evade the taxes due. Q: What if the tax payer lived in 321 Bian St., but what was indicated in his income tax return was 123 Bian St. BIR argues that this is falsity; therefore the 10 years rule applies. Tax payer argues that it was an honest mistake. Who is correct? A: I was reciting at this time, so I wasnt able to write this down correctly. Q: What are examples of badges of fraud A: When there is substantial underdeclaration of taxable receipts and substantial over statement of deductions. If there are badges of fraud, it can be said that there is prima facie evidence of fraud. Q: When is there a substantial underdeclaration of taxable receipts and substantial over statement of deductions? A: Sec 248 (B) xxx, provided further, that the failure to report sales in an amount exceeding 30% of that declared per return, and a claim of deductions in an amount exceeding 30% of the actual deductions. Q: Is there a difference of standard between fraud and falsity?
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A: The standard is the same between the two, the standard as provided in Sec. 248 (B). Sec. 248 (B) Provided, That a substantial underdeclaration of taxable sales x x x or a substantial overstatement of deductions x x x shall constitute prima facie evidence of a false and fraudulent return. The badges of fraud (substantial under declaration of taxables sales or substantial overstatement of deductions) are also made to apply to false returns. Case Alert! Taligaman Q: When is their failure to file a tax return? A: If on the basis of the returned file, the BIR cannot make a computation or assessment of the tax liability. In short, when you have a return filed which is incomplete to the point that the BIR cannot make a valid assessment, that amounts to a failure to file a return Q: What if the BIR argues that there was no return filed, but the taxpayer, as a defense, argues that a return was filed. Who has the burden on who filed the Income tax return? A: The taxpayer who asserts that he filed a return, as an affirmative defense must prove that a return was filed. Q: Why is the burden on the taxpayer? A: Because he raises it as an affirmative defense. Q: Is it an unjustified burden on the part of the taxpayer that he proves the fact that he filed the return despite the fact that the BIR has all the records? A: No, the taxpayer has the duty to keep and preserve his books. This duty should be reconciled with his burden to prove the fact that he filed the return. Q: Supposing: 1995 2000 2001 2009 ITR was filed Fraud was discovered Assessment was made Collection
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Can the government collect in 2009? A: No, because the law provides that collection should be made within 5 years from the date of fraud assessment. COLLECTION Q: What are the governments remedies in the collection of tax? A: Generally, it has administrative and judicial remedies. Q: Suppose the BIR chose to collect administratively, is it barred to collect judicially? A: No. The government can avail of either administrative or judicial remedy, either alternatively or simultaneously. Sec. 205 x x x Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such tax. Q: When may the prescriptive period be suspended? A: As provided in Sec. 223: 1. CIR is prevented from making assessments. 2. Taxpayer requests for reinvestigation, which is granted by the CIR 3. Taxpayer is out of the country 4. Taxpayer cant be located in the address given by him in the return 5. Warrant of distraint or levy is served an no property can be located Q: When does a warrant of distraint or levy operate as a suspension of the prescriptive period? A: It is sufficient that the warrant of distraint or levy was issued and served. It is not necessary that there be an actual seizure before the period would be suspended. From the date of the service of the warrant, the prescriptive period is suspended. Sec. 223 provides that x x x when the warrant of distraint or levy is duly served upon the taxpayer. Q: What are the summary proceedings for the collection of taxes? A: distraint and levy 1. Administrative Remedies
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Distraint Q: What is distraint? A: De Leon: It is the seizure of by the government of personal property, tangible or intangible, to enforce the payment of taxes, to be followed by its public sale, if the taxes are not voluntarily paid. Q: How is distraint effected? A: It takes place when chattels are taken and sold at public auction. (See Sec. 208, 209) Q: Is a warrant of distraint necessary? A: Yes. De Leon said that the issuance of the warrant of distraint begins the summary remedy of distraint. It is merely the first step, while the seizure of the property is the next step. Q: Suppose that a taxpayer has a P500,000 tax liability. Taxpayer failed to pay. He has the following properties: Car P2M Painting P700K Shares P500K Jewelry P600K Can the BIR distraint all these chattels? A: No, BIR may only seize the chattels that are enough to satisfy liability. Q: Same circumstance, may the BIR choose the car (P2M) to satisfy the tax liability (P500K)? A: Yes, BIR has the discretion to choose what property can be seized as long as it is sufficient. If there is a residue, (after paying off the tax due, the expenses and costs of distraint) it should be returned to the taxpayer. Q: Suppose the car was seized and sold at public auction. However, there was no bidder. Who would buy the seized property? A: Government, under the law would have to purchase the property. Sec. 215 provides that in case there is no bidder for real property exposed for sale x x x the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question x x x.
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Q: In the above situation where the government purchased the property seized, suppose there was a residue, is the taxpayer entitled to it? A: No, when the law (Sec. 209 par. 4) speaks of the taxpayer entitled to the excess, it refers to the proceeds of the public auction and not from the proceeds after the purchase by the government of the property. August 18 Thursday 8-9pm -Free CutAugust 23 Tuesday 7-9pm Q: How do you distraint stocks and securities? A: Sec. 208 par. 2 provides that 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 said stocks or securities. Q: How about bank deposits? A: By garnishment. Sec. 208 par. 4 provides that Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president x x x of the bank. Upon receipt of the warrant of garnishment, the bank shall turn over to the CIR so much of the bank accounts as may be sufficient to satisfy the claim of Government. Q: What is the effect if garnishment was served on the bank? A: The bank shall turn over to the CIR so much of the bank accounts as may be sufficient to satisfy the claim of government. Q: Can the taxpayer invoke the bank secrecy act? A: No. What is prohibited is inquiry into the bank account of the taxpayer. This is an attachment and not an inquiry. In practice, the bank usually gives the taxpayer 10 days to satisfy the tax liabilities before it turns over to the CIR the bank account. The taxpayer usually seeks an injunction to prevent this. Q: Suppose that it was indicated in the notice that the property would be sold on August 6 or any day thereafter, would this be construed as a compliance with the notice requirement?
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A: No, it should be a definite date. There should be a strict compliance, or else the tax payer would be deprived of his property. The presumption of regularity does not apply. (also applicable with regard the name of the taxpayer, the place and time of the sale, the amount advertised as against the amount due) Sec. 209 par. 2 At the time and place fixed in such notice x x x. Levy Q: What is levy? A: De Leon: It is the act of the seizure of real property in order to enforce the payment of taxes. Q: Taxpayer has a tax liability worth P5M. However, he has real properties, to wit: Forbes P30M Corinthian P20M Fairview P7M Bulacan P10M Can you levy all these properties? A: Yes, it can levy all real properties because of the very simple procedure of sending notices to the Register of Deeds. The levy is only an annotation on the title. Q: In the same case, can the government advertise for sale all these properties? A: No, Government can only advertise for sale to satisfy any tax liability only such property, or usable portion thereof sufficient to satisfy the tax claim, plus the expenses of the sale. Q: Supposed the government levied the Forbes property, but it was sold for only P5M, may the taxpayer impugn the sale? A: No, because the taxpayer has the right to redeem the property. It would be easier for him to redeem the property at a lower price. Q: Vic had a P1m tax liability. Vic had real properties worth P1m each. The properties were advertised for sale. One property was sold for P700k. A 2nd property was subsequently sold for P700k too. What will be the right of the taxpayer?
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A: Right to redemption and residue Q: What if after 1 year, the property was subsequently sold for P3m. Is the taxpayer entitled to the residue.? A: No. The sale was made after the 1 year redemption period. By that time, the property was already owned by the government. The residue is only given during auction sales. Q: What if the sale is invalidated, would it affect the tax liability? A: No, the tax liability remains but the BIR should go over the process again. Q: Supposing that a creditor had a favorable judgment where he was awarded to him the land of his debtor, who is also a delinquent taxpayer. However, before the judgment was rendered, the property was subjected to levy. To whom would the property belong, to government or to the creditor? A: Property can no longer accrue to the creditor because it already belongs to the government. Q: Suppose that the judgment came first. Afterwards, the government levied it. To whom would that belong? A: It would belong to the government because the judicial attachment did not deprive of the taxpayer of ownership over the property, since he still has possession. He still has ownership as it was not yet delivered or the ownership to the creditor has not yet transferred. Q: What is the concept of a judicial proceeding? A: Reyes: The judicial proceeding for the collection of tax is a civil action or criminal action. In a criminal action in the Court of Tax Appeals, the civil action is considered filed with the criminal action. The two aspects of the case cannot be separated. The criminal action is just to penalize.
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to P400k. After the sale, BIR issues a certificate of sale to Henry where it states that the proceeds of the sale sufficiently cover the tax liability. After 2 years, Henry acquired personal property worth P200k. Can this be seized to satisfy the remaining P100k? A: Yes, there could be a further levy until the amount due is collected. Sec. 217 The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected. Q: Should further distraint and levy be within the prescriptive period? A: No, it is a continuation of the collection effort that started within the prescriptive period. What is important is the collection effort started within. Q: Can there be distraint and levy 10 years after the assessment? A: Constructive Distraint Q: What is the difference between a constructive distraint and an actual distraint? A: De Leon: In actual distraint There is taking of possession of personal property. In constructive distraint the owner is merely prohibited from disposing of his properties. In addition, in constructive distraint, there is no previous assessment and the government does not take possession. Sec 206 par. 2 The constructive distraint of personal property x x x obligate himself (taxpayer) to preserve the same intact and unaltered and not to dispose of the same x x x. Q: When may the BIR resort to constructive restraint? A: Sec. 206 provides: 1. taxpayer retiring from any business subject to tax 2. taxpayer is intending to leave the Philippines 3. intending to remove his property 4. or hide or conceal his property
Further Distraint or Levy Q: Henry has a tax liability of P500k. The properties of Henry were subject to distraint and levy. The real and personal property seized were sold to public auction. The proceeds of the auction amounted
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5. to perform any act tending to obstruct the collection proceeding.
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A: No, no private claim, even a claim based on a court judgment can prevail over a tax claim. Q: Where does the tax lien attached? A: Tax lien attaches to all properties and property rights of the taxpayer. Sec. 219 provides that if any person x x x refuses to pay x x x shall be a lien in favor of the Government x x x upon all the property and rights to property belonging to the taxpayer. Q: When does the tax lien attaches? A: from the time when the assessment was made by the Commissioner until paid Sec. 219 provides that if any person x x x 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 Government from the time when the assessment was made by the Commissioner until paid Q: What does a tax lien represents? A: It represents the tax liability being enforced by the tax remedies available to the government, whether administratively or judicially. 3. Judicial Remedies Criminal Action
Q: What is the rationale for this remedy? A: This is the remedy where the government cant do the actual distraint. Constructive distraint is an additional remedy because the government can resort to it while the remedy of actual distraint is not yet available, meaning the assessment process is still to be done.It applies to a potential delinquent taxpayer. It also serves to protect the government from taxpayers who intends to abscond. Q: Supposing the taxpayer was assessed for P500k. He seeks a compromise with the BIR for P200k. The BIR thinks this is acceptable, but still issues a constructive distraint on some of his properties. Is the BIR allowed to do this? A: Yes. Sec. 206 provides that to safeguard the interest of the government, the commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer xxx. The law says any taxpayer, so even potential tax delinquents. You do not need an assessment or an ongoing compromise, as long as the BIR thinks you are a potential delinquent, your property can be put under constructive distraint. Remember to always look at the language of the law. 2. Tax Lien Q: What is this tax lien? A: The tax lien renders the tax claim of the government superior than any other claim. Sec. 219 provides that if any person x x x 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 Government from the time when the assessment was made by the Commissioner until paid x x x upon all the property and rights to property belonging to the taxpayer. Provided, That this lien shall not be valid against any mortgagee, purchaser, or judgment creditor until notice of such lien filed with Register of Deeds. Q: What is the purpose of this tax lien? You already have distraint and levy, so why must there still be a tax lien? A: Because the tax lien renders the tax claim of the government superior than any other claim Q: What if there is a court order, can it prevail over a tax lien?
Q: When can the BIR collect by criminal action? A: NIRC provides a number of provisions as basis for filing criminal actions. 1. Sec. 205 (b) By civil or criminal action. 2. Sec. 222 (a) x x x the fact of fraud shall be judicially taken cognizance in the civil or criminal action for collection thereof. 3. Sec. 254 Tax Evader Provision 4. Sec. 281 Prescription for Violation Q: Is an assessment required before a criminal case can be filed against the offending taxpayer? A: No. In CIR vs. Pascor Realty, the court ruled that the proceeding in court may be preceded without an assessment or simultaneously with another action. (See also Sec. 205) Q: How could the government collect by criminal action if the assessment is not yet final?
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A: In Lim vs. CA, the court said that in cases of fraud, there is no necessity for an assessment before the criminal case would be filed. It is the fact of fraud that the criminal case would proceed. But if the criminal action is based on failure to file the tax return, there should first be an assessment. Q: Supposing the taxpayer was acquitted in the tax evasion case, would the acquittal have the effect of having the tax liability extinguished? A: No, criminal liability is premised on another statutory basis. Tax liability is a matter of legal duty, arising from another statutory basis. So there are two different things based on two different premises. The extinction of one would not extinguish the other. Q: When does a criminal action prescribe? A: You can file a criminal action or a violation of the criminal provision of the NLRC within 5 years from the date of the commission of the violation. If the commission is not known, then it is reckoned from the discovery and institution of judicial proceedings for the investigation and punishment. (Sec. 281) Q: What do you mean by institution of judicial proceeding? A: It means filing with the prosecutors office, because the law talks of investigation and punishment. (not filing the information with the court Q: What is the purpose of statute of limitations? A: The purposes are: 1. to give the taxpayer a sufficient time to settle his tax liability 2. to give the government time to study the case. 4. Administrative Tax Amnesty Compromise Q: What is this remedy of compromise? A: De Leon: Compromise is a contract whereby the parties by reciprocal concessions avoid a litigation or put an end to one already commenced.(See Sec. 204) Q: When does the remedy of compromise apply?
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A: The compromise remedy is available to the government in two cases: 1. existence of a reasonable doubt as to the validity of the claim against the taxpayer 2. financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. Q: Supposing Blupers inc. had a 3 year history. During its first 2 years, Blupers inc. earned profits. By the time it reached its 3 rd year, Blupers inc. began to suffer losses. The BIR assesses it for some taxes. Lets say around P300k or how about P3m. Can Blupers inc. offer a compromise on the ground of financial incapacity? A: No. The mere fact it suffered losses will not indicate financial incapacity. The corporation still has to submit financial documents, balance sheets, etc to prove its financial incapacity. Q: May the BIR look into the bank account of the taxpayer to determine financial incapacity? A: Yes. This is one of the exceptions where the BIR may inquire into the bank account of the taxpayer. That is why, in case of compromise, the taxpayer is asked to sign a waiver to the bank secrecy act. Q: Supposing Paul was assessed a P3m liability. He protested this until it reached the Court of Tax appeals, then the Court of Appeals, then finally the Supreme Court. He lost and the case went bank to the BIR for execution. Paul now argues that because of the disputes in the courts, he is now in financial incapacity. Can Paul enter into a compromise with the BIR? A: If the ground of his compromise is existence of a reasonable doubt as to the validity of the claim against the taxpayer, then this will fail. Obviously there is no more reasonable doubt as to the validity of the claim. However, if the ground is financial incapacity, then his offer of compromise may be entertained. Q: Same case, but Paul compromises under the first ground (reasonable doubt of the tax liability)? A: No, because clearly the claim of the government is not doubtful Q: What is the advantage of having a compromise on the ground of financial incapacity? A: The minimum compromise rate is lower. The tax liability shall be subject to a rate equivalent to 10% of the basic assessed tax.
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Sec 228-231 Q: What about the rate in case the ground of compromise is a doubtful claim? A: A minimum compromise rate equivalent to 40% of the basic assessed tax. Sir: Whether or not there was failure to protest, the BIR can still consider the compromise on the ground of a doubtful claim. An example of a doubtful claim is the so-called jeopardy assessment. This is the assessment issued just to beat the deadline. It is issued even without any finding, preliminary assessment notice, etc Q: Can all criminal cases be compromised? A: No. As a general rule all criminal compromised. Exception: 1. those already filed in court 2. those involving fraud (See Sec. 204) Cancellation Q: When can the BIR cancel a tax liability? A: Sec. 204 (B) provides 1. The tax or any portion thereof appears to be unjustly or excessively assessed. 2. The administration and collection costs involved do not justify the collection of the amount due. In the first ground, BIR cancel when the tax appears to be on its face excessive and unjust In the second ground, the BIR can cancel the tax liability when it seems to be insignificant which would not warrant a collection. The expense of collection would be much more than the amount to be collected. violations may be PROTEST Q: What is this protest? A: Case Alert! CIR v Pascor Realty Assessment not necessary before filing criminal case Case Alert! Ungab
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Q: Pending resolution of a protest, a criminal action was filed. May the criminal action proceed? A: Yes. In Ungab vs. Cusi, SC ruled that there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. This is so because in that case, there is a prima facie showing that there was willful evasion of taxes. Q: Whether a criminal case may prosper pending the resolution of the assessment absence prima facie evidence of intent to defraud the government? A: No. Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must be proved. The tax liabilities of the taxpayer should first be determined before the CIR may assert that the taxpayer have willfully attempted to evade or defeat the taxes sought to be collected. (CIR vs. CA, Fortune Tobacco) Q: Was the Ungab Case overruled by the Fortune Tobacco Case? A: No, the Ungab Case was not overruled because in that case, there is a prima facie showing of a willful attempt to evade taxes. But in the Fortune Tobacco Case, its registered wholesale price was approved by the BIR. Since it was approved by the BIR, it is presumed to be the actual wholesale price, therefore, not fraudulent. (CIR vs. CA, Fortune Tobacco) Q: Can the taxpayer consider the filing of a civil or criminal case against him as an implied decision to his protest appealable to the CTA? A: A criminal action is not an implied decision.
VIII TAX REMEDIES OF THE TAXPAYER

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A civil action is an implied decision because its purpose is to collect. Case Alert! Fortune Tobacco Q: How come in the case of Fortune Tobacco the SC said the criminal action would be dependent on the assessment? Isnt this against the Ungab ruling? A: In the Ungab Case, there was a prima facie showing of a willful attempt to evade taxes. But in the Fortune Tobacco Case, its registered wholesale price was approved by the BIR. Since it was approved by the BIR, it is presumed to be the actual wholesale price, therefore, not fraudulent Q: Suppose: 4/12/01 Return filed 4/12/04 Preliminary Assessment Notice 4/18/04 Received Is there a valid assessment? A: No, because it was merely a preliminary assessment notice. The law talks about the assessment that can be disputed. Procedure Q: Give me the protest procedure? A: The procedure is: A. Letter of Authority This is related to the best evidence rule. The BIR sends a letter of authority to the taxpayer asking him to submit documents. From this they come up with their findings. Then they call an informal conference. B. Notice for informal conference In the informal conference, the BIR shall inform the taxpayer of the discrepancy between the tax paid and the tax which is correctly due. The revenue officer who audited the taxpayers records shall state in his report whether the taxpayer agrees in his findings that he is liable for deficiency tax. 1. Taxpayer disagrees he shall be informed of the discrepancies for the purpose of Informal Conference 2. Taxpayer fails to respond within 15 days from receipt of notice he is considered in default, records shall be endorsed for review and issuance of deficiency tax assessment
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C. Preliminary Assessment Notice (PAN) If after review, it is determined that there is sufficient basis to assess the taxpayer. BIR shall issue a PAN, showing in detail the facts and the law on which it is based. Failure to respond: the taxpayer has 15 days from receipt to respond. If he fails to respond or the response is unsatisfactory, a formal letter of demand shall be issued, calling for payment D. Formal Letter of Demand It calls for the payment of the deficiency tax, stating the facts and law on which the assessment is based It shall be sent by registered mail or personal delivery E. Disputed Assessment The taxpayer may protest administratively against the formal letter of demand within 30 days from receipt. F. Supporting Documents The taxpayer must submit the documents supporting his protest within 60 days from the filing of the letter of protest, otherwise the assessment shall become final, executory and demandable. G. Appeal to the Court of Tax Appeals If the protest is denied, the taxpayer may appeal to the Court of Tax appeals within 30 days from the receipt of the decision. H. Decision by Inaction If the protest has not yet been decided within 180 days from the date of the submission of the documents supporting the protest, the taxpayer may appeal to the Court of Tax Appeals within 30 days from the lapse of the said 180 day period, otherwise the assessment becomes final, executory and demandable. J. Appeal to the Supreme Court If the decision of the Court of Tax Appeals is unfavorable, the taxpayer may appeal the decision within 15 days from the receipt of the final decision to the Supreme Court. Preliminary Assessment Notice
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Tax II Notes 2005 Edition Mendoza Preliminary Assessment Notice Not Required
Q: What are the cases when a PAN is not required? A: Sec. 228 par. (a) 1. mathematical error When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. 2. discrepancy in tax withheld - When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. 3. refunded or credited but deducted When 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 quarter or quarters of the succeeding taxable year 4. unpaid excise tax When the excise tax due on excisable articles has not been paid 5. sale or imported by exempt but sold to non-exempt When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries, and spare parts, has been sold, traded, or transferred to non-exempt persons. The notice for informal conference and the preliminary assessment notice shall not be required in these cases. (De Leon) Q: When would the BIR issue PAN? A: Sec. 228 When the Commissioner or his duly authorized representative finds that proper taxes should be assessed xxx. Q: What must the PAN contain? A: the facts and the law Sec. 228 par (2) The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Q: What if the PAN does not contain the necessary statements therein?
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A: Failure to state the facts and law, the PAN is void, but the BIR may issue another PAN. Q: What assessment must contain facts and the law from which it is based otherwise it will be void? A: The preliminary assessment notice must contain the facts and the law upon which it is based otherwise it will be void. However in actual practice, both the preliminary assessment and formal assessment must contain both facts and law upon which it is based. Q: Does the requirement of stating the facts and law apply only to PAN? A: Reading Sec. 228 closely, it seems that this requirement only pertains to the PAN. A demand of payment suffices in the formal assessment notice. However, jurisprudence and tax regulations said that there must be statements of facts and law in both the PAN and final assessment notice. Q: If the assessment is void for lack of facts and law, can it still assess? A: No, but the BIR may issue another PAN. Q: What happens after the PAN? A: Sec. 228 par. (3) x x x the taxpayer shall be required to respond to the said notice. Q: What must exist in a preliminary assessment and a formal assessment? A: In a preliminary assessment there must be a reply. In a formal assessment there must be a dispute. Q: Supposing: 3/13/00 taxpayer filed tax return 3/17/03 taxpayer received PAN Is there a valid assessment? A: No, this implies that it has already prescribed because in Basilan Case, final assessment must be made within 3 years.
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It is important that the BIR prove that the taxpayer received the FAN. Q: X filed his ITR on March 15, 2000. A preliminary assessment was made on March 15, 2003. But X received the assessment only on March 17, 2003. Is there a valid assessment? A: In order to have a valid assessment, it must have been made within the three year prescriptive period, irregardless of when the taxpayer received the same. However, the assessment must be one that may be disputed by the taxpayer (formal assessment). Thus, a formal assessment must be made within the three year period in order to be valid and binding. In the case at hand, there was only a preliminary assessment and no formal assessment was made. Therefore, the right of the government prescribed. Q: What would happen if the taxpayer fails to respond to the PAN? A: The PAN would serve as a formal or final assessment notice Sec. 228 par (3) x x x if the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Q: What may the taxpayer do if the BIR issued the FAN? A: Sec. 228 par (4) Such assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment x x x. Q: How do you dispute the assessment? A: Law tells you that you can do it by filing a motion for reconsideration or reinvestigation Q: What is the distinction between reconsideration and a reinvestigation? A: In practice, there really is no distinction. But technically, in reconsideration, you attack the assessment notice based on the taxpayers present evidence. If there are new evidence or facts available, then you call for a reinvestigation. Q: Supposing: August 1967 CIR made a demand letter assessing taxpayers 1957 1960 income CIR said assessment based on failure to report in full the capital gains
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December 1974 CIR made a decision against the taxpayer September 1975 CIR sued the taxpayer Whether the CIRs assessment have prescribed? A: No. The assessments were predicated on the fact that his income tax were false because he underdeclared his income. In such a case, the deficiency assessments may be made within 10 years from the discovery of the falsity or omission. (Basa vs. Republic) 60-day period and the 180-day period Q: What is this 60-day period? A: It is the period within which to submit supporting documents for his protest. The period begins from the filing of the letter of protest, otherwise the assessment shall become final , executory and demandable. Q: What is the effect of the failure to file the supporting documents within 60 days? A: The assessment will become final Sec. 228 par (4) xxx all relevant supporting documents shall have been submitted otherwise, the assessment shall become final. Q: What about this 180-day period? A: It is the period given to the BIR to resolve the protest. Q: What is the effect of the failure to resolve the protest within 180days? A: If the protest has been undecided within this period from the date of the submission of the supporting documents, the taxpayer may appeal to the CTA. Sec. 228 par. (5) If the protest x x x is not acted upon within 180 days from submission of documents, the taxpayer x x x may appeal to the CTA within 30 days from the lapse of the 180 day period x x x. Q: Suppose that the taxpayer filed a strongly worded protest with attachments. Within the 60 day period, the taxpayer didnt submit any documents. Can the BIR argue that the assessment has already become final?
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A: No. BIR cannot argue that it has become final. The right to submit documents belongs to the taxpayer. It depends upon him whether the submission of documents is sufficient. However, the BIR may request the submission of documents if it sees it fit. If it does, it should be submitted within 60 days. Q: Supposing: 6/30 X receives final assessment notice 7/20 He disputes this. When he disputed this he attached all documents 9/25 Can BIR argue that the assessment is final? A: If you have a case like this, the BIR will invoke 2 things: 1. That the assessment has become final 2. That the 180-day period begins from the date the taxpayer filed his protest together with the attached documents. The 180-day period begins from the date the last document was sent within the 60-day period if the documents were filed. The right to determine what documents are sufficient belongs to the taxpayer. The Court of Tax Appeals said, that in a situation like the one above, it is the duty of the BIR to send notice to the taxpayer requesting for additional documents. It is important to know all these, because it affects your right to appeal from the lapse of the 180-day period. Q: Supposing that the documents were submitted within the 60 day period, but 4 submissions were made. Can the BIR say that the 180 day period should be reckoned from the date of the 2 nd submission? A: No, the 180 day period should be reckoned from the date of the last submission of the documents because the taxpayer determines what are the relevant documents to be submitted and the sixty day period is for the benefit of the taxpayer. Q: X sent documents in batches within the 60 day period. Batch 1 on the 10th day, batch 2 on the 20th day, batch 3 on the 40th day and batch 4 on the 60th day. What is the reckoning point of the 180 day period? A: The reckoning point of the 180 day period is from the date of last submission, the submission of complete documents.
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Q: Between the 60-day period and the 180-day period, the BIR can decide. If the BIR decides, then you go to the CTA within 30 days from receipt of its final decision. There is no problem with this, but what if between the 60-day period and the 180-day period, the BIR issues a warrant of distraint instead? Can the BIR do this? A: The effect of this would be that the warrant of distraint would be considered as an implied decision of the BIR. However, jurisprudence would tell you that it cannot be considered an implied decision when you have a strongly worded protest. The BIR must either decide expressly or by inaction. August 25 Thursday 8-9pm Q: X was assessed for P1m. Assessment notice was issued on 4/10/04. When should X dispute the assessment? A: 30 days from receipt of the assessment notice Q: What if you dispute it 10 days after. You submit documents together with your protest. On 6/19/04, you submitted additional documents. Can the BIR decide the protest already? A: Yes, in this case, the taxpayer already submitted his additional documents Q: When do you start the 180-day period? A: After the submission of the documents. Q: So does this mean that before the lapse of the 60-day period, the BIR can already decide? A: Yes. What is important is that there was the submission of documents within the 60-day period. The law does not say 180 days from the lapse of the 60-day period. What you have to know is the date of the last submission. In practice, the taxpayer usually submits his documents on the last day of the 60-day period. Q: Supposing the protest has not yet decided on the protest. On 180th day, the taxpayer appealed to the CTA. Did the taxpayer correctly? A: No. The law says that in case of a decision by inaction, taxpayer may appeal after the lapse of 180 days and not on 180th day. This means that it should be appealed on a day after 180th day. the act the the the
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Q: Assuming that 12/19/04 is the end of the 180-day period. No appeal was made to the CTA. On 1/25/05, the BIR finally made its decision denying the protest. You appealed to the CTA. The CTA dismissed the appeal. Is the CTA correct? A: No. You can still appeal within 30 days from the decision of the BIR. The law gives an option to the taxpayer to either appeal within 30 days from receipt of the adverse decision, or from the lapse of the 180-day period, otherwise the decision shall become final, executory and demandable. Q: Supposing the BIR made a decision after 280 days, did it still retain jurisdiction over the disputed assessment? A: Yes. The taxpayer may wait for a period even after 180 days for the BIR to decide because the law states that the taxpayer has the right to decide which period to appeal. Q: So what is the purpose of the 180-day period? A: The purpose of the law is to prevent the BIR from taking so much time to make a decision. You look at your old tax cases, and you will see that it takes them months, years to finally come up with a decision. The 180-day period is for the benefit of the taxpayer. Q: What if within the 180 day period a civil case was filed? A: The taxpayer may appeal to the CTA, because the civil case is an implied decision on the protest Q: Supposing a criminal case was filed, can the taxpayer argue that this is an implied decision saying that the BIR can collect by filing a civil or criminal case? A: No, because the protest is not deemed decided. Q: But how about Section 205 of the NIRC that states that the criminal case is a collection remedy, does this mean that the filing of the criminal case is an implied decision appealable to the CTA? A: No. It is not an implied decision because its purpose is to penalize the offender and not to collect, although it is a collection remedy in a sense that the judgment must contain an order to pay the tax. Take note that Sec. 245 of the NIRC states that the acquittal of the delinquent taxpayer does not bar the BIR from filing a civil action.
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Q: Supposing 2 months after the end of the 60-day period, a warrant of distraint and levy was issued. Can the taxpayer appeal to the CTA? A: It depends. The law obliges the taxpayer to dispute the assessment on strong grounds. It also obliges the BIR to state clearly what is the appealable decision. The decision must clearly state that it is the one that would be appealable if the protest is based on strong grounds. However, if the taxpayer merely made a pro forma protest, a warrant of distraint or levy is deemed an implied decision appealable to the CTA. Q: Supposing a protest was filed stating that the assessments are contrary to law and not supported by sufficient evidence, can the Commissioner ignore the protest and instead file a collection suit before the RTC? A: Yes. Such protest does not have a basis or a leg to stand on. The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. Where the taxpayer did not actually contest the assessment by stating the basis thereof, the CIR need not rule on their request. The act of the Commissioner in filing an action may be considered as an outright denial or the protest. (Dayrit vs. Cruz) Q: What is the purpose of the 60-day period? A: The purpose of the 60-day period is to prevent pro forma protests. After the 60-day period, the law assumes you submitted documents. If you submit documents, then it could not be anymore called a pro forma protest. Q: What if 60 days after the lapse of the 60-day period the BIR issues a final notice before garnishment of the taxpayers bank account. The taxpayer appeals to the CTA. The CTA dismissed the case. Is the CTA correct? A: No. We have to take a look at the tenor of the final notice before garnishment. It is a final notice and last chance given to the taxpayer. Therefore, it should be considered as the decision appealable to the CTA. Q: Didnt the SC say that a warrant of distraint cannot be considered an implied decision if the protest is strongly worded? The how come a final notice before garnishment is considered as the decision even if you have a strong protest?
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A: In a final notice before garnishment, there is still a last opportunity given to the taxpayer. While in a warrant of distraint, there is no last opportunity given. This is already an action taken by the government. Case Alert! Isabela Case *know the date of assessment in this case, because it is important Case Alert! Cir v Algue Q: What did Justice Panganiban say about the 180-day period in the Isabela case? A: The 180-day period is 1998 legislation. In the Isabela case, we are talking about a 1986 assessment, so why is the 180-day period is made applicable? The researcher probably made a mistake. Sir: Tax payer must dispute clearly. To balance that, jurisprudence said the BIR must also decide clearly. The BIR cannot decide on the basis of a warrant of distraint, unless it is a pro forma protest.
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the taxpayer to pay, gave a warning that in event of failure to pay, the CIR would be constrained to enforce collection. Although prior to the decision of a disputed assessment, there may still be exchanges between the CIR and the taxpayer. But when the CIR indicated his position regarding the disputed assessment, he has made a decision that is properly appealable to the CTA for review. (CIR vs. Isabela Cultural Corporation) Q: Supposing after the lapse of the 60-day period, no documents were submitted. On the 67th day, a warrant was issued. The taxpayer appealed to the CTA. Will the case prosper? What is the effect of not submitting documents? A: The effect of not submitting documents is that the assessment becomes final. In the first place, there is no longer anything to dispute because the assessment has already become final. The warrant is now considered a collection case. A warrant of distraint can be an implied decision only if there is a protest or a dispute. In this situation, the warrant is simply a collection remedy already. Q: Another similar situation. You have 30 days to protest, you filed a protest 45 days after the assessment. The 60-day period lapsed. A warrant of distraint was issued. The taxpayer appeals to the CTA. Will the CTA entertain the appeal? A: No. The protest was filed on the 45 th day after the assessment. Remember that the effect of not filing a protest is that the assessment becomes final. So in this situation the assessment has already become final, executory and demandable. The jurisdiction of the CTA is over disputed assessments, remember that. August 30 Tuesday 7-9pm -Free CutSeptember 1 Thursday 8-9pm Q. What is the effect of final assessment? A:
CIR v Union Shipping: The Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. On the basis of this statement indubitably showing that the Commissioners communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court as the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This would encourage the Commissioner to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court.
Q: Supposing that the BIR issued a Final Notice Before Seizure to the taxpayer. It states that it is the taxpayers last opportunity to settle the assessment and that should he fail, the BIR would pursue collection remedies. Can the BIR argue that this is not the decision appealable to the CTA? A: No, because its content and tenor supported the theory that it was the CIRs final act regarding the protest. The very title indicated that it as a final notice. It is the CIRs final act when it demanded
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Q: Supposing the assessment became final. The BIR issued a warrant. Can the taxpayer consider the warrant as a decision of the BIR appealable to the CTA? A: No. There is no decision because there is no disputed assessment. The disputed assessment has already become final once the warrant has been issued. Q. Supposing there is already a collection case in court. Can the taxpayer question the assessment? A: No. The assessment is already final and executory since there is already a collection case filed. The collection case is merely for the collection of the taxes and may not be used in determining the validity of the assessment. Q: What is the reason why the taxpayer cannot question the assessment? Supposing at the judicial level, the taxpayer says, How can you collect when your right to assess has prescribed? A: The taxpayer cannot question the assessment anymore, because the CTA has NO jurisdiction. There is nothing left to be decided by the CTA since the jurisdiction of the CTA is over disputed assessments. In this case, there is already a collection case, which means that the assessment has already become final.
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period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court for sixty days thereafter x x x. The pendency of the taxpayers appeal in the CTA and in the SC had the effect of temporarily staying the hands of the Commissioner. If the taxpayers stand that the pendency of the appeal did not stop the running of the period, taxpayers would be encouraged to delay the payment in the hope of ultimately avoiding the same. (Protectors Services vs. CA) Case Alert! Basa Q: Supposing X did not dispute the assessment. So this is a final assessment. Can X, the taxpayer, still question the assessment in the court? A: Again and again you cannot revive the assessment in the RTC. If you fail to dispute, you cannot raise it anymore. You are barred. Sorry ka na lang. Case Alert! Hizon Q: Nad, failed to dispute the assessment. 2 years after, the RTC affirmed the finality of the assessment. Can Nad still appeal 30 days after this affirmation? A: No. In this situation we have to distinguish between finality and affirmation. In finality, it becomes such by the mere failure of the taxpayer to dispute the assessment. In affirmation, the trial court is just recognizing the fact that the assessment has already become final. Regardless of the affirmation, the assessment has already become final. Q: Same situation, but this time Nad disputes it with the CTA. A: Still No. Remember, CTA jurisdiction is over disputed assessments. In this case, the assessment was already final. REFUND Q: What are the requirements? A: According to Cebu Portland vs. CIR 1. filing a written claim for refund with the Commissioner of Internal Revenue 2. institution of suit or proceeding in court within 2 years from the date of payment.
Theoretically, prescription may be a valid defense in a collection case, but in reality it does not happen.
Q: Does the protest have the effect of suspending the period of collection? A: It depends. If the protest if filed on time, then it may suspend the collection of taxes. But if the protest is filed beyond the 30-day period, it does not suspend the running of the prescriptive period. (De Leon, Citing Republic vs. Hizon) Q: Supposing that the BIR assessed the taxpayer. The taxpayer made a protest. It was denied and so he appealed, and kept on appealing until he reached the SC. Before the SC, can the taxpayer argue that the collection remedy has prescribed assuming that it took him years to reach the SC? A: No. Sec. 223 The running of the Statute of Limitations x x x on a proceeding in court for collection x x x, shall be suspended for a
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De Leon: 1. in writing, stating clearly the basis or grounds for such claim 2. filed with the Commissioner within 2 years after the payment of the tax or penalty. Q: Is the administrative remedy independent from the judicial remedy? A: Yes. It can stand by itself because at that level, refund can be granted. Q: Is the judicial remedy of refund independent from the administrative remedy? A: No. Before the judicial remedy may prosper, the taxpayer should first resort to the administrative remedy. Q: When does the judicial aspect of the claim for refund arise? A: When the taxpayer appeal with the CTA within the two year period. He must appeal within 30 days from the receipt of the decision of the CTA. Q: Is it an absolute requirement for the written claim? A: No, there are exceptions. 2 codal provisions in the NIRC 1. Sec. 204 (C) Provided, however, a return filed showing an overpayment shall be considered as a written claim for credit or refund. 2. Sec. 229 par. 2 Provided, however, That the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. In the case of Vda de San Agustin, the SC discussed an exception to the requirement of a written claim. It held in that case that if it would be a useless and needless ceremony that would only delay the disposition of the case, then no written claim would be required. Justice Vitug said in a long line of cases, the written claim was held to be indispensable. However, in this case, the factual circumstances allowed for an exception. Sir: But this is no excuse in the ordinary course.
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Q: In appealing the decision of the BIR to the CTA, is the taxpayer who paid the tax under protest also required to file a claim for refund? A: No. To hold that the taxpayer must file a claim for refund before appealing with the CTA would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the CIR would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. (Vda. De San Agustin vs. CIR) Case Alert! Panay Electric Q: Do you need a disputed assessment to have a refund case? A: No. As long as there is an irregular payment, there can be a refund. 2-year period Q: When can you claim refund before the BIR and the courts? A: The claim for refund should be filed with the BIR within 2 years from the date of payment. Judicial action can be had by appealing to the CTA within 2 years from the date of payment. Q: Mace paid capital gains tax for the year 2000. It turned out to be an erroneous payment. When can Mace claim for a refund? A: 2 years from the date of payment Q: Supposing: 04/30/2000 Payment 04/30/2001 Claim for Refund 04/30/2002 Denied 05/23/2002 Appeal to the CTA within 30 days. Prosper? A: No. Appeal must also be within the 2 years. Q: Supposing: 02/20/2001 Denied 08/20/2001 Appeal to the CTA Prosper? A: No. Appeal must be within 30 days from the date of denial.
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Q: Supposing: March 1999 Payment June 1999 Claim for Refund August 1999 Denied Can the taxpayer appeal argue that he can appeal to the CTA on February 2001 since it is within the two year period A: No. Sir said that if the claim is denied by the Commissioner within the two year period, the taxpayer has 30 days from receipt of the denial within which to appeal to the Court of Tax Appeals. (De Leon) Case Alert! Vda de San Agustin Q: What if the BIR takes time in deciding the claim for refund and the 2 year period is about to end, what may the taxpayer do? A: The suit or the proceeding must be started in the CTA before the end of the two-year period without awaiting the decision of the BIR. Here, there is no decision to appeal from, much less is there an appeal. (De Leon) Q: Supposing the BIR did not act on it for 10 months, may the tax payer go to the CTA? A: He may go to the CTA when the 2 year period is about to lapse. Otherwise, this will put the taxpayer at the mercy of the BIR. However, in the case of Panay Electric v. CIR, the 2 year period was extended on the grounds of equity and fairness. Q: Supposing: Sept 15 Assessment Oct 19 Payment Oct 20 Claim for refund Can the taxpayer claim refund despite the finality of assessment? A: No. If the taxpayer is allowed to claim a refund despite finality of the assessment, then it would reopen the question of validity of the assessment. Otherwise the period to appeal assessment would make little sense. (CIR vs. Concepcion)
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at the time when the period to appeal the assessment has already lapsed. Can the taxpayer still claim? A: Sir said that some authors say that the taxpayer could file a refund as long as there is payment within the period to appeal. This is different from the Concepcion case, because in that case, the taxpayer paid the tax at the time when the period to appeal the assessment have already lapsed. September 6 Tuesday 7-9pm -Free CutSeptember 8 Thursday 8-9pm -Free CutSeptember 13 Tuesday 7-9pm Q: In the taxyear of 2000, four tax payments were made in a quarterly basis. The taxpayer filed a claim for refund of one installment in March 2003. Will this prosper? A: In claims for refund, the important thing to consider is the date of payment. It is only at the end of the tax year, and only upon filling of the Final Adjustment Return, will the taxpayer know what taxes are due, etc. Therefore, the period to file a claim for refund is counted only from that time. Q: In cases where the taxpayer files quarterly income tax return, whether the basis for computing the two year period should be the date when the quarterly income tax was paid or the date when the final return for the taxable year was filed? A: It should be computed from the date when the final return for the taxable year was filed, because the payment of quarterly income tax should only be considered as mere installments of the annual tax due. These quarterly tax payments should be treated as advances or portions of the annual tax due. (De Leon) It is the Final Return which is reflective of the operations of the business for the whole tax period. It is at the time of the filing of the Final or Annual Income Tax Return when it can be ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. (CIR vs. TMX Sales) Case Alert! CIR v TMX
the the the the
Q: Suppose that the taxpayer paid the tax within the period to appeal the assessment. After that, the taxpayer claimed for refund
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Q: Whether the two-year period of prescription for filing a claim for refund is counted from the date when the tax return was actually filed or from the date when the final return could still be filed without incurring any penalty? A: The two year period should be computed from the time of the actual filing and not on the last day. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. (CIR vs. CA, BPI) Case Alert! CIR v CA Case Alert! Cebu Q: Isnt the ruling in this case inconsistent with the previous cases? A: No, it actually is consistent in holding that the prescriptive period begins from the time you could determine over or underpayment. The difference only in the cases is the date the taxpayer was able to determine over or underpayment. Case Alert! Citibank Case Alert! BPI Mergers Q: In case of mergers, whether the two year prescriptive period should be reckoned from the date of the filing of the annual return for the taxable year or the date of the filing of the return required to be filed thirty days after the dissolution or merger? A: From the date of the return required to be filed after the dissolution or merger, because after it ceased operations, its taxable period was shortened. (BPI vs. CIR) Q: What did the Court say regarding the final adjustment return in the BPI case? A: When it was filed, the corporation ceased to exist. There was a shortening of period. When the court ceased to exist, the corporation already knew what was due. So no final adjustment return was required. Burden of Proof Q: Who has the burden of proof in case of refund?
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A: The taxpayer. He who asserts must prove. Also, a refund is akin to an exemption to taxation. Moreover, in cases of refund pursuant to an assessment, the assessment is prima facie correct, so the taxpayer must prove the contrary, unless if the assessment became final. Proper Person to Claim Refund Q: Who is the proper tax payer who should pay the refund? A: The one who paid the taxes erroneously or illegally.
Q: X inc. is a seller of cement products. There is a 10% tax imposed by law on the sale which is passed to the buyer as cost of goods. Supposing the law which imposed the tax was declared illegal? Who can claim for the refund? A: X inc., because he is the one liable to the BIR Q: What about the argument that the tax liability was passed on to the buyer? A: Only the seller can claim the refund because the seller is the taxpayer and NOT the buyer. Better theory is that the seller holds the amount refunded in trust for the buyer. Supervening Cause Sec. 229 par. (b) In any case, no such suit or proceeding shall be filed after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment x x x. Q: Supposing, 1999 date of payment 2002 SC declared the tax illegal 2002 taxpayer file a claim for refund Did the action to claim refund prescribed? A: Yes. Because the supervening event occur beyond the two year period. Q: Is there an instance where the two year period is extended notwithstanding the mandate of the law that the claim for refund
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should be made within 2 years regardless of any supervening clause? A: Yes, when there is an agreement between the taxpayer and the Commissioner to wait for the result of a pending case in the Supreme Court. On moral and equitable grounds, therefore, the taxpayer is entitled to refund from the date of the claim for refund, especially that the CIR also offered to credit the taxpayer with overpayment for a period of two years from the date of claim for refund. In doing so, the CIR waived the prescriptive period of two years from the date of payment. (Panay Electric vs. CIR) Refund of Withholding Tax Q: What are the requisites for the refund of withholding tax? A: According to Citibank N.A. vs. CA: 1. withheld income included in the gross income - the income tax return for the previous year must show that the income payment was reported as part of the gross income. 2. withheld amount remitted to BIR - the withholding tax statement of the withholding tax agent must show the payment of the creditable withholding tax was made. Q: Supposing that there was an excessive withholding tax, can the withholding agent file an action for refund? A: Yes, because the withholding agent is also a taxpayer liable to pay the tax. Q: What are the functions of the Bureau of Customs? A: Sec. 602 (Tariffs and Customs Code): 1. assessment and collection of customs duties 2. prevent and suppress smuggling and other frauds. 3. to enforce tariff and customs laws 4. supervise/control entry of vessels 5. on foreign mails, collect duty on dutiable articles 6. Supervise/control cargoes 7. Seizure and forfeiture under this code. TERRITORIAL JURISDICTION
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Q: What is the territorial jurisdiction of the Bureau of Customs (BC)? A: Sec. 603 xxx said Bureau shall have the right of supervision and police authority over all seas within the jurisdiction of the Philippines and over all coasts, potrs, airports, harbors, bays, rivers, and inland waters whether navigable or not from the sea. Q: Why does the Customs law does not talk of land as part of BCs jurisdiction? A: Because you cannot import on land in the Philippines, but there can be seizure in land when importation obligations are not yet paid. Sec. 603 par. (b) x x x Imported articles which may be subject to seizure for violation of the tariff and customs law may be pursued in their transportation in the Philippines by land x x x. IMPORTATION
IX - A BUREAU OF CUSTOMS
Tariff and Customs Code (Book II) Sec 602, 603, 604, 1201-1211, 1601-1604, 2201-2212, 2536, 25013503, 3511-1512 RA 8751 Countervailing Duty RA 8752 Anti-Dumping Act RA 8181 Transaction Value RA 8800 Safeguard Measures Act
Q: What is importation? When does it begin and when does it end? A: When importation begins and when it ends is very important. As long as there is still importation, the customs authorities can still assert jurisdiction. Sec. 1202 Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade (unload) therein. Sec. 1202 x x x Importation is deemed terminated upon payment of duties, taxes, and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or incase said articles are free
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of duties, taxes, and other charges, until thay have legally left the jurisdiction of the customs. Q: Prior to entry, is there importation? A: If there is an intention to unlade. The mere possession of merchandise on board a vessel in the Philippine waters is not of itself sufficient to amount to an importation of the same. There must be proof of intent to import. (US vs. Chu Loy) Q: Supposing X boards a plane from Hong Kong to Manila. The commuter has a ticket that states Hong Kong-Manila-Singapore. When the plane landed in Manila, X went to the transit lounge. Customs officials noticed bulges in his pockets. They approached him and searched him. They found highly importable goods. Can they seize? A: No. X had no intention to unload the goods in Manila Q: That is easy to say, but how do you establish the intention? A: Take into consideration circumstances like the ticket that shows the final destination is Singapore. Other circumstances taken into consideration by the Bureau are the bill of lading, invoice, consignee and other evidence to establish the lack of intention to unload within. Q: X, and alien, boarded a vessel in Hong Kong. The vessel will be dropping by the port of Manila en route to somewhere else. While docked here, the customs officials boarded the vessel. They noticed X carrying illegal contraband opium in several tin cans. Can the customs officials seize the goods and can they subject X to customs jurisdictions? A: Again, like in the previous situation, intention to unload must be clearly established. Q: So let us say X did use the excuse that there was no intention to unload? A: The phrase intention to unload is always used by smugglers. Their argument sometimes takes the form of transshipment, indicating no intention to unload. The better rule is that you have to look at the circumstances of the case. In one case where there was 1 importer from Hong Kong who loaded in PAL. When parked in NAIA, the customs officials seized the goods. The SC looked at the circumstances to establish intention like the goods which were TV
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sets had Filipino consignees. So to sum it all up, intention to unload is highly factual in nature. Transshipment Q: What is the defense of transshipment? A: That there is no intention to unload the goods. The ship merely docked. Q: The defense of a consignee is always transshipment. What is transhippment? A: Under present law regarding transhippment, vessel must be out of Philippine territory for a certain number of days. If not, it may be ceased by authorities Misshipment Q: What is the defense of misshipment? A: That there is no intention to unload because the ship was not really destined to the Philippines but somehow it docked. QUIZ given September 15 Thursday 8-9pm -Free CutSeptember 20 Tuesday 7-9pm Q: Are there situations where the Bureau of Customs can have jurisdiction over a vessel in the high seas? A: Yes. If: 1. In hot pursuit when the pursuit began in the Philippine waters 2. If the vessel is Philippine registered 3. Asaali case where the state has the power to secure itself from injury. Q: Supposing a ship was sighted unloading goods. The customs alerted a signal to board the vessel. But, this vessel went to international waters. Can BC seized the vessel and the cargo even if it is already at international waters? A: Yes, Asaali case.
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General Rule: the chase must begin inside the Philippine Waters. Exception: Asaali case where the Court stated that the state has the power to secure itself from injury. This power may be exercised beyond the limits of its territory. There must be a reasonable ground to believe that the vessel would enter the Philippine waters. Q: Same facts, but is there hot pursuit in this case? A: There is hot pursuit, when the pursuit began in the Philippine waters. The customs officials may resort to seizure if there is reasonable ground to suspect or believe that there is an illegal importation, even if there is no provision in the Customs law which allows the seizure of a vessel which have not yet entered the Philippine jurisdiction. Case Alert! Asaali Q: Is the Asaali case the general rule in the customs code? A: No. The general rule is if in the high seas, you cannot board. The Asaali case is one of the exceptions. Q: In the Asaali case, the vessel was Philippine registered, but what if it was not Philippine registered, would the exception still apply? Can they board the vessel? What about prohibit entry? A: No. In the Asaali case, clearly the right was there, it was a Philippine ship and the circumstances were known to the Philippine authorities. The Asaali case should be strictly applied. So the Bureau of Customs have no authority. Q: Supposing the goods are outside the customs house, will the Bureau still have jurisdiction? A: Yes, if duties, etc still not paid. In the case of Mago, taxes, duties, charges were not fully paid and quantity declared was lower than actual. When goods were brought out, the Bureau lost jurisdiction; but when the goods were intercepted, the Bureau reacquired jurisdiction. Case Alert! People v Mago Q: What is the basic reason why the Bureau may still acquire jurisdiction?
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A: They are empowered by law to seize even without warrant. As long as you have unpaid customs duty, the Bureau will still have jurisdiction. Remember importation has not yet ceased because not yet paid. Case Alert! US v Chuloy Case Alert! Paterok v BOC Q: A Mercedes Benz was already out of the customs house because duties were initially paid. A year after, an investigation conducted resulted to an undervaluation. However, the Benz was already in the residence of a buyer. Can the Bureau seize the car from the buyer? Remember, there was no fraud. The duties were simply not paid. A: No. It will just constitute a lien. Q: So how does the government enforce the lien? A: The Bureau goes after the importer because the undervalued duties are deemed to be a personal debt. That is why it is important to know the kind of importation. If it is a prohibited importation, then government has all the right to seize the goods. If it is not, then it will just constitute a tax lien and other remedies could be resorted to, but never seizure. Kinds of Importation Q: Speaking of kind of importation, so what are the kinds of importation? A: The kinds of importation are: 1. Prohibited Importation importation of contrabands that may not be legally entered within 2. Conditionally Free importation wherein after compliance with certain requirements they become exempt from duties 3. Dutiable Importation importation of articles subject to duties under the TCC 4. Qualified Importation law imposes certain requirements for it to be able to be imported; e.g. Opium for medicinal purposes 5. Tax Exempt Importation articles imported by tax exempt entities
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1. Dutiable Importation 2. Absolute Prohibited Importation 5. Tax Exempt Importation Sec. 1207 Where articles are of prohibited importation or subject to importation only upon conditions prescribed by law, it shall be the duty of the Collector to exercise such jurisdiction in respect thereto as will prevent importation or otherwise secure compliance with all legal requirements. Q: Can the consignee redeem contraband articles? A: No, the Supreme Court held in Paterok vs. Bureau of Customs that the redemption of forfeited property shall not be allowed in any case where the importation is absolutely prohibited or where the surrender of the property to the person offering to redeem the same would be contrary to law. Q: Why is it impossible to redeem contraband articles? A: The use of the contraband cannot be allowed as that would set at naught the purpose of the law. Moreover, there is nothing in the Code that authorizes the Collector to release the contraband in favor of an importer. The code (Sec. 2609) is clear that the thing may be disposed by sale under restrictions as will insure its use for legitimate purpose. (Paterok vs. Bureau of Customs) 3. Qualified Prohibited Importation Q: What is a qualified prohibited importation? A: Sec. 1207 where articles are x x x subject to importation only upon conditions prescribed by law, it shall be the duty of the Collector x x x to secure compliance with all legal requirements. Q: What is an example of a qualified prohibited importation? A: Sirs example: importation of opium for medical use is a conditional importation, but not shabu. 4. Conditionally Free Importation Q: What is a conditionally free importation? A: The importation is free from duties because of the purpose for which the articles were imported.
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Q: What is an example of a conditionally free importation? A: Sirs example is the importation of dutiable goods for mere exhibition.
Q: Is the government exempt from paying tax duties? A: No. Sec. 1205 x x x all importations by the Government for its own use or that of its subordinate branches or instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government shall be subject to the duties, taxes, fees, and other charges provided for in this code. CLASSIFICATION OF DUTIES Q: What are these taxes imposed on imported materials? A: specific or ad valorem Q: How are duties classified? A: Classification of Duties: 1. Ordinary or Regular a. ad valorem b. specific 2. Special a. Countervailing b. Anti-Dumping c. Marking d. Discriminatory Q: What is an ad valorem duty? A: It is a duty based on the value or price of the goods. (Bar Ops Stenographic Notes) Q: What is a specific duty? A: It is a duty imposed on goods based on some kind of measurement without any assessment on the value of the goods. (Bar Ops Stenographic Notes) Q: Who imposes the Dumping and Countervailing Duties? A: Secretary of DTI non-agricultural products Secretary of DA agricultural products
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Q: Where may a taxpayer appeal the decision of the Secretary of DTI or DA? A: To the CTA. ANTI-DUMPING Q: What is this anti-dumping? A: Sec. 301 Whenever any product, commodity, or article of commerce imported into the Philippines at an export price less than its normal value in the ordinary course of trade for the like product, commodity, or article destined for consumption in the exporting country is causing material injuru to a domestic industry, or materially retarding the establishment of a domestic industry x x x shall cause the imposition of an anti-dumping duty equal to the margin of dumping on such product, commodity, or article x x x. However, the anti-dumping duty may be less than the margin if such lesser duty will be adequate to remove the injury to the domestic industry. x x x. Q: What goods are subject to dumping duty? A: Goods sold here at a cost lower than fair market value or cost of production. These goods are dumped into the country. Q: When are goods dumped? A: When the price of the goods is less than its cost of production. But there must be a material injury to the local industry. Q: How much is the dumping duty? A: It is equivalent to the underpricing. Or the difference between the FMV and the actual cost being sold here. Q: Tiles from China which were imported here cost much less than tiles made here. What must be determined before an anti-dumping duty is imposed? A: What must be determined are: 1. The causal relationship between the dumping and the injury to the industry 2. Rate of dumping duty 3. Duration or how long must it be imposed. Q: Is there a judicial remedy for the exporter? A: Yes, the exporter first appeals to the secretary then to the CTA.
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Q: How do you distinguish anti-dumping with safeguard duty? A: Safeguard is imposed if there is an increase in importation that affects domestic industries. So basically, if they cannot get you under the anti-dumping, then they will get you with the safe-guard duty. But this does not necessarily mean imposition of duties. They could simply limit importation. COUNTER-VEILING DUTY Q: What is this counter-veiling duty? A: Sec. 302 Whenever any product, commodity, or article of commerce is granted directly or indirectly by the government in the country or origin or exportation, any kind or form of specific subsidy upon the production, manufacture or exportation of such product, commodity, or article, and the importation of such subsidized product, commodity, or article has caused or threatens to cause material injury to a domestic product or has materially retarded the growth or prevents the establishment of a domestic industry x x x issue a countervailing duty equal to the ascertained amount of the subsidy. (Amended by RA 8751) Q: What goods are subject to countervailing duty? A: Foreign goods sold here. These goods enjoy a subsidy from country of origin. Q: What must be established? A: What must be established are: 1. The causal relationship between the specific subsidy created and the material injury to the industry. 2. The amount of duty to be imposed need NOT be established. Procedure is similar to that of the anti-dumping Q: What is the purpose of this duty? A: Foreign goods are subjected to this duty to counter or upset the subsidy, to protect local industries. Q: Is there a need to establish injury to local industries? A: No. However, the subsidy must be proved. Once the subsidy is proven, injury is already shown because the local industry is already at a disadvantage because of the subsidy. (Bar Ops
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Stenographic Notes) The law states that the subsidized goods threatens to cause material injury to local industries. MARKING DUTY Q: What is a marking duty? A: It is the duty imposed for violation of marking requirement to protect the public Sec. 303 (c) - If at the time of importation any article is not marked in accordance with the requirements of this section, there shall be levied, collected and paid upon such article a marking duty of 5 per cent ad valorem, which shall be deemed to have accrued at the time of importation, except when such article is exported or destroyed under customs supervision and prior to the final liquidation of the corresponding entry. (RA 1937) DISCRIMINATORY DUTY Q: What is this discriminatory duty A: Sec. 304. a. The President x x x, shall by proclamation specify and declare new or additional duties in an amount not exceeding 50 per cent x x x of, any foreign country whenever he shall find as a fact that such country (1) Imposes, x x x product of the Philippines any unreasonable charge, x x x which is not equally enforced upon the like articles of every foreign country; or (2) Discriminates in fact against the commerce of the Philippines, x x x in such manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country. x x x Q: What goods are subject to the discriminatory duty? A: If a foreign country (for example, Somalia) discriminates against our local products or local commerce, the President may imposed a discriminatory duty on goods coming from Somalia. Q: What if the foreign country still discriminates against our local goods after the imposition of discriminatory duties? A: The president may totally ban the imports from such foreign country. TRANSACTION VALUE
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Q: What is this transaction value? A: Sec. 201 - The dutiable value of an imported article subject to an ad valorem rate of duty shall be based on the transaction value or price of same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade in the principal markets of the exporting country on the date of exportation to the Philippines x x x. (as amended by E.O. 71) Q: What is the transaction value? A: It is the amount paid by the buyer to acquire the goods. Only goods subject to ad valorem rate shall be taxed based on the transaction value. Q: How do you determine transaction value? A: Look at the invoice, bill of lading Sec. 201 x x x The transaction value under this section shall be trade value or price declared in the commercial, trade or sales invoice. x x x. Q: Supposing the collector doubts the documents of the importer due to possible undervaluation. What should be the basis for determining the transactional value? A: The collector can adopt any method to arrive at actual rate. He may even adopt a transactional value of similar/identical goods. This is because the assessment of duty is based on dutiable value or transactional value Sec. 201 x x x Where there exists a reasonable doubt as to the value or price of the imported article declared in the entry, the correct dutiable value of the article shall be ascertained by the Commissioner of Customs x x x. When the dutiable value provided for in the preceding paragraphs can not be ascertained for failure of the importer to produce the documents mentioned in the second paragraph, or where there exists a reasonable doubt as to the dutiable value of the imported article declared in the entry, it shall be the domestic wholesale selling price x x x. Q: Would it be correct to say that the Commissioner of Customs may adopt any method to arrive at the basis? A: Yes, in the end of the day, the Commissioner may adopt any method, unlike the BIR.
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SEARCH, SEIZURE AND ARREST Q: When can the bureau exercise search and seizure? A: When they have reasonable ground to suspect that there are dutiable goods found in the place to be searched. Q: Can they search outside the customs territory based on reasonable ground? A: Yes. The law uses the words reasonable ground to suspect. Q: Supposing there is a residential compound. A two-storey building with warehouses around and a residential place inside. Assuming there are hot items inside. May the Bureau of Customs enter without a search warrant issued by a proper court? Can the customs collector enter provided there are residential structures in the compound? A: Section 2208 of the Tariffs and Commissions Code provides that Customs officials may enter into any land, building, enclosure, except a dwelling house. In the subsequent section, 2209 states that a search warrant is needed in searching a dwelling place. Q: Suppose a compound has a residential house. However, in the same compound, there are warehouses. At its gate, it states residential area. Can the BC search it? A: Yes, regardless of whether or not the compound is residential or not because the law states that the Bureau of Customs can enter any land enclosure, except a dwelling house. In this case, it is a dwelling compound not a dwelling house. They may search the compound without warrant, but to search the dwelling house inside the compound, a warrant is needed. Q: What is the basis of their authority? A: Sec. 2208 For the more effective discharge of his official duties, any person exercising the powers herein conferred, may at any time enter, pass through, or search any land or inclosure or any warehouse, store or other building, not being a dwelling house. Q: For purposes of Sec. 2209 search, when can you say that it is a dwelling or warehouse? A: The law does not judge it by the appearance of a dwelling house but the question is whether the purpose is to store imported goods.
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Q: Upon entrance the taxpayer argues it is a residence that looks like a warehouse, the collector argues that it is a warehouse that looks like a residence. The taxpayer is demanding a search warrant. Will this stop the customs officers from entering? A: The law does not say that you can judge a structure from mere appearance. Must look at the surrounding circumstances in order to determine whether the structure is a residence or a warehouse. Determine whether the structure is principally used for storage of the hot items; it does not matter if there are incidents of a residence. Q: Upon entry into the compound, the customs officials saw a building. This structure looks like a warehouse, but it is a residence. The customs officials want to search it, but the owner demands a search warrant. Can they enter the building without a warrant? A: They have to determine whether or not the structure is a dwelling house. 1. They should look at the structure. (there might be no windows). 2. It could be the dwelling of the watchman (because under par. B of Sec. 2208, a warehouse x x x does not become a dwelling x x x by reason of the fact that the person employed as watchman lives in the place x x x.) 3. Look at the primary use of the structure. Q: Supposing they went to the warehouse, while searching and doing some seizure, goods were taken out of the warehouse by employees of the importer inside and taken into the dwelling house. Can the dwelling house be searched of articles being seized without a search warrant from the warehouse to the dwelling home? A: Yes. As incidental lawful arrest, you can search without a warrant. So while the rule is a dwelling home cannot be searched without a search warrant, as an exception to the broad power of search and seizure of customs authorities, you have that provided. Thats a basic principle in tax law. Search can be made pursuant or incidental to a lawful arrest. Case Alert! Pacis September 22 Thursday 8-9pm -Free Cut-
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September 27 Tuesday 7-9pm Q: How did the Court explain in the Pacis case that you do not need a warrant in buildings? A: Because in Section 2209 (Search of a dwelling house), it expressly states that it is required. Therefore, it impliedly allows a search without a warrant for searches other than a dwelling house. In the first place, under Sec. 603, it states that the Bureau of Customs has territorial jurisdiction, that violators may be pursued in their transportation by land. Q: Paul, a customs agent, went out on a movie date with JC While going home, he passed by stores in Buendia that sold imported machineries. As a customs officer, he asks the owner of the store to produce evidence that duties for the same have been paid. If the seller fails to produce the evidence, may Paul validly cease the goods? A: No, he may not validly cease the imported articles. In all cases, there must be prior authorization from the Commissioner to cease the goods. In the above example, X came from a movie date, consequently he does not have the prior valid authorization required to cease the goods. However, if the person seizing is the Commissioner or the Collector, no written authority is needed. Sec. 2536 The Commissioner and Collector and/or any other customs officer, with the prior authorization in writing by the Commissioner, may demand evidence of payment x x x and if no such evidence can be produced, such articles may be seized x x x. Q: Same facts but supposing in the dwelling room, the machineries were there. Can he enter the room and search? A: Expressly allowed to search in any place other than a dwelling home, unless it is sold in a store. Q: Supposing X, a customs officer, notices a vehicle exiting customs zone that passed the same. After five minutes, X pursued the car and inspected everything therein. Are his actions justified considering X pursued the vehicle only upon second thought? A: Section 2211 states that an officer may stop and search any moving vehicle as long as he has reasonable cause to suspect the
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presence of dutiable articles therein. Precisely the law states of stopping and searching of moving vehicles based on reasonable ground for existence of dutiable articles. Customs officer may also validly seize the vehicle. Q: Suppose a customs officer saw a truck getting out of the customs house. After 5 minutes, he pursue the vehicle. Are their actions justifiable, that they can search the vehicle without a warrant? A: Yes, if it is based on reasonable ground to suspect. No warrant is needed when moving vehicles are stopped and searched. It would be impractical to search without a warrant. FLEXIBLE TARIFF LAWS Sec. 401 - The President, x x x is hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by statute x x x when in his judgment such modification in the rates of import duty is necessary in the interest of national economy, general welfare and/or national defense. (RA 1937) Q: What is Flexible Tariff Laws? A: Under Sec. 401 of the Customs Code. The president may reduce or increase import or tariff rates. But the President cannot reclassify importation. (ex. From prohibited to dutiable importation) This is different from the constitutional power of the President to fix import duties.
IV - B BUREAU OF CUSTOMS
Tariff and Customs Code Sec. 1204, 1508, 1603, 1701-1708, 1801-1802, 2301-2316, 2401-2402, 2503, 2530-2531, 2532, 2533, 2535, 3601-3602 REMEDIES OF THE GOVERNMENT
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1. Tax lien Q: How do you enforce the tax lien? A: BC can only enforce the tax lien while it is still within customs jurisdiction. The goods may be sold to satisfy the unpaid customs duties. The tax lien represents the customs liability of the taxpayer. Q: Supposing it was not with customs anymore? A: Then the remedy is a judicial collection suit. Q: Supposing the goods were contraband, will the tax lien still apply? A: No. The concept of tax lien only applies to legal importations; because if illegal, even outside customs, anywhere, anytime, regardless of possessor, it may and it will be seized. Q: Does that mean there cannot be seizure and forfeiture in legal goods? A: See 2253 Q: Suppose that the importer and the BC agreed at a transactional value. It was paid. The goods were released out of customs territory. A buyer bought it. Later, BC discovered that there were unpaid taxes. Can the customs get it back? A: No. Tax lien attached only when goods are in custody or subject to the control of the government. The remedy of the government is not the tax lien but to go after the importer to collect the unpaid taxes. These unpaid taxes constitute a personal debt. Sec. 1204 x x x, the liability for duties x x x attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties x x x legally accruing. It also constitutes a lien upon the articles imported which may be enforced while such articles are in custody or subject to the control of the government. Q: Supposing an assessment was made for the goods of X at an amount of 50K for the transactional value. X paid the amount and took the goods out of the customhouses. After review of the documents, it was found out that the assessment is erroneous and there are still taxes due. If Y buys the same goods from X, may the
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collector still take back the property and sell it to satisfy the unpaid tax lien? A: No the collector may not seize and forfeit the property. The unpaid duty constitutes a personal debt on the part of X. Technically the tax lien on the goods ceases due to the fact that the goods were out of the customhouses already. The collector may collect judicially on the basis of an unpaid duty (which is the personal debt of the importer). Q: Supposing in the same example, wherein the importation is neither fraudulent or prohibited, may the collector still judicially collect the unpaid tax after 3 years? A: No, the collector may no longer enforce the tax due to prescription. The Tariffs and Customs Code provides that in importation cases that are neither fraudulent or prohibited, the collector may only collect unpaid taxes therefrom within a period of 3 years from payment of first assessment. Q: What if the goods are imported fraudulently, what is the governments remedy? A: Enforcement of tax lien applies only to lawful importation. Tax lien does not apply to fraudulent or contraband importation. Seizure and forfeiture are the proper remedies. Q: Is this tax lien similar to the tax lien enforced under the NIRC? A: No, The tax lien under the NIRC attaches to all properties of the taxpayer, while the tax lien enforced by the BC attaches to the imported articles only. Prescriptive Period Q: What if the imported goods are not prohibited articles or not imported fraudulently, and that there was a deficiency importation in 2001, however, it was discovered after more than 3 years. Can the government collect? A: No. Sec. 1603 When x x x final adjustment of duties made, with subsequent delivery, such x x x settlements of duties will, after the expiration of 3 years from the date of payment of duties, in the absence of fraud or protest x x x be final and conclusive upon all parties x x x.
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Q: Supposing in the same example, wherein the importation is neither fraudulent or prohibited, may the collector still judicially collect the unpaid tax after 3 years? A: No, the collector may no longer enforce the tax due to prescription. The Tariffs and Customs Code provides that in importation cases that are neither fraudulent or prohibited, the collector may only collect unpaid taxes therefrom within a period of 3 years from payment of first assessment. Q: Does the prescriptive period apply to all importations? A: No. The prescriptive period applies only in cases where there is no fraud or the articles are not absolutely prohibited (regular dutiable articles). Q: What about in cases of fraudulent or prohibited importation? A: In these cases the government can seize and forfeit the goods from whoever the possessor. The right of the government is imprescriptible. Q: Can a local vessel carrying local goods be seized. A: Yes, if it aided in the legal importation. Case Alert! Rigor Q: Supposing a local aircraft aided the importation of goods, can it be subject to seizure and forfeiture? A: In the case of Llamado, the Court held that even if collateral means in an illegal importation will subject aircraft to forfeiture. Q: Can the Philippine vessel or aircraft traveling within the Philippine territory subject to seizure? A: Yes. In Llamado, the Supreme Court held that it is not essential that the vessel or aircraft must come from a foreign country. It held that when the vessel or aircraft is used to insure the success of the smuggling operation, it could be forfeited. Case Alert! Llamado case!
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Q: What are the other remedies? A: Compromise, but should first be approved by the Secretary of Finance Q: What is the remedy of compromise and when is it available? A: The Customs Commissioner can compromise in certain seizure and forfeiture cases except when the case involves prohibited importation, importation attended by fraud, and when the release of the goods will be contrary to law. There is also no compromise in criminal cases. Sec. 2316 Subject to the approval of the Secretary of Finance, the Commissioner of Customs may compromise any case arising under this Code or other laws or part of laws enforced by the Bureau of Customs involving the imposition of fines, surcharges, and forfeitures unless otherwise specified by law. 3. Judicial Remedies Q: Does the Bureau of Customs have judicial remedies? Criminal? Civil? A: Yes. Before the amendment in the law, only one case of judicial action was given to the Bureau. They were allowed to enforce collection because of personal debt. After the amendment in sec. 2401, another judicial remedy was provided, criminal and civil. The criminal remedy to collect was only granted by the NIRC, now it is also found in the Tariff code. Sec. 2401 x x x criminal actions and proceedings instituted in behalf of the government under the authority of this Code x x x but no criminal action for the recovery of duties x x x shall be filed in court without the approval of the Commissioner. Sir: The criminal action filed under Sec. 2401 is different from smuggling. This provision talks of violations of the customs law. The criminal actions filed under the Tariffs and Customs Code does not have any prescriptive period. 4. Hold Delivery of Goods
2. Compromise
Q: When can the Bureau of Customs hold the delivery and release of shipments of the importer?
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A: If there is still an outstanding customs liability of the importer. Incoming shipments will be held, delivery will be withheld and those shipments may even be sold after notice to the importer for purposes of satisfying an outstanding customs liability Q: X, importer, imported in 2004 certain articles. The goods were brought out of customs. Upon review, it was discovered that there was still deficiency due. X made further importation in 2005. Can the Bureau of Customs sell the importations of X in 2005? A: Yes. Sec. 1508 Whenever any importer, except the government, has an outstanding and demandable account with the Bureau of Customs, the Collector shall hold the delivery of any article imported or consigned to such importer unless subsequently authorized by the Commissioner of Customs, and upon notice as in seizure cases, he may sell such importation or any portion thereof to cover the outstanding account of such importer; Provided, however, That at any time prior to the sale, the delinquent importer may settle his obligations with the Bureau of Customs, in which case the aforesaid articles may be delivered upon payment of the corresponding duties and taxes and compliance with all other legal requirements. 5. Compulsory Acquisition 6. Q: In the next importation, the bill of lading and other documents only stated $1k. Somehow, the importer found a way to lower the amount stated so he can just pay lower taxes. Can the Bureau refuse payment and just seize the goods because it feels the actual value is $15k and not $1k? A: Yes. This is a situation that calls for compulsory acquisition. Sec. 2317 par (a) In order to protect government revenues against the undervaluation of goods subject to ad valorem duty, the Commissioner of Customs may acquire imported goods under question for a price equal to their declared customs value plus by duties already paid on the goods, payment for which shall be made within 10 working days from issuance of a warrant signed by the Commissioner of Customs for the acquisition of such goods . Seizure and Forfeiture
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Q: When may the government resort to the remedy of compulsory acquisition? A: When there is undervaluation of goods subject to ad valorem duty. Sec. 2317 par (a) x x x undervaluation of goods subject to ad valorem duty Q: On what basis are the goods acquired? A: for a price equal to their declared customs value plus by duties already paid on the goods Q: What is the remedy of the taxpayer? A: Sec. 2317 par (b) An importer who is dissatisfied with a decision of the Commissioner x x x may within 20 working days after the date on which the notice of the decision is given, appeal to the Secretary of Finance, and thereafter if still dissatisfied, to the CTA x x x.
Q: What is the nature of the seizure proceedings? A: It is a civil proceeding. Which means there is no conviction. It is in rem against the res. A forfeiture penalty is a civil penalty. Once forfeited, that is the end of customs liability because forfeiture is the maximum penalty. The offender is the property itself and NOT the person. (Bar Ops Stenographic Notes) Q: When is the remedy of seizure and forfeiture used by the government? A: The kind of importation largely determines the kind of remedy the government will use. The remedy of seizure and forfeiture is used by the government only in cases of Prohibited Importation Q: What is the procedure in seizure proceedings? A: The procedure is first, customs issues a warrant of seizure and detention (WSD). After the WSD is issued, notice is sent to the importer, and then a hearing is conducted. After the hearing, the
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This is a new remedy provided by law because of the transaction value law (RA 8181). This has to be distinguished from search and seizure where you have fraudulent documents. In compulsory acquisition, you do not have fraudulent documents but simply undervaluation.

collector gives a decision, in most cases, a forfeiture penalty. From a decision of forfeiture, a taxpayer can appeal the decision of the collector of customs to the commissioner within 15 days from the receipt of the decision. From the commissioner, they can appeal to the CTA, CA, and to the SC. (Bar Ops Stenographic Notes) Q: Can the BC argued that the importers failure to attend forfeiture proceedings could be interpreted as badges of fraud (or that there is a fraudulent importation)? A: No, forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner. It is in the nature of a proceeding in rem directed against the res or imported articles x x x. In this proceeding, it is in legal contemplation the property itself which commits the violation and is treated as the offender, without reference whatsoever to the character or conduct of the owner. (Transglobe vs. CA) Case Alert! Transglobe Q: What are the requisites for the forfeiture of fraudulentlyimported goods? A: these are: 1. the wrongful making by the owner, importer, exporter, or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter, or paper all touching on the importation or exportation of merchandise 2. the falsity of such declaration, affidavit, invoice, letter, or paper 3. an intention on the part of the importer/consignee to evade the payment of the duties due. (Republic vs. CTA, AGFHA) Q: What about for prohibited articles? A: In the case of prohibited articles seizure and forfeiture is automatic. There is no need for the tax lien to attach in order for the government to seize the same. Q: Supposing the goods were seized, can the government run after the importer?
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A: No longer because forfeiture is the highest penalty. The action is against the goods and NOT the owner, but the criminal charges can be had. Q: Supposing equipment was seized due to fraudulent importation. They are subsequently declared forfeited in favor of the government. May the government still go after the importer? A: The government can no longer go after the taxpayer because of the simple reason that seizure and forefeiture of the goods is already the highest civil penalty. However, the taxpayer may be criminally charged for smuggling. This is an example that the same act produces both civil and criminal liability. Q: Is it proper to effect seizure and forfeiture after the sale at public auction if the forfeited articles are found in the possession of a third party? A: Yes, if the goods were found in the possession of a third party, this means that the articles were removed contrary to law from any public or private warehouse under customs custody. Even if the government has already been paid by virtue of the public auction, it can still effect forfeiture if the goods were removed contrary to law. The forfeiture of the subject machineries, however, is not dependent on whether or not the importation was terminated; rather it is premised on the illegal withdrawal of goods from Customs custody. (Carrara Marble vs. Commissioner) Sec. 2530 Any xxx cargo xxx shall be subject to forfeiture xxx (e) any article which is fraudulently concealed or removed contrary to law from any public or private warehouse, xxx under customs supervision. Case Alert! Carrara Case Q: In the Carrara case, the SC said regardless of the termination of the importation, the Bureau can still subject it to forfeiture. Why did the SC say that? A: The government has a right to take something that has been illegally taken from it. In that sense, still you can go to forfeiture proceedings. The government is the rightful owner. Q: So why would it still be subject to forfeiture proceedings when it has been abandoned na? Why cant the government just take it and give it to the lawful owner?
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A: Regardless of the termination of importation, if the goods were removed contrary to law, it still belongs to the government. This is so because forfeiture takes effect immediately upon the commission of the offense. The forfeiture of the subject goods, therefore, retroacted to the date they were illegally withdrawn from Customs custody. (Carrara) BURDEN OF PROOF Q: Who has the burden of proof in importation? A: The Collector must establish probable cause through possession or other incidents. Once it is established, the burden of proof is on the taxpayer to show legal importation. It is the burden of proof of the importer to dispute the presumption of illegality of importation (Rigor v. Rosales). Any of the grounds in Section 2530 of the Tariffs and Customs Code gives rise to probable cause wherein the taxpayer must prove that there is no irregularity. Sec. 2535 In all proceedings taken for the seizure and/or forfeiture of any vessel, vehicle, xxx, the burden of proof shall lie upon the claimant: Provided, that probable cause shall first shown for the institution of such proceedings and that seizure and/or forfeiture was made under the circumstances and in the manner described xxx. Q: If the ground is found in sec. 2530, is there probable cause already? A: Yes. Once the ground attaches, that fact alone gives rise to probable cause. Therefore, the burden shifts to the importer to dispute the ground. Q: In the prosecution of illegal importation, is it necessary that the State presents the goods before the court in order to prove illegal importation? A: No, even a single witness uncorroborated testimony, if credible, may suffice to prove it, there is no need to present the goods. (Rimorin vs. People) The fact of the commission of the crime may be established by the testimonies of the witnesses. Q: Supposing that the defendant was shown to have possessed the illegally imported goods, does the government has the burden that it was imported illegally?
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A: No, if the defendant is shown to have had possession of the illegally imported merchandise, without satisfactory explanation, such possession shall be deemed sufficient to authorize conviction. (Rimorin vs. People) Sec. 3601 par (3) When upon trial for violation of this section, the defendant is shown to have had possession of the article in question, possession shall be deemed sufficient evidence to authorize conviction unless the defendant shall explain the possession to the satisfaction of the court x x x. SOME DEFENSES AVAILABLE Q: Supposing a vessel was found to be carrying unpaid goods. Will it always, under all circumstances, be subject to seizure and forfeiture proceedings? A: No. There are exceptions to this rule: 1. Common Carrier (See Sec 2530) 2. Commercial quantities 1. Commercial Quantities Q: What is the commercial quantity requirement? A: Sec. 2530 (a) any vehicle x x x including cargo, which shall be used unlawfully in the importation of x x x contraband or smuggled articles in commercial quantities x x x. The mere carrying or holding on board of contraband or smuggled articles in commercial quantities shall subject such vehicle x x x to forfeiture. Q: Suppose that PAL came from HK with HK residents. When PAL disembarked, the HK residents were apprehended by the BC because they possess highly dutiable items. Will the articles be forfeited? A: No, because there is no importation in commercial quantities. 2. Common Carrier Q: Same question, but would the aircraft be subject to forfeiture? A: No, because it is a common carrier. The plane is beyond seizure and forfeiture because it is classified as a common carrier. Section 2530 (a) provides, Provided that aircraft is not used as a duly authorized common carrier and is such a carrier, it is not chartered nor leased.
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Sec 2530 Any vehicle x x x shall x x x be subject to forfeiture: (a) Any vehicle x x x Provided, that the vessel, or aircraft or any other craft is not used as duly authorized common carrier x x x. Take note that Section 2530 attaches to show probable cause of smuggling on the part of defendant. All other instances will be a matter of defense to dispute the probable cause Q: Suppose a family rode a chartered aircraft with contraband articles in commercial quantities. Can the aircraft be forfeited? A: Yes. Sec 2530 Any vehicle x x x shall x x x be subject to forfeiture: (a) Any vehicle x x x Provided, that the vessel, or aircraft or any other craft is not used as duly authorized common carrier and as such a carrier it is not chartered or leased; 3. No Knowledge Q: If vessel carries contraband in commercial quantities, it is not a common carrier, is it a rule that it will be subject to forfeiture proceedings? A: Yes, but if no knowledge by the owner then the penalty will not attach. See 2531 Q: How about the owner of the vessel or aircraft used in the importation, may it be seized if the owner was not aware? A: Under Section 2531, the penalty of seizure and forfeiture is not allowed if it is proven that the owner had no knowledge nor participation in the illegal importation. Unless a presumption against the vessel/aircraft has been established. The owner must dispute the presumption Q: Is the knowledge of the vessel owner a defense in forfeiture proceedings? A: Generally, it is not a defense in forfeiture proceedings because forfeiture proceedings are directed against the property and not the owner. Q: Section 2530 (a) talks about an aircraft or vessel used in smuggling as subject to forfeiture and shows a defense against probable cause. Section 2531 states that no knowledge of the owner is a defense. How do you reconcile that forfeiture is directed
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at the res and therefore the defenses of the owner are personal and not applicable to the former? A: The vessel will be subject to forfeiture if probable cause is established against it. However, the defense by the owner may be raised to avoid actual forfeiture of the vessel. In other words, the defense of no knowledge on the part of the owner is a defense that would take away the vessel from being actually forfeited. Q: If the knowledge of the owner is not a defense, why does Sec. 2531 states that the forfeiture of the vehicle x x x shall not be effected if it is established that the owner x x x has no knowledge of or participation in the unlawful act x x x? A: If you have unlawful importation, it simply means it will be subject to forfeiture proceedings. The fact that the vessel owner has no knowledge of the unlawful importation will not take it out of the forfeiture proceedings. Now, whether or not forfeiture as a penalty will be imposed, it depends on the knowledge or non-knowledge of the owner. If there is no knowledge, under Sec. 2531, forfeiture penalty may not be imposed. But whether the vessel will be subject to forfeiture proceedings, yes. Whether the penalty will be imposed depends on the knowledge. Q: Despite the allegation of lack of knowledge, is it still possible to cause the forfeiture of the vessel? When is there prima facie presumption against the vessel? A: Yes. Sec. 2531 x x x, Provided, however, That a prima facie presumption shall exist against the vessel x x x: 1. If the conveyance has been used for smuggling at least twice before 2. If the owner is not in the business for which the conveyance is generally used. 3. If the owner is not financially in position to own such conveyance. Case Alert! Pascual Q: What are other the defenses available to the importer? A: He may allege that there is no intention to unload, and that the items are mere personal effects. EXCLUSIVE ORIGINAL JURISDICTION Q: Who has exclusive original jurisdiction in customs cases?
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A: The collector when he acts in a seizure/forfeiture proceedings constitutes himself as a tribunal with exclusive jurisdiction over the same. This exclusive jurisdiction renders all other tribunals as without jurisdiction once the proceedings are begun. As soon as a seizure/forfeiture proceeding begin, no other court can take cognizance of the case. Once the Bureau of Customs acquires the exclusive original jurisdiction, the RTC cannot take cognizance of the case anymore. Q: Can the judicial courts take cognizance of cases pending with the Bureau of Customs? A: No. There is no question that RTCs are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with there proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The RTCs are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition, or mandamus. (Bureau of Customs vs. Ogario) Q: How is the seizure proceeding initiated? A: Issuance of the Warrant of Seizure and Detention initiates the seizure proceeding. From then on, exclusive original jurisdiction vests on the Bureau of Customs. This means that no one can anymore interfere. Exception is in the Chia case, when goods are already in possession of customs authority. Q: If goods are outside customs custody, when does it become exclusive original jurisdiction of the Bureau of Customs? A: From the issuance of the warrant Q: Is there a necessity for the issuance of the warrant of seizure and detention (WSD) before the bureau of customs can exercise its exclusive jurisdiction? A: Yes, if the goods are outside the customs zone. But, if the goods are already in possession of the customs authority, WSD is not necessary. Q: Are WSD like search warrants? A: No, because in customs search, the goods may be seized even without a WSD. (Chia case) In Pacis vs Pamaran, the Court held that
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the Collector cannot be found liable for usurpation of judicial functions in issuing the WSD notwithstanding the constitutional mandate that only a judge may issue a search warrant because Customs officials may conduct the search even without any warrant. Q: What is the purpose of a warrantless search if they would have to wait for WSD? A: Warrantless search simply talks of search. WSD is important because it initializes the seizure proceeding. In warrantless searches, it is merely an administrative remedy, but without the WSD there can be no seizure proceedings. Q: If this is so, is it not pointless to have a warrantless search on the part of customs collectors? A: No. The Warrant of Seizure and Forfeiture does not diminish the value of a warrantless search, on the contrary, it strengthens it. Q: When does the exclusive jurisdiction of BC over seized and forfeited articles attach? A: The issuance of the warrant of seizure and detention initializes the seizure proceedings. If the goods are already in the Customs custody, the exclusive jurisdiction attached. Q: When does seizure/forfeiture proceedings begin? More properly, when does the exclusive jurisdiction of the collector begin? A: If the goods are within the custody of the Bureau the exclusive authority attaches immediately even without issuance of a Warrant of Seizure and Forfeiture. On the other hand, if the goods are not within the custody of the Bureau, the exclusive authority attaches upon issuance of the Warrant of Seizure and Forfeiture. Q: Supposing you have goods in a certain warehouse. This is outside customs custody. They were seized before the issuance of a Warrant of Seizure and Detention. Can the importer go to the RTC and enjoin seizure and forfeiture on the ground that the customs acted illegally? Can he raise lack of authority? A: No, even assuming there really was lack of authority. This is by express provision that the exclusive original jurisdiction belongs to the Bureau of Customs. This defense is not sufficient or else the importer can just raise the defense with the RTC to deprive the Bureau of Customs of exclusive original jurisdiction. You can question the warrant or seizure, but only during the seizure
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proceeding. The Supreme Court has been consistent with this. The Court said once you have seizure and forfeiture, no matter how initiated, the Bureau of Customs has exclusive original jurisdiction over ALL issues. The most that can be said is that under the circumstances the grave abuse of discretion conferred may oust it of such jurisdiction. It does not mean however that correspondingly the RTC is vested with competence whe clearly x x x the law has not seen fit to do so. x x x An appeal lies to the commissioner of customs and thereafter to the CTA Q: Suppose the goods were under custodia legis by virtue of a RTC proceeding. Subsequently, seizure proceedings were instituted with the BC. Whether the RTC or the BC would have custody over the goods? A: BC. Because, the seizure proceedings are against the goods and not the individual. Q: What if the goods were earlier seized by a warrant issued by the RTC, may the BC seized this goods pursuant to a WSD? A: Yes. When the goods have been brought under the legal control of the RTC, this fact serves to deprive any other court or tribunal, except one having supervisory control or superior jurisdiction x x x. The Collector is not precluded by law or legal principle from assuming jurisdiction over the goods. (Commissioner of Customs vs. Makasiar) Q: Supposing an officer applied for a search warrant to search and seize the smuggled articles, but instead of bringing the seized goods to the court, the officer turned it over to the BC. Is it proper for the officer who secured and executed the search warrant to turn it over to the BC? A: No. When the officers secured the warrant, they are aware that they have the duty to turn over the goods to the court. Indisputably, the Collector of Customs has exclusive original jurisdiction over seizure and detention proceedings and that the regular courts cannot interfere with nor deprive him of such jurisdiction. However, the exclusive original jurisdiction of the Collector pertains only to such goods seized pursuant to the authority under the Customs Code. (Tenorio vs. CA) REMEDIES OF THE TAXPAYER 1. Protest
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Q: What is this protest? A: Sec. 2308 When a ruling or decision of the Collector is made whereby liability for duties xxx are determined xxx the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due to the government is made or within 15 days thereafter, a written protest setting forth his objection to the ruling or decision in question, together with the reasons therefore. No protest shall be considered unless payment of the amount due after final liquidation has fist been made and the corresponding docket fee xxx. Section 2402, The party aggrieved by the ruling of the Commissioner in any matter brought before him upon protest or by his action in any case of seizure may appeal to the CTA Q: When is the remedy of protest available? A: The remedy of protest is available only in regular dutiable transactions and NOT in importations contrary to law. Q: What is protested here? A: the assessment or the imposition of taxes. Q: When can the taxpayer protest? A: within 15 days from the payment of taxes due. Q: Suppose a taxpayer was made to pay on the account of imported prohibited articles. Can he make a protest thereafter? A: No, remember protest is NOT available in prohibited importation. Q: X came from Bangkok with several sacks of RTW. He was assessed P100K. X paid. 30 days after, X questioned the imposition to the Commissioner. The Commissioner issued an order requiring the Collector to explain the assessment. Is the order proper? A: No, In this case there is no protest, so there can be no appeal to the Commissioner. Moreover, X questioned the assessment beyond the period to appeal. Failure to protest renders the imposition final. Sec. 2309 xxx shall make a protest, otherwise the action of the Collector shall be final and conclusive against him xxx The remedy of protest must be exclusively filed with the collector within 15 days from payment. After the prescriptive period, the
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decision becomes final and executory and no longer appealable to the Commissioner. The Commissioner may not take cognizance of a case absent any initial protest filed on time with the Collector (Section 2309) Q: What if the Collector ruled that the importer should pay an amount lower than the assessment, what results? A: Sec. 2313 par (b) If in any seizure proceedings, the Collector renders a decision adverse to the Government, such decision shall be automatically reviewed by the Commissioner and the records of the case elevated within 5 days from the promulgation of the decision of the Collector xxx Q: Supposing that the Collector made a decision adverse to the government, but the Commissioner did not make any action, what would happen to the decision? A: Sec. 2313 par (b) xxx However, if the Collectors decision is affirmed, or if within 30 days from receipt of the record of the case no decision is rendered xxx such decision shall be deemed automatically appealed to the Secretary of Finance xxx. Sir said in case of inaction, protest and seizure are different, but didnt really quite get what the difference is. Q: What if the Commissioner reverses the decision of the Collector that was adverse to the government, what may the importer do? A: He may appeal the Commissioners decision to the CTA. Q: What if the Commissioner made a decision adverse to the taxpayer and the taxpayer appealed to the Secretary of Finance, will the taxpayers appeal prosper? A: No, because decisions of the Commissioner of Customs must be appealed to the Court of Tax Appeals. Q: Suppose payment was made. The importer agreed with the payment on September 30, 2005. Can the Bureau impose additional duties upon a finding that there were still duties to be paid? A: Yes, because, first of all, it becomes a tax lien the moment duties were not fully paid. Second, the assessment here is not yet final. Post-Entry Audit/ Compliance audit (PEA) is tied to the new requirement that importer must keep records within 3 years. Within
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those 3 years, the commissioner may conduct a PEA to check if correct duties have been paid. Under the new law, once PEA conducted, importer can be liable for deficiency duties and can be penalized. The effect of this is that the liquidation can never be final, because commissioner can just conduct PEA. Here we are talking only about legal importation. (see RA 9135)
September 29 Thursday 8-9pm Q: In seizure, what happens if you have an adverse decision to the government? A: Sec 2313 (b). It is automatically reviewed by the commissioner and records of the case are elevated within 5 days. In case of inaction it is different in protest and seizure. Q: If commissioner affirms? A: Automatically appealed to the secretary of finance. Q: Supposing the decision of the commissioner is not favorable to the government and the amount involved is P5m? A: If amount if P5m at the level of the commissioner, there is an automatic appeal to the secretary of finance. That is why you have to read sec. 2313 carefully. Q: What if there is inaction on the part of the commissioner? A: Then the tax payer can go to the CTA 30 days from the receipt of the records because it is considered final. Q: If you have seizure case, what are the remedies of the taxpayer? A: Bond, settlement Case Alert! Ogario/ Harrison Motors Q: Can the importer be held liable even if he no longer has dominion over the property, or even if the property has already been transferred? A: Yes. As between the importer and the buyer, it is the importer who has the obligation to pay taxes to the BIR and the BC. The importer would be unjustly enriched if the buyer should pay the tax and denied reimbursement by the importer. Imposing the tax
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burden on the buyer would only encourage the proliferation of smugglers who scheme to evade taxes by passing on their tax obligations to their unsuspecting buyers. (Harrison Motors Corporation vs. Navarro) 2. Bond 4. Sec. 2301 Upon making any seizure x x x; and if the owner or importer desires to secure the release of the property for legitimate use, the Collector shall x x x surrender it upon filing of a cash bond, in an amount to be fixed by him, conditioned upon the payment of the appraised value of the article x x x. Q: What would be the remedy of the taxpayer when the goods are in the custody of BC pending the forfeiture case against it? A: The goods can be released by filing a bond, but the release should be for a legitimate use. Q: What is the remedy of the taxpayer during seizure and after forfeiture? A: During seizure proceedings, the taxpayer may file a bond or he may have the goods released upon payment of a fine; but this is only available when the importation is not prohibited, unlawful, or fraudulent (because in these cases, there can be no settlement with the government). 3. Refund Q: What is the remedy of abatement and refunds? A: Section 1702 states that when any package appearing on the manifest bill of lading are missing, an abatement or refund of duty thereon shall be made if the same is certified as truly missing. Q: What are the grounds for refund? A: The grounds are: 1. Missing Package when any package or packages appearing on the manifest or bill of lading are missing (Sec. 1702) 2. Deficiency in Contents of Package If, upon opening any package, a deficiency or absence of any article xxx as called for by the invoice shall be found to exist xxx. (Sec. 1703)
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3.
Injury, destruction, loss of irrevocable domestic letter of credit, bank guarantee, bond, while xxx: a. Within limits of port of entry b. Remaining in customs custody c. In transit with formal entry xxx d. Released for export, except theft (Sec. 1704) Refund of Excess Payments (Sec. 1707)
Q: What is the procedure for filing a refund? A: Sec. 1708 All claims for refund of duties shall be in writing and forwarded to the Collector x x x. Q: X was assessed P100k. Assessment was made in September 15, 2005. He paid. On October 15, 2005, he filed a claim for refund. Will this prosper? A: No. The claim for refund must be filed within 15 days from payment. Q: Why 15 days? Is there a provision that says 15 days from payment? A: There is no provision, but the procedure for refund is similar to the procedure for protest and in the procedure for protest, you are given 15 days from payment. This is explained in the Nestle case, where the Court said that when the importer claims refund, the importer is actually protesting. The Court actually calls it a protestable refund case. In customs law, you pay first before protesting. What is the prayer in the pleading of a protest filed? Refund diba? So refund should follow protest procedure. x x x in all cases subject to protest, the claim for refund of customs duties may be enforced only when the interested party claiming refund fails to file a written protest before the Collector of Customs. This written protest must x x x be made either at the time when payment of the amount claimed to be due the government is made or within 15 days thereafter x x x. (Nestle vs. CA) Q: X, importer, was assessed P100k. He paid on September 30, 2005. On October 30, 2005, X went to the Commissioner. The Commissioner said Oh cool, I think you are right! So the Commissioner writes to the collector ordering refund. Is this proper? A: No. A claim for refund has to be made within 15 days, remember?
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Q: Why cant the commissioner order the collector? A: Because in this situation the assessment is already final and conclusive. Failure of the taxpayer to protest the assessment renders it final and conclusive. Therefore, it is clearly out of the powers of the commissioner. It ends at the level of the collector. You really have to follow the protest procedure and not make pakiusap to the commissioner. 4. Settlement and Redemption Q: Whether the taxpayer has a remedy pending seizure proceedings? A: Yes, the remedy of settlement. Sec. 2307 x x x, the district collector may, while the case is pending x x x accept the settlement of any seizure case provided that the owner x x x shall offer to pay to the collector a fine imposed by him upon the property x x x. Q: Whether the taxpayer may redeem the forfeited property? A: Yes. Sec. 2307 x x x in case of forfeiture, the owner x x x shall offer to pay for the domestic market value of the seized article x x x. Q: What are the exceptions to the remedy of settlement and redemption? A: These are: 1. fraudulent importation: Sec. 2307 par (a) x x x except when there is fraud. 2. prohibited importation Sec 2307 par (c) 3. release of property would be contrary to law Sec 2307 par (c) 5. Abandonment Q: What is the remedy of abandonment? A: Q: Differentiate abandonment with seizure and forefeiture. A: In forfeiture it is the government saying This is ours! In abandonment it is the taxpayer saying This is yours! Q: Why would the taxpayer resort to abandonment?
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A: When the burden of the taxpayer is greater. If the taxpayer feels that he is being pressed for certain liabilities, all he has to do is to abandon the goods. The abandonment will relieve of any customs liability. Q: Would abandonment extinguish criminal liability? A: No. Sec. 1802 par (b) Nothing in this section shall be construed as relieving the owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the abandoned article. Q: How do you forfeiture? A: In seizure and often than not, abandonment, it taxpayer differentiate abandonment from seizure and forfeiture proceedings, the importation is, more prohibited and fraudulent. In the case of is always a regular importation and stupid
Q: How can an importer abandon the goods? A: Sec. 1801 An imported article is deemed abandoned under any of the following circumstances: 1. 2. When the owner x x x of the imported article expressly signifies in writing to the Collector his intention to abandon When the owner x x x after due notice, fails to file an entry within 30 days which shall not be extendible from the date of discharge of the last package from the vessel or the aircraft or having filed such entry, fails to claim his importation within 15 days which shall not be extendible, from the date of posting of the notice to claim such importation
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Q: What is the effect of abandonment? A: Sec. 1801 par (b) Any person who abandons an article or who fails to claim his importation x x x shall be deemed to have renounced all his interests and property rights therein. Sec. 1802 An abandoned article shall ipso facto be deemed the property of the Government x x x. Q: Does the ownership of the government over the abandoned articles mean that the taxpayer can no longer question the propriety of abandonment upon declaration of abandonment?
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A: No, the taxpayer could appeal. Even if it is deemed property of the government, there must be a decree or declaration to that effect that can be appealed. Q: Supposing upon receipt of final decree of abandonment, taxpayer appeals the decree. Can he do that? A: No. Abandonment is a waiver of right. However, in order for it to be ipso facto owned by the government, there has to be a final decree of abandonment issued. This is like when Erap used the luxury vehicles deemed abandoned in Subic.
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A: The law always mandates sale on public auction of abandoned articles. But in some instances, the collector allowed redemption upon payment of duties, fines and surcharges. However this is questionable. Q: Why allow redemption when the government can sell the articles for a higher price? A: The law on abandonment merely states that the government can exercise ownership over the goods. There is no prohibition against the government in settling the tax liability in whatever way it deems fit. Therefore the collector is not precluded from allowing redemption by the taxpayer to settle the tax liability. 4. Judicial Remedies Q: What are the judicial remedies of the taxpayer? A: appeal to the CTA. Q: Can the taxpayer forego the administrative remedy and go straight judicially to the CTA? A: No. The judicial remedy is always tied up with the administrative remedy. If the taxpayer did not file a protest or a claim for refund he may not go straight to the CTA. In short there must be an exhaustion of administrative remedies first. Q: Can the importer go to Court and ask for injunction? A: Simple answer is that in seizure and forfeiture, there can be no injunction, because the exclusive jurisdiction is with the Bureau of Customs. But what if it involves an assessment? Here the taxpayer will tell you there is no prohibition, but the taxpayer will not do that. Because before you protest, you have to pay. So there is really nothing to enjoin. So no need for rule prohibiting injunction. 5. Compromise Q: What is compromise? Supposing you have seizure proceedings where goods were valued at P3m. Fine was imposed at P500k. Supposing the taxpayer asks if he can pay the fine of just P300k. Collector accepted. Proper? A: No. Secretary of Finance must approve the compromise FRAUDULENT PRACTICES/ IMPORTATION
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Q: Supposing the collector declares the goods as abandoned. Does the importer have a remedy? A: The taxpayer may appeal the decision to the commissioner and thereafter to the CTA. Q: But what about the statement that says goods abandoned shall automatically belong to the government? A: The automatic reversion contemplates a situation of Final abandonment. Meaning that the decision is already final and executory and no longer appealable. Q: Suppose goods were misshipped. Upon reaching the port, the BC declared these goods abandoned. The owner-importer appeared. The collector allowed payment of duties and taxes. Did the collector erred in allowing payment of duties when such goods are abandoned in favor of the government? A: In the case of transshipment or misshipment, there is no importation because there is no intention to unload. Abandonment presupposes importation. Q: Supposing the importer stored the imported goods with the warehouseman, the warehouseman insured the goods with the insurer. The consignee failed to file the import return and to claim the goods. BIR issued a declaration that the goods are abandoned in favor of the government. Subsequently, the goods were destroyed by fire. Can the consignee claim the insurance proceeds? A: No. Q: Does the taxpayer have the remedy of redemption in case of abandoment?

Sec. 3601 Any person who shall fraudulently import or bring into the Philippines, or assist in doing so, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such article after importation, knowing the same to have been imported contrary to law, shall be guilty of smuggling and shall be punished x x x. Q: What constitutes fraud in fraudulent importation? A: In fraudulent importation, the fraud contemplated by law must be actual and not constructive fraud. It must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right. (Transglobe vs. CA) Q: Suppose, there was misdeclarations in the invoice, would this be sufficient to characterize the importation as fraudulent? A: No, the fraud contemplated by law is actual fraud. There must be proof of an intent to deceive and that it is deliberately done. The misdeclaration is not a conclusive proof of fraud. The wrongful making or falsity could be attributed to the foreign suppliers or shippers. If it is not shown that the taxpayer had knowledge of any falsity in the shipping documents, then forfeiture would not lie.
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Q: What are the other cases that fall under the exclusive appellate jurisdiction of the CTA in customs cases? A: countervailing duty, dumping duty, refund, abandonment. TARIFF COMMISSION Q: What is the Tariff Commission? A: Tariff commission is a body administration functions. having investigative and
Sec. 502 x x x to investigate the administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted x x x. Q: Can this body impose penalties pursuant to findings on their investigation? A: No, this is mainly a policy making body and can only make recommendations for further action by the President.
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Q: What is the rule in forged documents? A: In the case of Transglobe v. CA, the court ruled that in case of forged documents, the importer should have actual knowledge of the forgery in order for the importation to be fraudulent, precluding other remedies available to the taxpayer CTA JURISDICTION IN CUSTOMS CASES Q: What is the jurisdiction of the CTA in customs cases? A: In Sec. 7 of RA 9282, CTA has exclusive appellate jurisdiction to 1. Decisions of the Commissioner of Customs x x x 2. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner which are adverse to the Government under Sec. 2315 of Customs Code 3. Decisions of Sec of DTI 4. Decisions of Sec of DA
LOCAL GOVERNMENT TAXATION

Local Government Code of 1991 Sec. 128 196 Q: What are the general principles of Local Government Taxation? A: The general principles are:
1. 2. 3. 4.
The entities involved here are the local government units (LGUs), specifically the provinces, cities, municipalities, and the barangay. This taxing power is merely delegated by Congress to LGUs. The reason for this grant is that the LGUs have no inherent power to tax. This taxing power is legislative in character. This means that it is exercised by the LGUs through their respective Sanggunian by an enactment of an ordinance. The enactment of tax ordinances and revenue measures requires public hearings to be first conducted.
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Tax II Notes 2005 Edition Mendoza 5. The new Constitution grants LGUs the authority to create their own sources of revenues, which shall accrue exclusively to them. See Sec 5, Art 10. 6. The tax powers of LGUs are to be liberally construed but a doubt on the application of a tax ordinance shall be construed strictly against the LGU. The exceptions to this are tax exceptions, incentive or relief, which shall be construed strictly against the grantee. Q: What are the fundamental principles of Local Government Taxation? You have to memorize this. A: Sec. 130 provides that the Fundamental principles are: 1. Taxation shall be uniform in each LGU 2. Taxes, fees, charges and other impositions shall: a. Be equitable and based as far as practicable on the taxpayers ability to pay; b. Only for public purposes c. Not unjust, excessive, oppressive, or confiscatory; d. Not contrary to law, public policy, national economic policy, or in restraint of trade;
3. The collection of local taxes, fees, charges, & other impositions shall in no case be let to any private person
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regardless of other LGUs. As long as its uniform within the jurisdiction of the taxing LGU then its valid. 2. Taxes, fees, charges and other impositions shall: a. Equitable -> based ability to pay on
Q: What do you mean by this? A: This means that you have to apply the same rate REGARDLESS (meaning: without any standard). This is the same principle with national taxation. However, LGC covers taxes, fees (i.e., parking fees, garbage fees), charges, & other impositions b. Only for Public Purpose
Q: What do you mean by this? A: Proceeds of taxation are used to support the existence of the LGU or the pursuit of its governmental objectives. The LGU taxes for its own benefit and therefore can determine its own public purpose.
4. 5.
The revenue collected shall inure solely to the benefit of and subject to disposition of the LGU levying the local taxes, fees, charges, & other impositions. Each LGU shall evolve a progressive system of taxation.
c.
Not Unjust, Oppressive, Excessive, or Confiscatory
1. Taxation shall be uniform in each LGU. Q: What do you mean by uniform in each LGU? A: This means that all taxable articles or kinds of property of the same class shall be taxed at the same rate within the territorial jurisdiction of the taxing authority or LGU. Q: Municipality A imposes a tax on a business but the same business is exempted by Municipality B. Is the tax levied by A valid? A: YES, because uniformity is required only within the geographical limits of the taxing authority. The LGC provides in each LGU, meaning it levies for its own purposes within its jurisdiction,
Q: A tax rate is contested to be unjust & excessive. What must the Court establish to arrive at such a conclusion that said tax is really unjust, excessive? A: the Court must look at the circumstances of the case because of the presumption of reasonableness in favor of the LGU. Also, the LGUs are given a wide latitude in fixing the tax rates. Thus, absence any showing that its unjust, excessive, the Court would be slow in writing off an ordinance. See Jagna case d. Not contrary to law, public policy, national economic policy or in restraint of trade
3. Not Let to any private person
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Q: Supposing City of Manila passes an ordinance with slaughter house fees. It enters into an agreement with an NGO for the collection of fees. Is this proper? A: No. Sec 130 (c) expressly prohibits it. You can also argue from the point of public purpose, because it is hard to argue public purpose when an NGO collects it. 4. The revenue collected shall inure solely to the benefit of and subject to disposition of the LGU levying the local taxes, fees, charges, & other impositions. Q: What does this mean? A: The LGU taxes for its own benefit and therefore revenues collected would only be shared when it is expressly provided in the Code. It is valid as long as the sharing is between or among LGUs and would not involve sharing it with the National Government. Q: Congress passes a law that amusement taxes imposed by LGUs would be shared with PAGCOR. Valid? A: NO because this is against the Consti provision that tax proceeds accrue exclusively to the LGU concerned. Q: What are some common-revenue raising powers of the LGU? A: The LGU may impose service fees/charges, public utility charges, and toll fees/charges. LGUs can levy taxes, fees, or charges on any base or subject not otherwise specifically enumerated. Provided: o The tax measure is not violative of any of the fundamental principles. o The tax is not among those explicitly prohibited by the Code. o A prior public hearing conducted. 5. Each LGU shall evolve a progressive system of taxation. Q: What does this mean? A: This means that more income, more taxes . This is manifested in local government taxation through business taxes. Sir: It is impossible to a progressive system, because LGU cannot impose income tax, etcIt is based on a previous year plus the fact that there is a fixed annual rate. progressivity. October 4 Tuesday 7-9pm COMMON LIMITATIONS (Sec. 133)
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Therefore, no element of
Q: Can the LGU impose a tax already imposed by the NIRC? A: No. LGU may not impose taxes which are already imposed under the NIRC Income Q: Can the LGU impose income tax? Why or why not? A: No. This is an absolute rule. Sec. 133 (a) Income tax, except when levied on banks and other financial institutions. The exception provided is inaccurate. This is really not an exception but rather this refers to the tax on the gross receipts of such institutions. Passing Through limitation Q: The City of Lipa imposes an inspection fee on every kilo of Barako coffee being sold to the next LGU. A businessman from Talisay, Batangas wants to buy Barako coffee from Lipa. The businessman is taxed. Proper? A: No. This is within the passing through limitation. Q: Two municipalities connected by a bridge built by both of them. Municipality A imposes a tax on every vehicle passing through the bridge. Municipality A loaded a vehicle with goods. Under the ordinance the vehicle is subject to a P50 for passing the bridge. Valid? A: Depends. You have to look at the circumstances of the case. If its a tax on the vehicle, then it would be valid since it could be considered under toll fees or charges (S155, LGC) Remember that S155 refers to the vehicles itself and not to the goods it carries. BUT if the tax is on the vehicle for passing through the bridge, then it would not be valid because its actually a tax on the goods and
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therefore covered by the passing through limitation. Note that the common limitations on passing through refers to the goods itself. Taxes on business enterprises certified by the Board of Investments Q: Are industries certified by the BOI exempt from paying sanitation fees and other similar fees? A: NO because they are only exempt from paying taxes. Percentage or VAT Q: The business of X is subject to VAT. Can the province impose a tax upon said business? A: Yes. The province can impose a business tax on all businesses that are subject to VAT or are VATABLE. However, the province may not itself impose VAT on said business. Tax on Exported Goods Q: Can LGU impose tax on business of export? A: YES but only on the business of export itself and not on the products exported. Q: X Inc engaged in the importation of copra. It stored the copra in a warehouse. Can the copra be subject to tax? A: YES because it is still stored in the warehouse and not actually exported. It may happen that the said copra is only sold locally. NOTE that the limitation applies only to goods actually exported.
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Sec of Finance says it should not cover fees for services rendered and for rentals of properties used for business. BUT Sir disagrees with this since the exemption is expressly provided for by the Code.
Tax on the National instrumentalities and LGUs Government, its agencies,
Q: Can the LGU impose a tax on another LGU? A: No. This falls under the common limitations particularly sec. 133 (o) Q: How about corporations? Can the LGU tax GOCCs? A: Depends on the term instrumentalities/ agencies. See the Napocor vs Cabanatuan case. In that case, Cabanatuan imposed a franchise tax on Napocor. Napocor invoked the limitation because it was a GOCC. The Court upheld the franchise tax because the province or city was specifically authorized to impose a franchise tax. So because of this specific authority, it was allowed. This is an exception to the common limitations. Therefore, the rule is that this limitation is only applicable in the
absence of a specific provision in the LGC authorizing the LGU to impose a tax on the said instrumentalities/agencies of the national government. An exemption in this limitation is Sec 137, which authorizes provinces (as well as cities by virtue of Sec 151) to levy franchise tax notwithstanding any exemption granted by law or other special law.
SPECIFIC TAX POWERS Provinces Q: Can the province impose business taxes? A: Yes, those enumerated like b usiness of publication and printing, on
Cooperatives Q: What about cooperatives?
those enjoying a franchise, and a tax on delivery vans among others.

Q: Why cant the province impose business taxes on other businesses? A: Although the law uses may it also uses the term only. This means that it is limited.
A: Cooperatives are exempt from paying taxes, fees, or charges (pecuniary liabilities)
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Sec 134 Scope of Taxing Powers Except as otherwise provided in this code, the province MAY levy ONLY the taxes, fees, and charges as provided in this Article. Q: What is the coverage of the amusement tax? A: it is collected from proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses etc. Q: What is not covered by the amusement tax? A: It does not cover operas, concerts, dramas, recitals, painting & art exhibitions, flower shows, musical programs, and literary and oratorical presentations. The exception to the exception are pop, rock or similar concerts. Q: How is the amusement tax imposed? A: It is based on the admission fees only. Sec 140, LGC provides at a rate of not more than 30% of the gross receipts from admission fees. NOTE that in the NIRC, the amusement tax levied by the NG is based on gross receipts. Q: Can a province impose professional tax? A: Yes, the province may impose the same on all those professions requiring government examination. NOTE that in municipalities, the Code talks of occupation (meaning: no government examination required) and not of profession. Q: What if a lawyer practices pro-bono, is he subject to professional tax? A: YES because the tax is based on the privilege of practicing the legal profession. Q: What if a lawyer only had a single case for an entire year. Subject to prof tax? A: NO because it may be argued that the Code says regular practice. Municipalities Q: What is the limitation in municipalities? A: It may levy taxes, fees, and charges NOT otherwise levied by provinces. Q: What makes up the bulk of a municipalitys revenues?
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A: Business taxes. This is since their power to levy such tax covers almost all economic activities from building of ships to beauty parlors. Q: Supposing in Makati, you have this 1 big compound at 123 Batangas West St. owned by X. Here you have several establishments like a beauty parlor, barber shop, and other shops. What will be the local tax treatment? A: Sec. 146 provides that if its SAME person, SAME place but DIFF businesses = segregate or separate the taxes on each of the businesses. Treat each business separately or differently. Q: Supposing that in 1 municipality, 29 barangays, X has the same business in each of the 29 barangays. Let us say his business is a laundry shop. Same tax treatment? A: No. If SAME person, SAME business but DIFF places = taxpayer must consolidate all the gross receipts of each branch/business. Treat all the branches as one business. Q: What if different businesses but same tax rates, would that make a difference? A: No. The gross receipts will still be consolidated. What is controlling are the tax rates. If different tax rates, then treated separately. Q: X has a repair shop and within it there is a spare parts store for automobiles to be repaired by the repair shop. Would the spare parts store be subject to a different tax than that of the repair shop? A: Depends. If the spare parts store is incidental to the repair shop business, then it would not be subject to a different tax. BUT if the spare parts store sells to the public, then its an independent business and therefore it can be made subject to a different tax. See Opon case. Cities Q: What is the taxing power of the City? A: The City has the broadest taxing power among the LGUs. This is since the City has the power to impose those taxes levied by both the province and the municipality.
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A: Then the 70% apportioned to a factory shall be shared pro rata in proportion to their production. See Sec. 150 (d) Barangay Q: What is the taxing power of the barangay? A: The barangay has the least taxing power among the LGUs. The general tax powers under Sec 186 of the Code have not been withheld from them TAX SITUS Q: What is this tax situs? A: Section 150. If there is a branch/sales office: Tax situs is where the sale was effected. If there be none: [SALES APPORTIONEMENT RULE] o Sale shall be recorded in the principal office (30%) and where the factory is located (70%). o If the plantation and the factory are located in different places then the 70% would be divided as follows: 60% allocated to the LGU where the factory is situated and 40% where the plantation is located. Q: Supposing Pasig principal office San Juan 1 branch with P1m gross receipts Makati P2m gross receipts Quezon City Delivery/ Consignment basis of P2m Total Sales amounts to P5m. What is the tax treatment? A: The Sales in San Juan will be recorded because a branch is located there. The rest of the sales shall be computed in Pasig, because that is where the principal office is. In QC, it is mere consignment and not a branch/ outlet. Q: Same facts, but there is also a factory in Valenzuela. The Principal Office is still in Pasig. Both no sales A: Apply the Sales Apportionment Rule wherein the sales shall be split. 30% recorded in Pasig and 70% recorded in Valenzuela Q: Supposing there were 2 factories, 1 in Valenzuela and 1 in Makati? CIVIL REMEDIES FOR COLLECTION Things to remember: The non-payment of the tax liability on the due date subjects the taxpayer to corresponding surcharges and interest. All local taxes shall be collected by the local treasurer or his duly authorized deputies. A tax lien is created on any unpaid tax, fee or charge. It attaches automatically to the thing. It is superior to all other liens, charges or encumbrances in favor of any person. It is extinguished only upon full payment of the delinquent tax, fee, or charge plus the surcharges or interest. o It is generally directed against the property subject to the tax regardless of the owner. Whereas in a distraint, the property must be that of the taxpayer although it need not be the property to which the tax is assessed. o NOTE the tax lien cannot be appealed since it attaches automatically to the thing. o It is imposed on any property which is subject to the lien as well as on any property used in the business, occupation or practice of profession or calling with respect to which the lien is imposed. Q: Can LGU file a criminal case to collect? A: NO because the Code uses civil action. Q: When can the LGU avail of these remedies? A: Only after an assessment has become final and the taxpayer fails to pay within the prescribed period. Q: Is there a need for an assessment? A: Yes, because the remedies are only available when the assessment has become final and the taxpayer fails to pay within the prescribed period.
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Q: When can the LGU assess? A: The LGU can assess within 5 years from date taxes, fees, or charges become due. Q: When are they due? A: Taxes accrue on the 1st day of January. Period to pay: first 20 days. BUT it may also be paid by installments. Q: When does the LGU collect? A: Within 5 years from date of assessment. This means that an assessment is always necessary. The exception to this rule is if there is fraud or intent to evade payment. In this case, the period to collect shall be 10 years from discovery thereof. See Sec 194 , LGC for the suspension of prescriptive periods. NOTE: There is no ground of failure to file a return since the LGC does not require a return to be filed. Q: What are the civil remedies for collection? A: The civil remedies are divided into 2: 1. Administrative remedies of distraint and levy a. The remedy of distraint and levy can only be imposed on the amount or quantity necessary to satisfy the claim (sufficient quantity). Thus only a sufficient quantity of the properties levied or distraint should be sold. i. Any excess in the proceeds of the sale over the claim and costs of sales shall be returned to the owner of the property. b. If there is no bidder or if the highest bid is insufficient to pay the delinquency, the local treasurer conducting the sale shall purchase the property in behalf of the LGU 2. Judicial/Legal Action (only with respect to other revenues, i.e., those arising from contracts, etc) Distraint and Levy Q: What if the delinquent taxpayer has parcels of land situated in other municipalities can these be levied upon by the treasurer? A: YES, the treasurer would only send notices to the Register of Deeds concerned for the annotation of the fact that the said property is being levied.
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Q: What if X has a P50k local tax liability but his present properties were only worth P30k. However, the following year, X acquired real properties. The treasurer wants to levy on the new real properties of X. X goes to court to enjoin the same. Can the said real properties be levied? A: YES, the remedy of further levy is also available to LGUs until the tax due is paid. Provided that it is made within the 5 year collection period. Q: Same facts. Can an injunction be had? A: YES. Actually X wants to enjoin the collection and not the assessment. It should be noted that there has already been a prior collection made by the treasurer. Q: X is assessed by the treasurer. X contests the assessment as the tax is based on an ordinance he claims to be invalid. What is the remedy of X? A: Since X failed to contest/appeal the validity of the ordinance with the Secretary of Justice, then such ordinance is already binding and effective upon him. Therefore, the remedy of X is to protest the same. However, he cannot use the defense that ordinance is invalid since he did not appeal the same with the Sec of Justice. See Jardine case (the Court mentioned here the 3 mandatory periods: 30 day period, decision period & appeal period; also the Doctrine of Exhaustion of Admin Remedies) See also Systems Plus case (re Doctrine of exhaustion: cannot raise a purely legal issue so as to skirt the doctrine of exhaustion.) Q: What is the procedure for distraint? A: The Procedure is: SEIZURE = upon failure of the taxpayer to pay his tax liability at the time required, the treasurer or his deputy may seize or confiscate any personal property subject to the tax lien in sufficient quantity. ACCOUNTING Of Distrained Goods PUBLICATION = the notice shall be exhibited in 3 public places in the territory of the LGU where the distraint is made. It should specify the time & place of sale and the articles distrained. Period: it should be not less than 20 days after notice to the owner or possessor of the property.
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RELEASE of distrained property upon payment prior to the sale. Procedure of sale = within 5 days after the sale, the treasurer shall make a report of the proceedings in writing to the chief executive.
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necessary clothing & that of his family, professional libraries, etc. Please see Sec 185, LGC Q: May the LGU grant tax exemptions, incentives or reliefs? A: Yes, as provided under Sec 192 Take Note that the Local Government Code has withdrawn tax exemptions, incentives granted to or presently enjoyed by all persons, whether natural or juridical including GOCCs. Those entities still exempted are: o Local water districts o Cooperatives under RA 6938 o Non-stock, non-profit hospitals institutions
Q: What is the procedure for levy? A: Written notice of the levy shall be mailed or served upon assessor or the RD. PUBLICATION = within 30 days after the levy, the local treasurer shall publicly advertise the auction sale. Posting of the notice is made at the main entrance of the hall, and in the barangay where the prop is located. STAY OF SALE = At any time before the date fixed for the sale, the taxpayer may stay the proceedings by paying the taxes, fees, charges, penalties and interest. SALE = If the taxpayer fails to settle the delinquency on time, the sale shall proceed and shall be held either at the main entrance of the province/muni/city. RIGHT OF REDEMPTION = within 1 year from date of the sale. It is exercised upon payment of the total amount of taxes, fees, charges, surcharges, interests, and penalties plus interest of not more than 2% from date of delinquency. o Note that possession and enjoyment of property during the period of redemption is with the owner. EXECUTION OF FINAL DEED TO PURCHASER = if taxpayer fails to redeem the property, the local treasurer shall execute the final deed in favor of the buyer. Judicial Action Q: What is the remedy by judicial action? A: the LGU may institute an ordinary civil action with the regular courts for the collection of delinquent taxes, fees, charges, or revenues. Properties exempt from the civil remedies for collection Q: What are the properties exempt from distraint, levy, attachment or execution? A: Some of which are the tools and implements necessarily used by the delinquent taxpayer in his trade or employment, his
and
educational
Q: May LGUs condone or remit taxes? A: The authority of the LGUs to grant tax exemption privileges and reliefs under Sec 192 is broad enough to allow them to condone or remit taxes. REMEDIES OF THE TAXPAYER Q: What are the remedies of the taxpayer? A: Remedies prior to an assessment a. Administrative appeal to Sec of Justice Within 30 days from effectivity of the ordinance Must decide within 60 days from receipt of the appeal If the Sec of Justice takes no action upon the lapse of the 60 days, then the taxpayer may file appropriate proceedings with a court of competent jurisdiction. This involves questions re the constitutionality or validity of the ordinance. The appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein. Action for declaratory relief
b.
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After the 30 days from effectivity has lapsed then the remedy is already an action for declaratory relief. But only if it is made before an assessment is made and before payment by the taxpayer.
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Q: Supposing the taxpayer goes straight to the Court assailing constitutional issues of the ordinance. Is this proper? A: No. Even for strictly legal issues you have to first go to the Secretary of Justice. See sec. 187. Although, you will see that in some jurisprudence the SC allowed it. Q: Supposing assailing the validity of an ordinance, X goes to the Court. If this was allowed, what are the advantages? A: The ordinance is suspended. Recent jurisprudence says you have to exhaust administrative remedies first. SC says observe the 3 mandatory periods. Q: Is there a prohibition from enjoining the collection of tax? A: No
Remedies after an assessment 1. Written Protest of the assessment Within 60 days from receipt of the assessment; filed with the local treasurer If this is not done, then the assessment becomes final and executory. The local treasurer shall decide the protest within 60 days from its date of filing by either sustaining or denying the same wholly or partly. From the decision of the local treasurer, the taxpayer may, within 30 days from receipt of the said decision, appeal to the regular courts. 2. An action for refund (Written claim for refund) Within 2 years from payment or from the date the taxpayer is entitled thereto. Payment must be made within the 60 day period from receipt of the assessment. [VITUG: if theres no assessment, the taxpayer may still opt to pay the tax and thereafter claim a refund under the conditions expressed in Sec 196] The filing of the written claim for refund with the local treasurer is a condition precedent for maintaining a court action.
XI REAL PROPERTY TAX

Local Government Code of 1991 Sec.197-201; 212-225; 226-270 Q: What is the scope of real property taxation? A: It can be imposed by a province, city, or municipality, but only municipalities in Metro Manila can impose special realty tax, those outside Metro Manila can impose only basic realty tax. Q: Does real property tax includes charges or fees? A: No, charges or fees are not included. Q: Is real property tax a local tax? A: Yes, because the local tax accrues exclusively to the LGU. (Sec. 271) FUNDAMENTAL PRINCIPLES OF REAL PROPERTY TAXATION Q: What are the fundamental principles of Real Property Taxation? A: Sec. 198 The appraisal, assessment, levy, and collection of real
If the local treasurer does not act and the 2 year period is about to expire, the taxpayer may already initiate the court action and consider the inaction as a denial.
Q: What are the 3 mandatory periods? A: The 3 mandatory periods are: (Jardine case) 1. 30 day period 2. Decision period 3. Appeal period
property tax shall be guided by the following fundamental principles: 1. Real property shall be appraised at its current and fair market value.
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Tax II Notes 2005 Edition Mendoza 2. Real property shall be classified for assessment purposes on the basis of its actual use. 3. Real property shall be assessed on the basis of a uniform classification within each local government unit. 4. The appraisal, assessment, levy, and collection of real property tax shall not be let to any private person. 5. The appraisal and assessment of real property shall be equitable
1. Appraised at Current and Fair Market Value Q: How do you appraise real property tax? A: Use the Fair Market Value of the real property. Q: What is the basis of the assessment? A: The Assessor is not limited to any value so long as it is equitable. See the case of Reyes vs. Almanzor. 2. Classified on the Basis of Actual Use Q: Why is classification based on actual use important in taxation? A: Because of the different assessment levels of lands. It could be residential, or commercial, which has different rates. Residential has the lowest assessment level. 3. Uniformed Classification within each LGU Q: What is uniformity? A: Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate. (Reyes vs. Almanzor) Q: Supposing X owns 2 real properties located in 2 different Municipalities. One in Municipality A and the other in Municipality B. Can the tax rates differ? A: Yes. This does not violate the uniformity principle because the properties are located in 2 different jurisdictions. Municipality A should not be concerned with what the other municipality imposes as long as all property of the same class within its jurisdiction are taxed the same.
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4. Not be let to any Private Person Q: Supposing in Municipality A, the real property tax was levied by an NGO. Would this be proper? A: No. This is not allowed because an NGO is a private person. 5. Equitable Q: When is real property tax equitable? A: When it is based on the ability to pay the tax. The tax should not pay more when others are paying less. COVERAGE OF REAL PROPERTY TAX Q: What are covered by real property tax? A: It covers: 1. lands 2. buildings 3. machineries 4. improvements Sec 232 xxx tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted. 1. Lands 2. Buildings Sir: Land and building are clearly covered by real property, but what about machineries or improvements? 3. Machineries Sec. 199 (o) Machinery embraces machines xxx which may or may not be attached, permanently or temporarily, to the real property. It includes xxx and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry xxx and which by their very nature and purpose are designed for, or necessary to its xxx business purpose.
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Q: When are movables taxable as immovables? A: There must be an element of essentiality to the business in order that the movables be immobilized by destination Q: What machineries are covered by the real property tax? A: It could either be: 4. It must be separately assessed.
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1. Realty by Destination machineries should be essential to the business. It is a realty by destination, although not permanently attached. Such would include air conditioning systems of banks or big computers of a business firm. 2. Realty by incorporation if the machinery is permanently attached. Q: Supposing a transportation company owns a welding machine, a boring machine, a hydraulic press, carpentry tools, blacksmith xxx, are these machines subject to real property tax? A: No. Movable equipment to be immobilized in contemplation of the law must first be "essential and principal elements" of an industry or works without which such industry or works would be "unable to function or carry on the industrial purpose for which it was established." The tools here are not essential and principal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They are merely incidentals acquired as movables and used only for expediency to facilitate and/or improve its service. Even without such tools and equipments, its business may be carried on. (Mindanao Bus vs. City Assessor)
4. Improvements Sec. 199 (m) Improvement is a valuable addition made to a property or an amelioration in its addition, amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further purposes. Q: What are the improvements A: the improvement must 1. enhance the utility or value of the property where it is attached 2. It must have a separate existence from the property. 3. It must also prolong the life of property,
Q: How about improvements? What are the requisites for its taxability? A: 3 requisites: 1. improvements must enhance the value of the property 2. improvements must be separately assessable, they have a separate existence 3. improvement can be treated independently from the main property Q: What are some examples of taxable and non-taxable improvements? A: For example, a road and a fence is a separate taxable improvement. However, in a fishpond having dikes, the dikes do not have a separate existence hence it is not a taxable improvement. Q: Suppose a tailings dam was constructed which benefited not only the taxpayer but also the nearby communities and that even without the dam, the operations of the taxpayers business could still continue, can the taxpayer argue that the dam is an inseparable part of its business therefore not a separate real property subject to tax? A: No. The subject dam falls within the definition of an "improvement" because it is permanent in character and it enhances both the value and utility of petitioner's mine. A structure constitutes an improvement would depend upon the degree of permanence intended in its construction and use. The expression "permanent" does not imply that it must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is annexed is still used for the said purpose. (Benguet vs. CBAA) EXEMPTED PROPERTIES Q: What are the exceptions to the real property tax? A: Sec. 234 the following are exempted from payment of the real property tax: 1. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
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2. use thereof has been granted, for consideration or otherwise, to a taxable person. Charitable institutions, churches xxx mosques xxx nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes; All machineries and equipment that are actually, directly, and exclusively used by local water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power; All real property owned by duly registered cooperatives xxx. Machinery and equipment used for pollution control and environment protection.
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A: Yes. when the government sold the property, the agency although exempt from the payment of taxes clearly indicated that the property became taxable upon its delivery to the purchaser" and that "the sole determinative factor for exemption from realty taxes is the 'use' to which the property is devoted, And where 'use' is the test, the ownership is immaterial. (City of Baguio vs. Busuego) Q: What if the real property is owned by the State but its title is registered in the name of a taxable GOCC, is the property subject to tax? A: Yes, it must be subject to tax. Q: What would be the rule if the use and ownership of the State property are different? A: Sir said that if owner is different from the actual user, use controls. If ownership is clear, and no actual use, ownership controls. Q: Suppose X obtained a loan with the government with his real property as a collateral. He failed to pay. The government was the highest bidder. Afterwards X redeemed the land. Is X liable to pay the real property tax during the period when he was deprived of its ownership and possession? A: No, to impose the real property tax on X which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. It is contrary to the tax policy that the user of the property bears the tax. (Estate of Lim vs. City of Manila) 2. Real Property for Educational Purposes Religious, Charitable, or
4. 5.
1. Real Property owned by the State Q: Supposing the government owned a parcel of land. It leased it to a GOCC. The Lease contract began on January 1. Would this be subject to real property tax? A: The question is whether or not the GOCC is a taxable person. If yes, regardless of whether or not there is consideration, it is not exempt. Q: Suppose the parcel of land was instead leased to the Society of Jesus for P50K per month. Would this be subject to real property tax? A: No. Sec. 234 (a) provides that real property owned by the state is subject to Real Property Tax when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. Since the Society of Jesus is not a taxable person, it cannot be subject to tax. Q: Suppose the parcel of land was instead leased to a taxable person for free? A: The land is still taxable. As long as beneficial use is granted to a taxable entity, the property is taxable. Consideration is immaterial. Q: Suppose that X entered into a contract to sell with a government institution. After the execution of the contract, X acquired possession over the property, however, he did not pay the whole consideration. Is X subject to tax notwithstanding the fact that the property still belongs to the government?
Q: Supposing a religious entity is exempt from real property tax. Is it exempt from other taxes too, like special levy? A: No. The real property tax exemption only refers to the basic real property tax exemption. 3. Machineries for Water or Electric Power
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Q: What is the extent of exemption granted to local water districts and GOCCs engage in the water and power industry? Can they claim that their buildings and land are also exempt? A: No, the exemption only covers machineries. Sec. 234 (c) - All machineries xxx by local water districts and GOCCs xxx. Q: Supposing NIA owns or operates a dam. What will be exempt? A: Only the machineries. However, the building and land will be subject to a lower rate, a preferential rate at the 10% level. Q: Supposing the NIA argues that they are government. A: Then it is exempt. The first thing you have to look at is if it is a government, because if it is, then it is exempt. 4. Real Property owned by Cooperatives 5. Machinery for Environment Protection EFFECTIVITY OF ASSESSMENTS, REASSESSMENTS AND TAX EXEMPTIONS Q: When should the taxpayer be exempt? A: He must be exempt on January 1 of the taxable year to be exempt for the whole year. Sec. 221 All assessments or reassessments made after the first day of January of any year shall take effect on the first day of January of the succeeding year xxx. Q: Supposing X, a jueteng operator, owns 1 hectare of property. X leases it to the Catholic Church. No rent was paid. Would this be subject to real property tax? A: Depends. If the lease began by January 1, 2005, then NO. If lease contract began on February 2, 2005 or anytime after January 1, then Yes. If the land is taxable on the date of Jan 1, the start of the taxable year. Therefore it does not cease to be such. If the property was not taxable on the start of the tax date, it is exempt from tax. Q: Supposing that a State property is leased to a tax exempt person on January 10, is this property subject to Real Property tax?
Atty.
A: Yes, because the effectivity of lease is beyond the tax date of January 1. Q: Can LGU add to the list of exemptions? A: No. The exemptions are granted by law. They cannot be changed by any tax ordinance. October 6 Thursday 8-9pm -Last day of Tax II party!!!So sir just noted the important parts of the remaining topic. *** The remaining part of this reviewer was directly lifted from the previous reviewer because of the party. *** COMPUTATION OF REAL PROPERTY TAX Q: How is Real Property Tax computed? A: Appraise FMV, Classify based on use assessment level, assess based on uniform classification LEVIES IN ADDITION TO THE BASIC PROPERTY TAX Q: What are the special levies that a LGU may imposed? A: LGU can imposed 1. special education fund 2. idle lands this has the highest ad valorem rate 3. special levy those benefited by public works projects and LGU 4. different rates imposed Special Levy Q: Supposing a LGU made a park. This park enhanced the value of the properties around it. How can the LGU imposed the special levy on those affected by the park? A: Those nearer to the park will be imposed a higher rate than those imposed n properties far from the park who were still benefited. Q: Supposing the government builds a park enhancing the value of the houses closest to the park. What happens?
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A: There is a rate differentiation. The real property closest to the park is taxed at a greater special levy tax, while those away have a lower rate. Q: But suppose the government builds a dumpsite, the nearby properties depreciate in value, is the government obliged to pay? A: They may argue expropriation. Q: Which local government can impose a special levy on real property? A: It can be imposed by a province, city, or municipality. This can be imposed even by municipalities outside M.M. Q: Can this special levy be imposed by municipalities outside Metro Manila? A: Yes. Because when the law speaks of special levy it speaks of municipalities Q: What if there is a school near the park. Is this subject to the special levy? A: No. Entities not subject to real property tax are not also subject to special levy. Q: Can a religious organization be exempt to a special levy? A: Yes, if youre exempt from the Real Property tax, you are also exempt from special levy. REMEDIES OF THE GOVERNMENT Q: What are the remedies of the government in the collection of real property tax? A: It has administrative and judicial remedies. Administrative Remedies 1. tax lien on the delinquent property 2. levy on the delinquent property 3. further levy if the first levy was not enough to satisfy the tax liability 4. Distraint included by implication because this is required to be included in the notice of levy? Judicial Remedies 1.
Atty.
Collection Suit there is no need for the LGU to issue an assessment notice or a notice that fixes the taxpayers liability
Q: Is assessment necessary in order to collect real property tax? A: No. There is no assessment as fixing tax liability, only assessment in determining the value of the land in real property taxation. There is only a notice of delinquency to apprise tax payer of tax liability on the property Q: When is collection made? A: Collection is made 5 years from due date. If there is fraud and intent to evade payment, 10 years from discovery thereof Q: May the government collect through judicial action? A: Yes. The government can file a collection case with the RTC which is appealable to the CTA. The principle behind judicial action is that all taxes are indebtedness, enforceable by the courts. Prescription Q: When may the government collect real property tax due? A: within 5 years from due date, reckoning point is the due date. Sec. 270 xxx shall be collected within 5 years from the date they become due. REMEDIES OF THE TAXPAYER 1. Remedy against Assessments Sec. 226 Any owner xxx who is not satisfied with the action of the xxx assessor in the assessment of his property may, within 60 days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment of the LGU by filing a petition xxx. Q: May the Assessor reduce the new assessed values of real properties upon requests of the affected property owners? A: No. The issuance of a notice of assessment by the local assessor shall be his last action on a particular assessment. On the side of the property owner, it is this last action which gives him the right to appeal to the Local Board of Assessment Appeals. The above procedure also, does not grant the property owner the remedy of
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filing a motion for reconsideration before the local assessor. (Callanta vs. Ombudsman)
Atty.
A: Sec. 161 within one year from the date of the sale, the owner of the delinquent property xxx shall have the right to redeem xxx. Q: When may the taxpayer claim for refund? A: Within 2 years from entitlement to reduction or adjustment
Q: Why cant the assessor be allowed to review his assessment? A: Because, to allow owners chose to bring their requests for a review/readjustment before the city assessor would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. (Callanta vs. Ombudsman) 2. Remedy against an Assessment issue Sec. 252 No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words paid under protest. The protest in writing must be filed within 30 days from payment of the tax to the LGU treasurer xxx who shall decide the protest within 60 days from receipt xxx. Q: How do you file a protest in real property taxation? A: Follow these steps: 1. File a protest of the determination of the assessed value of the property within 60 days from assessment with the Local Board of Assessment Appeals; 2. The local board has 120 days to decide; 3. 30 days within receipt of decision or lapse of 120 days, taxpayer may appeal to the Central Board; 4. Appeal to the CTA Q: Can the taxpayer go directly to the court? A: As a general rule, administrative remedies must first be exhausted. Butt if the issue is the authority to assess, then the taxpayer can go directly to court Q: What could be a ground in the protest? A: The payment will be illegal based on fundamental principles. Q: When can the taxpayer exercise right of redemption?
Sec. 253 xxx the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer within 2 years from the date the taxpayer is entitled to such reduction or adjustment. Q: What is the remedy if the claim for refund is denied? A: The remedy is the same as in protest Q: What are the other remedies? A: Right to redeem the property, remedy of refund in case of excessive payment (Section 253) within 2 years from the date taxpayer is entitled to such reduction or payment Condone Real Tax Liability Q: Can the real property tax be condoned? A: Yes. Sec 277 - The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest xxx. Sec. 276 In case of a general failure of crops or substantial decrease in the price of agricultural or agri-based products, or calamity xxx the sanggunian concerned by ordinance passed prior to the first day of January of any year and upon the recommendation of the Local Disaster Coordinating Council, may condone or reduce xxx. Q: What is the basis of this condoning power? A: The power to make tax amnesty is based on the power to grant tax relief as provided in section 192.
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Atty.
XII COURT OF TAX APPEALS

RA 1125 as amended by RA 9282 JURISDICTION Q: According to RA 9282, Sec. 7 (a), what is the exclusive appellate jurisdiction of the CTA? A: Sec. 7(a): 1. Decisions of the CIR xxx 2. Inaction by the CIR xxx 3. Decisions, orders, or resolutions of RTC in local tax cases originally decided or resolved by them in the exercise of thir original or appellate jurisdiction 4. Decisions of the CBAA 5. Decisions of the Secretary of Finance on customs cases xxx 6. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product involving dumping and countervailing duties and safeguard measures 7. Decisions of the Secretary of Agriculture in the case of agricultural product involving dumping and countervailing duties and safeguard measures Q: Supposing: September 15 final notice October 19 appeal to CTA Does the CTA have jurisdiction? A: No jurisdiction for failure to appeal within the period. Q: BIR made a final decision, a final notice for seizure. BIR issued a warrant of distraint and levy after 40 days from the final assessment. After 5 days from the receipt of the warrant of distraint and levy, the taxpayer appealed to the CTA. Does CTA have jurisdiction? A: No, because the assessment became final. The warrant is a collection remedy and not an implied decision. Q: What is the appeal to CTA by BIRs inaction? A: Inaction is deemed a denial of the protest. It is the BIRs decision.
DISPUTED ASSESSMENT Q: Suppose that a taxpayer received an assessment notice. Immediately after receipt, he appealed to the CTA alleging that the assessment was illegal and unconstitutional. Can the CTA take cognizance of it? A: No. CTA has no jurisdiction because there is no disputed assessment and there is no decision. Sec 7 (a) (1) Decisions of the CIR in cases involving disputed assessments Q: Supposing X, inc. received an assessment. He filed a protest within the period. Subsequently, he received a final notice of assessment. Within 30 days from receipt, he appealed to the CTA. Pending appeal, BIR canceled the tax liability. Can the CTA take cognizance of the case? A: No, if an assessment was cancelled, there would be no disputed assessment. CTA has jurisdiction only to disputed assessment. If it is canceled, the assessment is no longer disputed. Q: The taxpayer received a final assessment obliging him to pay P300K as his tax liability. He appealed to the CTA. During a hearing in the CTA, BIR increased the assessment. It amended its pleading increasing the assessment to P450K. Can the CTA dismissed the case as it was not the disputed assessment appealed? A: No. BIR may, after appeal from its decision to the Court of Tax Appeals increase his assessment. SC in CIR vs. Batangas Transportation and Laguna Tayabas: 1. the Government is not bound by the errors committed by its tax collectors in making tax assessments, 2. If the BIR is not allowed to amend the assessment before the CTA, and since it may make a subsequent reassessment to collect additional sums that would lead to multiplicity of suits which the law does not encourage; 3. that the hearing before the Court of Tax Appeals partakes of a trial de novo and the Tax Court is authorized to receive evidence, and the taxpayer has opportunity to present and argue their sides, so that the true and correct amount of the tax to be collected may be determined and decided, whether resulting in the increase or reduction of the assessment appealed to it.
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. Q: Same question, can the taxpayer argue that he was denied due process (i.e., that he was deprived of his right to protest the new assessment with the BIR under section 228)? A: No, because he can still dispute the assessment at the CTA level and prevent multiplicity of suit and needless procedure. Q: But supposing that instead of increasing, the BIR lowered the assessment from 300K to 150K pending appeal. Can the CTA object? A: No, because the amended assessment (150K) is now the disputed assessment even if it were a lower amount. Q: Suppose that the taxpayer appealed the BIRs decision to the CTA. Pending appeal, certain documents were discovered tending to show that the taxpayer evaded the payment of taxes. These amounts were not included in the assessments. Can the BIR hold the taxpayer for the amounts reflecting in the discovered documents? A: No. When the amounts are not included in the disputed assessments, the CTA should not rule upon it. The jurisdiction of the CTA is purely appellate. It does not have jurisdiction over amounts not included in the disputed assessment. (CIR vs. Guerero) CRIMINAL JURIDICTION Q: What is the exclusive CTA jurisdiction on criminal cases? A: Sec. 7 (b) 1. Exclusive original jurisdiction all criminal violatons arising from violations of the NIRC, Customs Code, other laws administered by BIR or Bureau of Customs The principal amount of taxes and fees exclusive of charges and penalties is PhP1 Million or more. 2. Exclusive appellate jurisdiction 1. appeals from RTC in tax cases originally decided by them 2. petitions for review of RTC in the exercise of their appellate jurisdiction COLLECTION JUISDICTION
Atty.
Q: When does the CTA have original jurisdiction on tax collection cases? A: Sec. 7 (c) 1. Exclusive original jurisdiction final and executory assessments, the principal amount of taxes and fees exclusive of charges and penalties is PhP 1 Million or more 2. Exclusive appellate jurisdiction 1. appeals from RTC in tax collection cases originally decided by them 2. petitions for review of RTC in the exercise of their appellate jurisdiction Q: Suppose an assessment became final, can the BIR filed a collection case with the RTC? A: Yes. Sec. 7 (c) (1) x x x collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than PhP1 Million shall be tried by the proper MTC, MeTC, and RTC Q: Supposing that there is a pending collection case, can the RTC enjoin the collection? A: No, because no court shall issue an injunction Sec. 218 No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code. NO INJUNTION Q: Supposing a collection case involving an amount of less than P1 million was heard before the RTC. Can the CTA, upon motion of the taxpayer, enjoin the BIR? A: No. CTA may only enjoin a collection case in the exercise of its appellate jurisdiction. The main case must be before the CTA. Pending the resolution of the case before the RTC, the CTA cannot enjoin the collection. APPEAL FROM CTA Q: Suppose a taxpayer lost in the CTA, what is his remedy?
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A: He may filed a MR. Then, he may appeal to the CTA en banc. After that, he may appeal to the SC by Rule 45 but his appeal is limited to only questions of law. Sec. 9 (RA 9282) x x x A party adversely affected by a ruling, order, or decision of a Division of the CTA may file a MR or new trial before the SAME Division. Sec. 11 (RA 9282) x x x a partly adversely affected by a resolution of a Division of the CTA on a MR or new trial, may file a petition for review with the CTA en band. A party adversely affected by a decision or ruling of the CTA en banc may file with the SC a verified petition for review on certiorari. Q: Supposing a taxpayer filed a motion for reconsideration with the Court of Tax Appeals en banc, is it an unfair rule that even those justices who decided in the case in the division level would also participate in the resolution of the appealed case? A: Yes, sabi ni Sir. Q: Suppose that a taxpayer was ordered by the CTA en banc to pay the tax, can the BIR now seize the taxpayers property upon the issuance of its order? A: Yes, but the CTA has to issue an order allowing the seizure. BIR must file a motion for seizure. Sec. 13 Upon issuance of any ruling, order, or decision by the CTA favorable to the national government, the CTA shall issue an order authorizing the BIR to seize and distraint x x x. OTHER MATTERS Q: Supposing that the BIR rents an office space with the taxpayer. The taxpayer did not pay tax. The BIR did not pay any rent to the taxpayer. The taxpayer filed an action with the CTA alleging that the CTA has jurisdiction by virtue of Sec. 7 (a) of CTA law other matter. Is he correct? A: No. The other matter pertains to a tax issue. In the present case, it pertains to an administrative matter and not a tax issue. Q: What are some examples of other matter?
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A: validity of tax sale, validity of memorandum circular issued by the BIR. Q: Suppose that there is an auction sale, but the taxpayer was out of town. The taxpayer filed a motion to reset the sale. BIR denied the taxpayers motion. Can the taxpayer appeal to the CTA? A: No. an appeal to the CTA must only be final cases disposing of the case and not interlocutory orders. Id like to thank the makers of the previous reviewer/s especially the one that had a special acknowledgment to Alf Bambi Carlos Chuck Deli Erika Jonah Jovit Macky Ron Rybi She TR. 90% of that Reviewer was incorporated here.
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Tax II Notes 2005 Edition Mendoza

Nad Pugeda 3C 2005-2006

Tax II Notes 2005 Edition Mendoza

Nad Pugeda 3C 2005-2006

Tax II Notes 2005 Edition Mendoza

Tax II Notes 2005 Edition Mendoza

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Claims against the estate

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the fair fair the

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III VALUE-ADDED TAX

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Not taxable sales, register with VAT

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IV OTHER PERCENTAGE TAXES

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VI DOCUMENTARY STAMP TAX

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VII TAX REMEDIES OF THE GOVERNMENT

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PERIOD Q: Summary of rules regarding period

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