Professional Documents
Culture Documents
TAXATION LAW
I. GENERAL PRINCIPLES
POWER OF TAXATION
TAXATION power by which the sovereign through its law-making body raises revenue to defray the necessary expenses of government from among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Two Fold Nature of the Power of Taxatio 1. It is an inherent attribute sovereignty 2. It is legislative in character ). levied for a public purpose. RE$%ISITES OF A "ALI& TAX 1. should be for a public purpose 2. the rule of taxation shall be uniform ". that either the person or property taxed be within the jurisdiction of the taxing authority $. that the assessment and collection of certain kinds of taxes guarantees against injustice to individuals especially by way of notice and opportunity for hearing be provided &. the tax must not impinge on the inherent and .onstitutional limitations on the power of taxation T#EORIES AN& 'ASES OF TAXATION 1. Life(lood Theor) /axes are what we pay for civili0ed society. 1ithout taxes the government would be paraly0ed for lack of the motive power to activate and operate it. 2ence despite the natural reluctance to surrender part of one3s hard-earned income to the taxing authorities every person who is able to must contribute his share in the running of the government. (CIR v. Algue, Inc.) 2. Ne*e++it) Theor) /he power to tax is an attribute of sovereignty emanating from necessity. It is a necessary burden to preserve the State3s sovereignty and a means to give the citi0enry an army to resist an aggression a navy to defend its shores from invasion a corps of civil servants to serve public improvements designed for the enjoyment of the citi0enry and those which come within the State3s territory and facilities and protection which a government is supposed to provide. (Phil. Guaranty Co., Inc. v. CIR) ". 'e efit+,Prote*tio - Re*i.ro*it) Theor) /axation is described as a symbiotic relationship whereby in exchange of the benefits and protection that the citi0ens get from the 4overnment taxes are paid. (CIR v. Algue, Inc.)
of
Exte t of Taxi ! Power Subject to constitutional and inherent restrictions the power of taxation is regarded as comprehensive unlimited plenary and supreme. SCOPE OF LEGISLATI"E TAXING POWER 1. !mount or rate of tax 2. !pportionment of the tax ". #ind of tax $. %ethod of collection &. 'urpose(s of its levy provided it is for public purpose ). Subject to be taxed provided it is within its jurisdiction *. Situs of taxation TAXES enforced proportional contributions from the persons and property levied by the law-making body of the State by virtue of its sovereignty in support of government and for public needs. C#ARACTERISTICS OF TAXES 1. forced charge+ 2. pecuniary burden payable in money+ ". levied by the legislature+ $. assessed with some reasonable rule of apportionment+ ,see theoretical justice&. imposed by the State within its jurisdiction+
POLICE POWER
E<INENT &O<AIN
2. No limit
1. Purpose /o promote /o facilitate public the State7s purpose need of through property for regulations public use Amount of Exaction 8imited to No exaction+ the cost of but private regulation property is issuance of taken by the the license or State for surveillance public purpose
3. No special or direct benefit is received by the taxpayer+ merely general benefit of protection
Benefits Received No direct ! direct benefit is benefit results received+ a in the form of healthy just economic compensation standard of to the society is property attained owner
registration fees are regulatory exactions and not revenue measures. (. /he tax imposed on videogram establishments is not only regulatory but a revenue measure because the earnings of such establishments have not been subject to tax depriving the government of an additional source of income. (1io v. 2ideogram Regulatory 3oard, ,/, 4CRA 56.) *. /he <coconut levy funds= were all raised under the state7s taxing and police powers. /he state7s concern to make it a strong and secure source not only in the livelihood of the significant segment of the population but also of export earnings the sustained growth of which is one of the imperatives of the economic growth.= Philippine Coconut Producers 7ederation, Inc. Coco%ed v. Presidential Commission on Good Government (,8. 4CRA 5-9, 5/5) CONSTR%CTION OF TAX LAWS 1. 'ublic purpose is always presumed. 2. If the law is clear apply the law in accordance to its plain and simple tenor. ". ! statute will not be construed as imposing a tax un&ess it does so clearly expressly and unambiguously. $. In case of doubt it is construed most strongly against the 4overnment and li(erall) in favor of the taxpayer. &. 'rovisions of a taxing act are not to be extended by implication. ). /ax laws operate prospectively un&ess the purpose of the legislature to give retrospective effect is expressly declared or may be implied from the language used. *. /ax laws are +.e*ial law+ and prevail over a general law. TAX LAWS 1. >ot political in character 2. .ivil in nature not subject to ex post facto law prohibitions ". >ot penal in character
NATURE OF
! system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer.
! system which itemi0es the different incomes and provides for varied percentages of taxes to be applied thereto.
EXA<PLES OF TAXES LE"IE& WIT# A REG%LATOR/ P%RPOSE> OR CO<'INE& EXERCISE OF POLICE POWER AN& T#E POWER OF TAXATION. a. %otor vehicle registration fees are now considered revenue or tax measures.(Pal v. )du, G.R No. *'+,-.-, August ,/,,0..) /his case reversed the doctrine previously held in :epublic v. 'hilippine :abbit ;us 8ines Inc. "2 S.:! 211 to the effect that motor vehicle
". !s a. b. $. !s a. b.
&. !s a. b. ). !s a.
b. c.
I<POSITIONS NOT STRICTL/ CONSI&ERE& AS TAXES 1. Toll amount charged for the cost and maintenance of the property used. 2. Pe alt) punishment for the commission of a crime. ". Co3.ro3i+e Pe alt) amount collected in lieu of criminal prosecution in cases of tax violations. $. S.e*ial A++e++3e t levied only on land based wholly on benefit accruing thereon as a result of improvements or public works undertaken by government within the vicinity. &. Li*e +e or Fee regulatory imposition in the exercise of the police power.
>ormally paid after the start of a business /axes being the lifeblood of the State cannot be surrendered except for lawful consideration >on-payment does not make the business illegal but maybe a ground for criminal prosecution
>ormally paid before commencement of business 8icense fee may be with or without consideration
TEST
S.e*ial A++e++3e t
8evied only on land .annot be made a personal liability of the person assessed ;ased wholly benefit on
If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes then the exaction is a tax. If the purpose is regulatory in nature it is a license. (PA* v. )du) Tax
!n obligation imposed by law Cue to the government in its sovereign capacity 'ayable in money Coes not draw interest except in case of delin5uency Not assignable Not subject compensation set-off to or
&e(t
.reated by contract %ay be due to the government but in its corporate capacity 'ayable in money property or services Craws interest stipulated delayed !ssignable Subject compensation set-off to or if or
9xemption does not apply. >.;. If property is exempt from :eal 'roperty /ax it is also exempt from Special !ssessment.
Tax
;ased on the power of taxation /o revenue generate
Li*e +e Fee
9manates police power :egulatory !mount is limited to the cost of ,1issuing the license and ,2- inspection and surveillance from
!mount is unlimited
>on-payment is punished by imprisonment e:cept in poll tax Imposed only by public authority
No imprisonment in case of non-payment (Art. III, 4ec. 56 ,0.8 Constitution) .an be imposed by private individual
compensation takes place by operation of law. ("omingo v. Garlitos) &OCTRINE OF E$%ITA'LE RECO%P<ENT NOT FOLLOWE& IN T#E P#ILIPPINES ! tax presently being assessed against a taxpayer which has prescribed may not be recouped or set-off against an overpaid tax the refund of which is also barred by prescription. It is against public policy since both parties are guilty of negligence. Tax
9nforced proportional contributions from persons and property
If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes then the exaction is a tax. If the purpose is regulatory in nature it is a license. (PA* v. )du) Tax
!n obligation imposed by law Cue to the government in its sovereign capacity 'ayable in money Coes not draw interest except in case of delin5uency Not assignable Not subject compensation set-off to or
&e(t
.reated by contract %ay be due to the government but in its corporate capacity 'ayable in money property or services Craws interest stipulated delayed !ssignable Subject compensation set-off to or if or
Toll
! sum of money for the use of something a consideration which is paid for the use of a property which is of a public nature+ e.g. road bridge ! demand proprietorship of
! demand sovereignty
of
>on-payment is punished by imprisonment e:cept in poll tax Imposed only by public authority
No imprisonment in case of nonpayment (Art. III, 4ec. 56 ,0.8 Constitution) .an be imposed by private individual
!mount of toll depends upon the cost of construction or maintenance of the public improvement used %ay be imposed by? ,1- 4overnment ,2- 'rivate individuals or entities
Tax
9nforced proportional contributions persons property
Pe alt)
Sanction imposed as a punishment for violation of a law or acts deemed injurious+ violation of tax laws may give rise to imposition of penalty Cesigned to regulate conduct %ay be imposed by? ,1- 4overnment ,2'rivate individuals or entities
CO<PENSATION OR SET,OFF General Rule /axes cannot be the subject of compensation or set-off. Reasons 1. lifeblood theory 2. taxes are not contractual obligation but arise out of duty to the government ". the government and the taxpayer are not mutually creditors and debtors of each other. (7rancia v. IAC) ):ception 1hen both obligations are due and demandable as well as fully li5uidated and all the re5uisites for a valid compensation are present
from and
Intended revenue
to
raise
Tariff
! kind of tax imposed on articles which are traded internationally
TAXPA/ERS? S%IT ! case where the act complained of directly involves the illegal disbursement of public funds derive from taxation (<ustice !elo, dissenting in =ilosbayan, Inc vs Guingona, <r.) TAXPA/ERS AN& P%'LIC OFFCIALS #A"E ()C*% % AN+, RE$%ISITES FOR TAXPA/ERS? S%IT a. /he tax money is being extracted and spent in violation of specific constitutional protections against abuses of legislative power. b. /hat public money is being deflected to any improper purpose (Pascual vs 4ecretary o% Public >or?s) c. That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law
7:; NON,&ELEGA'ILIT/ OF T#E TAXING POWER -enera& Ru&e. /he power of taxation is peculiarly and exclusively exercised by the legislature. ,See Scope of 8egislative /axing 'ower supra- refers to tax legislation Exceptions to Non'delegability 1. Dlexible /ariff .lause? !uthority of the 'resident to fix tariff rates import and export 5uotas tonnage and wharfage dues and other duties or imposts. (Art. 2I, 4ec.5.(5), ,0.8 Constitution) 2. 'ower of local government units to levy taxes fees and charges. (Art. @, 4ec. /, ,0.8 Constitution) ". Celegation to administrative agencies for implementation and collection. - merely refers to tax administration or implementation 7@; SIT%S OR TERRITORIALIT/ OF TAXATION /he power to tax is limited only to persons property or businesses Aithin the jurisdiction or territory of the taxing power. FACTORS T#AT &ETER<INE T#E SIT%S9 a. #ind or classification of the tax being levied b. Situs of the thing or property taxed c. .iti0enship of the taxpayer d. :esidence of the taxpayer e. Source of the income taxed f. Situs of the excise privilege business or occupation being taxed APPLICATION OF SIT%S 8i d of Tax
'ersonal or .ommunity tax :eal property tax 'ersonal tax property
OF
TAXATION Situ+
or the
75; TESTS IN &ETER<INING P%'LIC P%RPOSE a. &ut) Te+t whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State as a government to provide. (. Pro3otio of Ge eral Welfare Te+t whether the proceeds of the tax will directly promote the welfare of the community in e5ual measure.
8ocation of property (*e: rei sitae) -tangible? where it is physically located or permanently kept (*e: rei sitae) -intangible? subject to 4ec. ,6+ o% the NIRC and the
bonds have ac5uired a business situs in the 'hilippines+ and ,&- shares or rights in any partnership business or industry established in the 'hilippines. (4ec. ,6+, ,008 NIRC). 7A; EXE<PTION OF T#E GO"ERN<ENT !s a matter of public policy property of the State and of its municipal subdivisions devoted to government uses and purposes is deemed to be exempt from taxation although no express provision in the law is made therefor. General Rule /he 4overnment is tax exe3.t. - 2owever it can also tax itself. R%LES9 1. !dministrative !gencies a. 4overnmental function - tax exe3.t unless when the law expressly provides for tax. (4ec. -5 38) b. 'roprietary function 6 taxa(le unless exempted by law. (4ec. 58C) 2. 4F..s General Rule Income is taxa(le at the rate imposed upon corporations or associations engaged in a similar business industry or activity. ):ception 4SIS SSS '2I. '.SF and '!4.F:. ,Sec. 2*,.- >I:.". 4overnment 9ducational Institutions a. 'roperty or real estate tax 6 property actually directly and exclusively used for educational purposes 6 exe3.t but income of whatever kind and character from any of their properties real or personal regardless of the disposition is taxa(le. (4ec. -6, last par., NIRC) (. Income received by them as such are exe3.t from taxes. 2owever their income from any of their activities conducted for profit regardless of the disposition is taxa(le. (4ec. -6, last par., NIRC) A. Income derived from any public utility or from the exercise of any essential governmental function
/ransfer tax
Dranchise /ax
SIT%S OF TAXATION OF INTANGI'LE PERSONAL PROPERT/ -enera& Ru&e. Comicile of the owner pursuant to the principle of the mobilia seBuuntur personam or movables follow the person. Exceptions 1. 1hen the property has ac5uired a business situs in another jurisdiction+ 2. 1hen an express provision of the statute provide for another rule. Illustration Dor purposes of estate and donor7s taxes the following intangible properties are deemed with a situs in the 'hilippines? ,1- franchise which must be exercised in the 'hilippines+ ,2- shares obligations or bonds issued by any corporation organi0ed or constituted in the 'hilippines in accordance with its laws+ ,"- shares obligations or bonds by any foreign corporation eightyfive percent ,@&E- of the business of which is located in the 'hilippines+ ,$- shares obligations or bonds issued by any foreign corporation if such shares obligations or
'. SPECIFIC OR &IRECT CONSTIT%TIONAL LI<ITATIONS 5. No ,I3.ri+o 3e t For &e(t Or No , Pa)3e t Of Poll Tax 7Art. ,,,0 %ec. 250 1123 Constitution4 :. Rule Re=uiri ! That A..ro.riatio +> Re6e ue A d Tariff 'ill+ Shall Ori!i ate Ex*lu+i6el) Fro3 The #ou+e Of Re.re+e tati6e+ 7Art. ',0 %ec. 240 1123 Constitution4 @. % ifor3it)> E=uita(ilit) A d Pro!re++i6it) Of Taxatio /Art. ',0 %ec. 22/140 1123 Constitution4 % ifor3it) all taxable articles or kinds of property of the same class are taxed at the same rate. E=uita(ilit) the burden falls to those who are more capable to pay. Pro!re++i6it) rate increases as the tax base increases. $9 Is a tax law adopting a regressive system of taxation validH A9 Ies. /he .onstitution does not really prohibit the imposition of indirect taxes which like the J!/ are regressive. /he .onstitutional provision means simply that indirect taxes shall be minimi0ed. /he mandate to .ongress is not to prescribe but to evolve a progressive tax system. ()2A1 )n 3anc Resolution, 1olentino, et al vs 4ecretary o% 7inance, (ctober -6, ,00/) A. Li3itatio + O The Co !re++io al Power To &ele!ate To The Pre+ide t The Authorit) To Fix Tariff Rate+> I3.ort A d Ex.ort $uota+> Et*. /Art. ',0 %ec. 22/240 1123 Constitution4 B. Tax Exe3.tio Of Pro.ertie+ A*tuall)> &ire*tl) A d Ex*lu+i6el) %+ed For Reli!iou+> Charita(le A d
Exe3.tio /Art. ',0 %ec. 22/440 1123 Constitution4 C. No ,I3.air3e t Of The 4uri+di*tio Of The Su.re3e Court I Tax Ca+e+ /Art. ',,,0 %ec. 2 And 5/24/B40 1123 Constitution4 D. Exe3.tio Fro3 Taxe+ Of The Re6e ue+ A d A++et+ Of Edu*atio al I +titutio +> I *ludi ! Gra t+> E dow3e t+> &o atio + A d Co tri(utio +. /Art. 6,'0 %ec. 4/34 And /440 1123 Constitution4 OT#ER SPECIFIC TAX PRO"ISIONS IN T#E CONSTIT%TION 1. 'ower of the 'resident to veto any particular item or items in an appropriation revenue or tariff bill. (Art 2I, 4ec. 58(5), ,0.8 Constitution) 2. >ecessity of an appropriation before money may be paid out of the public treasury. (Art. 2I, 4ec. 50 (,), ,0.8 Constitution) ". >on-appropriation of public money or property for the use benefit or support of any sect church or system of religion. (Art. 2I, 4ec. 50 (5), ,0.8 Constitution) $. /reatment of taxes levied for a special purpose. (Art. 2I, 4ec. 50 (-), ,0.8 Constitution) &. Internal revenue allotments to local government units. (Art. @, 4ec. 9, ,0.8 Constitution)
&O%'LE TAXATION
&O%'LE TAXATION taxing the same property twice when it should be taxed but once. IS &O%'LE TAXATION PRO#I'ITE& IN T#E P#ILIPPINES0 No. /here is no constitutional prohibition against double taxation. It is not favored but permissible. (Pepsi Cola 3ottling Co. v. City o% 3utuan, ,09.). 8IN&S OF &O%'LE TAXATION 75; &ire*t &u.li*ate Taxatio O( oxiou+ double taxation in the objectionable or prohibited sense.
/axes covered
Ele3e t+9 a. the same property or subject matter is taxed twice when it should be taxed only once. b. both taxes are levied for the same purpose c. imposed by the same taxing authority d. within the same jurisdiction e. during the same taxing period f. covering the same kind or character of tax. (2illanueva vs. City o% Iloilo) 7:; I dire*t &u.li*ate Taxatio not legally objectionable. /he absence of one or more of the abovementioned elements makes the double taxation indirect. 7@; &o3e+ti*, this arises when the taxes are imposed by the local or national government ,within the same state7A; I ter atio al, refers to the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. RE<E&IES OF &O%'LE TAXATION 1. Tax S.ari ! Rule 6 same dividend earned by a >:D. within the 'hil. is reduced by imposing a lower rate of 1&E ,in lieu of the "&E- on the condition that the country to which the >:D. is domiliced shall allow a credit against the tax due from the >:D. taxes deemed to have been paid in the 'hil. ,Sec.2@ ; &b- ,.I: vs 'rocter K 4amble- (GR No. 99.-., "ec. 5, ,00,2. Tax dedu*tio + ):ample? vanishing deduction under Section @),!-,2- >I:. ". Tax *redit+ Instances under the NIRC Dor 2A1 purposes the tax on inputs or items that go into the manufacture of finished products ,which are eventually sold- may be credited against or deducted from
1. The exe3.tio 3ethod- the income or capital which is taxable in the state of source or situs is exempted in the state of residence although in some instances it may be taken into account in determining the rate of tax applicable to the tax payer7s remaining income or
INCI&ENCE OF TAXATION 6 point on which the tax burden finally rests or settles down. Illustration Jalue added tax. /he seller is re5uired by law to pay tax but the burden is actually shifted or passed on to the buyer.
8IN&S OF S#IFTING
Credit <ethod
Docus is on the tax
N(1)? .omputational illustration between a tax deduction and a tax credit? Tax dedu*tio 3ethod 4ross income 8ess? allowable deductions i *ludi ! foreign taxes paid Income subject to tax %ultiplied by rate Income tax due Tax *redit 3ethod 4ross income 8ess? allowable deductions ex*ludi ! foreign taxes paid Income subject to tax %ultiplied by rate Income tax due 8ess? foreign taxes paid >et income tax due
a. Forward +hifti !, when burden of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer (. 'a*Hward +hifti !, when burden is transferred from consumer through factors of distribution to the factors of production *. O ward +hifti !, when the tax is shifted 2 or more times either forward or backward 7:; CAPITALIIATION a mere increase in the value of the property is not income but merely an unreali0ed increase in capital. >o income until after the actual sale or other disposition of the property in excess of its original cost. EXCEPT9 if by reason of appraisal the cost basis of property increased and the resultant basis is used as the new tax base for purposes of computing the allowable depreciation expense the net difference between the original cost basis and new basis is taxable under the economic bene%it principle. (3IR Ruling No. 650, !arch ,0, ,00.) 7@; TRANSFOR<ATION the manufacturer or producer upon whom the tax has been imposed fearing the loss of his market if he should add the tax to the price pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units at a lower cost. 7A; TAX A"OI&ANCE the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. 9xample? <estate planning= ,conveyance of property to a family
TAX E"ASION
Illegal and subject to criminal penalty !lmost always results in absence of tax payments
9ffect
7G; TAX EXE<PTION a grant of immunity to particular persons or corporations from the obligation to pay taxes. >o law granting any tax exemption shall be passed without the concurrence of a majority of all the members of .ongress 7AR1 2I. 4)C 5.(+) (7 1$) ,0.8 C(N41I1H1I(N)
LEGAL 'ASIS9
a. Co +titutio al immunities from taxation that originate from the constitution. (. Statutor) those which emanate from legislation Exa3.le+ of Statutor) Exe3.tio + Sec. 2* >I:. Sec. 1B& /ariff and .ustoms .ode Sec. 2"$ 8ocal 4overnment .ode Special 8aws such as the Fmnibus Investment .ode of 1A@* ,9F 22)'hilippine Fverseas Shipping !ct ,:! 1$B* as amendedDertili0er Industry !ct ,:! "B&B as amended%ineral :esources Cevelopment Cecree of 1A*$ ,'C $)" as amended- .ottage Industry !ct ,:! "1@ as amendedand exemptions in <2ousing for 8ow Income 4roup= ,'C 12B& as amended*. Co tra*tual, agreed to by the taxing authority in contracts lawfully entered into by them under enabling laws d. Treat) e. Li*e +i ! Ordi a *e 2. !s to form 75; Ex.re++ expressly granted by organic or statute law 7:; I3.lied when particular persons property or excises are deemed exempt as they fall outside the scope of the taxing provision itself. ". !s to extent 75; Total absolute immunity 7:; Partial one where a collection of a part of the tax is dispensed with $. !s to object 75; Per+o al granted directly in favor of certain persons 7:; I3.er+o al granted directly in favor of a certain class of property PRINCIPLES GO"ERNING TAX EXE<PTION a. 9xemptions from taxation are hi!hl) di+fa6ored in law and are not .re+u3ed. (. 2e who claims as exemption must be able to justify his claim by the *leare+t !ra t of organic or statute law by word+ too .lai to be
*. d. e.
f. !. h.
T#E FOLLOWING PARTA8E T#E NAT%RE OF TAX EXE<PTION 1. Ceductions for income tax purposes 2. .laims for refund ". /ax amnesty $. .ondonation of unpaid tax liabilities N(1) must be +tri*tl) *o +trued against the taxpayer W#EN EXE<PTIONS ARE CONSTR%E& LI'ERALL/ IN FA"OR OF GRANTEE 1. 1hen the law so provides for such liberal construction. 2. 9xemptions from certain taxes granted under special circumstances to special classes of persons. ". 9xemptions in favor of the government its political subdivisions or instrumentalities. $. 9xemptions to traditional exemptees such as those in favor of religious and charitable institutions. &. If exemptions refer to the public property $9 %ay a tax exemption be revokedH A9 Ies. It is an act of liberality which could be taken back by the government unless there are restrictions. Since taxation is the rule and exemption therefrom is the exception the exemption may be withdrawn by the taxing authority. (!actan Cebu International Airport Authority vs. !arcos, 59, 4CRA 998) RESTRICTIONS ON RE"OCATION OF TAX EXE<PTIONS a. No i3.air3e t *lau+e. 1here the exemption was granted to private
1. /ax amnesty a- like tax exemption it is never favored nor presumed b- construed strictly against the taxpayer ,must show complete compliance with the law2.4overnment not estopped from 5uestioning the tax liability even if amnesty tax payments were already received. Reason? 9rroneous application and enforcement of the law by public officers do not block subse5uent correct application of the statute. /he government is never estopped by mistakes or errors of its agents. 3asis? 8ifeblood /heory ".Cefense of tax amnesty like insanity is a personal defense.
%raud or protest, be %inal and conclusive upon all parties, unless the liBuidation o% import entry Aas merely tentative.I (4ec ,96-,1CC) c.- (oca& -overnment Code *ocal 1a:es, %ees, or charges shall be assessed Aithin five /54 !ears %rom the date they became due. In case o% %raud or intent to evade the payment o% ta:es, %ees or charges the same may be assessed Aithin ten /154 !ears %rom discovery o% the %raud or intent to evade payment. 1hey shall also be collected either by administrative or &udicial action Aithin five /54 !ears %rom date o% assessment (4ec. ,0+. *GC)
Tax exe3.tio
Immunity from civil liability only
'rospective application
&OCTRINE OF I<PRESCRIPTI'ILT/ !s a rule taxes are imprescriptible as they are the lifeblood of the government. 2owever tax statutes may provide for statute of limitations. /he rules that have been adopted are as follows? a.4 Nationa& ,nterna& Revenue Code /he statute of limitation for assessment of tax if a return is filed is within three 7@; )ear+ from the last day prescribed by law for the filling of the return or if filed after the last day within three years from date of actual filling. If no return is filed or the return filed is false or fraudulent the period to assess is within te )ear+ from discovery of the omission fraud or falsity. /he period to collect tax is within three )ear+ from date of assessment. In the case however of omission to file or if the return filed is false or fraudulent the period to collect is within te )ear+ from discovery without need of an assessment. 7.4 ariff and customs code It does not express any general statute of limitation+ it provided however that L7 Ahen articles have entered and passed %ree o% duty or %inal ad&ustment o% duties made, Aith subseBuent delivery, such entry and passage %ree o% duty or settlement o% duties Aill, a%ter the e:piration o% one /14 !ear, %rom the date o% the %inal payment o% duties, in the absence o%
;I: shall be under the supervision and control of the Cept. of Dinance (4ec. 5, NIRC) POWERS AN& &%TIES OF T#E 'IR A++e++3e t and *olle*tio of all national internal revenue taxes fees and charges 1. E for*e3e t of all forfeitures penalties and fines connected therewith 2. Exe*utio of judgments in all cases decided in its favor by the .ourt of /ax !ppeals ,./!- and the ordinary courts ". 4ive effect to and ad3i i+ter the supervisory and police powers conferred to it by the .ode or other laws ASSESS<ENT a finding by the taxing authority that the taxpayer has not paid the correct taxes. It is also 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. Ge eral rule9 /axes are self-assessing and thus do not re5uire the issuance of an assessment notice in order to establish the tax liability of a taxpayer. Ex*e.tio +9 1. /ax period of a taxpayer is terminated C4ec. 9("), NIRCD 2. Ceficiency tax liability arising from a tax audit conducted by the ;I: C4ec. /9(3), NIRCD ". /ax lien C4ec. 5,0, NIRCD $. Cissolving corporation C4ec. /5(c), NIRCD SIGNIFICANCE OF ASSESS<ENT a. In the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it such as the imposition of surcharges and interests b. In the application of statute of limitations c. In the establishment of tax liens and d. In estimating the revenues that may be collected by government in the
$. /he authority of the .ommissioner to assess taxes may be delegated except the power to make final assessments. &. It must be directed to the right party. Authorit) of a Re6e ue Offi*er pursuant to a 8etter of !uthority issued by the :egional Cirector a. /o examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax+ b. /o recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the :evenue :egional Cirector. General Rule income tax returns are confidential. ):ception in5uiry into income tax returns may be authori0ed1. inspection is authori0ed upon written order of the 'resident of the 'hilippines+ 2. inspection is authori0ed under Dinance :egulations >o. "" of the Secretary of Dinance+ ". production of the tax return is material evidence in a criminal case wherein the government is interested in the result+ or $. production or inspection thereof is authori0ed by the taxpayer himself. Networth <ethod, inventory method of income tax verification. !pplies the accounting principle? assets 6 liabilities M networth .ondition for its use? 1. taxpayer7s books do not clearly reflect his income or the taxpayer has no books or if he has books he refuses to produce them+ 2. there is evidence of possible source or sources of income to account for increases in networth+
@. A.
assessment wherein tax assessor has no power to assess at all ERRONEO%S ASSESS<ENT, assessor has power to assess but errs in the exercise thereof
'%R&EN OF PROOF IN PRE,ASSESS<ENT PROCEE&INGS /here is a presumption of correctness and good faith on the part of the .I:+ thus the burden lies on the taxpayer. Ftherwise the finding of the .I: will be conclusive and he will assess the taxpayer. /he same is true even if the .I: is wrong if the taxpayer does not controvert. (Cagayan Robina 4ugar !illing Co. vs. Court o% Appeals, GR. No. ,55+/,, (ctober ,5, 5666) Reasons9 a. lifeblood theory b. presumption of regularity in performance of public functions N(1) !ssessments by the ;I: must have on its face the law and facts upon which the presumption is made. PRINCIPLES GO"ERNING TAX ASSESS<ENTS 1. !ssessments are prima facie presumed correct and made in good faith. 2. It should be based on actual facts.
ab-
disputed assessment refunds of internal revenue taxes fees and charges cpenalties imposed in relation thereto dother matters arising from this .ode or other laws or portions thereof administered by the ;I: subject to the exclusive appellate jurisdiction of the ./! (4ec. +)
i. the person liable for tax or re5uired to file a return or ii. any officer or employee of such person or iii. any person having in his possession(custody(care -- the books of accounts -- accounting records of entries relating to the business of the person liable for tax or any other person -- to produce such books papers records and other data and to give testimony $. to take the /estimony of the person concerned under oath as may be relevant to the in5uiry &. to cause revenue officers and employees to make a .anvass of any revenue district or region >othing in Section & shall be construed as granting the .ommissioner the authority to in5uire into bank deposits other than as provided for under sec. ) ,D- of the .ode. III. SECTION G ,power to make assessments prescribe additional re5uirements for tax administration and enforcementA. Exa3i atio of retur + deter3i atio of tax due a d
II. SECTION B ,power to obtain information summon examine and take testimony of persons@. For the Co33i++io er to a+*ertai 9
,a- correctness of any return or in making a return where none has been made ,b- liability of any person for any internal revenue tax or in correcting such liability ,c- tax compliance /he .ommissioner is authori0ed? 1. to 9xamine any relevant ;ook paper record or other data 2. to Fbtain any information ,costs volume of production receipts sales gross income etc- on a regular basis from? i. any person other than the person under investigation or ii. any office or officer of the national(local government gov7t agencies and instrumentalities ,;angko Sentral gov7t owned and controlled corporations- ,e.g. 8/F :egister of Ceeds". to Summon
!. !fter a return has been filed the .ommissioner or his representative may authori0e i. the 9xamination of any taxpayer and ii. the !ssessment of the correct amount of tax+ ;. D ailure to file a return shall not prevent the commissioner from authori0ing the examination of any taxpayer+ N !ny tax or deficiency tax so assessed shall be paid upon notice and demand from the .ommissioner or his representative N !ny return statement or declaration %iled in any authori0ed office shall not be
If a person i. fails to file a re5uired return or report at the time prescribed or ii. willfully or otherwise files a false or fraudulent return /he .ommissioner shall %ake or !mend the return from i. his own knowledge or ii. from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes
G.I 6e tor),taHi !> Sur6eilla *e> Pre+u3.ti6e Gro++ Sale+
for J!/-registered personsand Sec. 2"* ,Issuance of :eceipts or .ommercial Invoices- or ii. 1hen the books of accounts or records do not correctly reflect the declarations made or re5uired to be made in a return Such minimum amount shall be considered correct.
!. .ommissioner may at any time during the taxable year ,a- order the inventory taking of goods of any taxpayer or ,b- may place the business operations of any person ,natural(juridicalunder observation or Surveillance if there is reason to believe that such is not declaring his correct income sales or receipts for tax purposes. /he findings may be used as basis for assessing the taxes and shall be deemed prima facie correct. ;. .ommissioner may prescribe a %inimum amount of gross receipts sales and taxable base ,taking into account the sales and income of other persons engaged in similar business-? i. 1hen a person has failed to issue receipts as re5uired by sec.11" ,Invoice re5uirements
.ommissioner shall declare the tax period of a taxpayer /erminated and send notice to the taxpayer of such decision with a re5uest for immediate payment of the tax when it has come to the knowledge of the .ommissioner? a- that a taxpayer is retiring from business subject to tax or b- is intending to leave the 'hils. or c- to remove his property therefrom or d- to hide or conceal his property or e- is performing any act tending to obstruct the proceedings for the collection of tax
D. Pre+*ri(e Real Pro.ert) "alue+
/he .ommissioner is authori0ed to? a. Civide the 'hils. into different 0ones or areas and b. Cetermine the fair market value of real properties located in each 0one or area 7or ta: purposes, the value o% the property shall be Ahichever is higher o% a) 7air mar?et value as determined by the Commissioner; or b) 7air mar?et value as shoAn in the schedule o% values o% the provincial and city assessors.
E. Authorit) &e.o+it to I =uire i to 'a H
>otwithstanding :.!. 1$B& ,;ank Secrecy 8aw- the .ommissioner is authori0ed to in5uire into the ;ank deposits of? ,a- a decedent to determine his gross estate
b-
c-
power to Issue rulings of first impression or to :everse revoke modify any existing rule of the ;I: power to .ompromise or !bate any tax liability
provided hoAever that the regional evaluation board may compromise? 1. assessments issued by regional offices involving deficiency taxes of '&BB BBB or less and 2. minor criminal violations as may be determined by the rules and regulations ". discovered by regional and district officials Regional )valuation 3oard is composed o%? i. :egional Cirector as .hairman ii. !sst. :egional Cirector iii. 2eads of the 8egal !ssessment and .ollection Civ. iv. :evenue Cistrict Ffficer having jurisdiction over the taxpayer d- power to !ssign or reassign internal revenue officers to establishments where articles subject to excise tax are kept. ". SECTIONS D> 5A> 5B> 5G> 5C ,Fther 'owers5@. Cuty to ensure the provision and distribution of forms receipts certificates and appliances and the acknowledgment of payment of taxes (4ec. .) 5A. !uthority to administer oaths and to take testimony (4ec. ,+) 5B. !uthority to make sei0ures (4ec. ,/) arrests and
/he .ommissioner may prescribe the manner of compliance with any documentary or procedural :e5uirement for the submission or preparation of financial statements accompanying tax returns.
I". SECTION C ,!uthority to Celegate 5:. The Co33i++io er 3a) dele!ate the .ower+ 6e+ted i hi3 to
'ower -
- subordinate officials with rank e5uivalent to Civision .hief or higher subject to limitations(restrictions imposed under the rules and regulations 9O.9'/ ,the following powers shall >F/ be delegateda- power to :ecommend the promulgation of rules and regulations by the Sec. of Dinance
RE$%ISITES FOR INCO<E TO 'E TAXA'LE 1. /here must be a gain or profit. 2. /he gain must be reali0ed or received. ". /he gain must not be excluded by law or treaty from taxation. TESTS ON TAXA'ILIT/ OF INCO<E 1. Flow of Wealth Te+t 6 /he determining factor for the imposition of income tax is whether any gain was derived from the transaction. 1. RealiKatio Te+t - unless the income is deemed Preali0ed P there is no taxable income. 2. E*o o3i*,'e efit Pri *i.le Te+t -flow of wealth reali0ed is taxable only to the extent that the taxpayer is economically benefited. CRITERIA IN I<POSING INCO<E TAX 1. CitiKe +hi. Pri *i.le 6 ! citi0en of the 'hilippines is subject to 'hilippine income tax ,a.- on his worldwide income if he resides in the 'hilippines or ,b.- only on his income from sources within the 'hilippines if he 5ualifies as nonresident citi0en.
II.
NATIONAL TAXATION
A. INCO<E TAXATION
&EFINITIONS INCO<E TAX 6 tax on all yearly profits arising from property possessions trade or business or as a tax on a
CLASSIFICATION OF TAXPA/ERS
I di6idual+ a. citi0ens ,1- resident citi0ens 7RC; ,2- non-resident citi0ens 7NRC; b. aliens ,1- resident aliens 7RA; ,2- non-resident aliens 7NRA; (a) engaged in trade or business within the 'hils. 7NRAET'; (b) not engaged in trade or business within the 'hilippines 7NRANET'; Cor.oratio + a. Comestic 7&C; b. Doreign ,1- resident foreign corporation 7RFC; ,2- non-resident foreign corporation 7NRFC; E+tate+ Tru+t+ Part er+hi.+
A. IN&I"I&%ALS
W#O ARE TAXA'LE0 1. Re+ide t CitiKe 2. No ,re+ide t CitiKe ! non-resident citi8en means a Dilipino citi0en? a. who establishes to the satisfaction of the .ommissioner the fact of his physical presence abroad with a definite intention to reside therein+ b. who leaves the 'hilippines during the taxable year to reside abroad either as an immigrant
'. CORPORATIONS
W#O ARE TAXA'LE0 1. &o3e+ti* Cor.oratio 6 created or organi0ed in the 'hils. or under its law C4ec. 55(C), NIRCD 2. Re+ide t Forei! Cor.oratio 6 engaged in trade or business within the 'hilippines C4ec. 55($), NIRCD 3. No ,re+ide t Forei! Cor.oratio 6 not engaged in trade or business within the 'hilippines C4ec. 55(I), NIRCD A Cor.oratio I *lude+9 1. 'artnerships no matter how created or organi0ed+ 2. Soint-stock companies+ ". Soint accounts ,cuentas en participacion$. !ssociations+ or &. Insurance companies C4ec. 55(3), NIRCD.
ESTATES %N&ER 4%&ICIAL SETTLE<ENT A. &uri ! the Pe de *) of the Settle3e t Ge eral Rule9 !n estate under judicial settlement is subject to income tax in the same manner as individuals. Its status is the same as the status of the decedent prior to his death. Ex*e.tio +9 1. /he entitlement to personal exemption is limited only to '2B BBB. 2. >o additional exemption is allowed. ". /he distribution to the heirs during the taxable year of estate income is deductible from the taxable income of the estate. Such distributed income shall form part of the respective heirs7 taxable income. 1here no such distribution to the heirs is made during the taxable year that the income is earned and such income is subjected to income tax payment by the estate the subse5uent distribution thereof is no longer taxable on the part of the recipient. '. TER<INATION OF T#E 4%&ICIAL SETTLE<ENT 7W#ERE T#E #EIRS STILL &O NOT &I"I&E T#E PROPERT/; 1. If the heirs contribute to the estate money property or industry with intention to divide the profits between(among themselves an unregistered partnership is created and the estate becomes liable for the
&. PARTNERS#IPS
8IN&S OF PARTNERS#IP FOR TAX P%RPOSES %N&ER T#E NIRC 1. Ge eral Profe++io al Part er+hi.+ 7GPP; - formed by persons for? a. the sole purpose of exercising a common profession and b. no part of the income of which is derived from engaging in any trade or business. C4ec. 55(3), NIRCD. 2. Taxa(le or 'u+i e++ Part er+hi. 6 !ll other partnerships except general professional partnerships no matter how created or organi0ed. It includes unregistered joint ventures and business partnerships. 2owever joint ventures are not taxables as corporations when it is+ ,a- undertaking construction projects ,b- engaged in petroleum coal and other energy operation under a service contract with the government -enera& co-partners#ips /-CP4 are partnerships which are by law assimilated to be within the context of and so legally contemplated as
c.
d.
:. Share of a .art er i Taxa(le or 'u+i e++ .art er+hi. a. Share of a partner in the net income of a taxable or business partnership ,dividend- shall be subject to a final tax as follows. :esident .iti0en >onresident .iti0en and :esident !lien ,2BBB and onward- 6 1BE (4ec. 5+35) >on-resident !lien engaged in trade or business 6 2BE (4ec. 5/ A5) >on-resident alien not engaged in trade or business 6 2&E (4ec. 5/3) b. Share of a partner in the loss of a taxable or business partnership maybe taken by the individual partner in his return of income. c. 'ayments made to a partner of a business or taxable partnership for services rendered shall be considered as compensation income subject to sec. 2$!.
&EFINITION9 %eans gross income less deductions and(or personal and additional exemptions (4ec. -,, NIRC) NET INCO<E TAX FOR<%LA 9ntire Income *ess 9xclusions and Income subject to Dinal /ax ,e.g. 'assive Income4ross Income *ess Ceductions ,and(or additional exemptions if applicable>et /axable Income !ultiply by /ax :ate ,E>et Income /ax Cue *ess /ax .redit if any Tax Still due> if a )
GROSS INCO<E
&EFINITION9 %eans all income derived from whatever source including but not limited to the following /%ec. 324 a. .ompensation+ b. 4ross income from profession trade or business+ c. 4ains form dealings in property+ d. Interests+ e. :ents+ f. :oyalties+ g. Cividends+ h. !nnuities+ i. 'ri0es and winnings+ j. 'ensions+ k. 'artner7s share in the net income of the general professional partnership See A ex & for detailed discussion of items.
or +i*H e++> whether () +uit or a!ree3e t N(1)? /he phrase <personal injuries= should be given a restrictive meaning to refer only to physical injuries. /he theory for this is that recoupment on account of such losses is not income since it is not derived from capital from labor or from both combined. !nd the fact that the payment of compensation for such loss was voluntary does not change its exempt status. It was in fact compensation for a loss which impaired petitioner7s capital.
N(1)? if such amounts ,when added to amounts already received before the taxable year under such contracts- exceed the aggregate premiums or considerations paid ,whether or not paid during the
c.
d.
e. f. g. h.
d.
e.
f. g.
'ertain to the computation of the net income Something spent or paid in earning of gross income
&E&%CTIONS
&EFINITION? Items or amounts which the law allows to be deducted from gross
PERSONAL EXE<PTIONS
A. A3ou t+ of Per+o al Exe3.tio + 9%ec. 350 N,RC: 1. P :F>FFF 6 Single individual or married individual judicially decreed legally separated without 5ualified dependent children. 2. P :B>FFF 6 2ead of the family or married individual judicially decreed legally separated with 5ualified dependent children. ". P @:>FFF 6 Dor eac# legally married individual. #ead of the Fa3il) 1. Gnmarried or legally separated person with one or both parents or one or more brothers or sisters or one or more legitimate recogni0ed natural or legally adopted children living
ITE<IIE& &E&%CTIONS
A. OR&INAR/ AN& NECESSAR/ EXPENSES
NECESSAR/ EXPENSE 6 appropriate and helpful in the development of taxpayer3s business and are intended to minimi0e losses or to increase profits. /hese are the day-to-day expenses. OR&INAR/ EXPENSE 6 normal or usual in relation to the taxpayer7s business and the surrounding circumstance. RE$%ISITES OF '%SINESS EXPENSE TO 'E &E&%CTI'LE 1. ordinary and necessary+ 2. paid or incurred w(in the taxable year+ ". paid or incurred in carrying on a trade or business+ $. substantiated with official receipts or other ade5uate records. &. if subject to withholding taxes proof of payment to the ;ureau of Internal :evenue must be shown. ). must be reasonable ,when the expense is not lavish extravagant or excessive under the circumstances*. must not be contrary to law public policy or morals. N(1) 1hile illegal income will form part of income of the taxpayer expenses which constitute bribe kickback and other similar payment being against law and public policy are not deductible from gross income. (4ubsec. A, ,, c) CAPITAL EXPEN&IT%RE 6 !n expenditure that benefits not only the current period but also future periods. It is not deductible but depreciable e:cept if the taxpayer is a non-profit proprietary educational institution which may elect either to deduct the capital expense or depreciate it. See A ex E 6 ;usiness 9xpenses
'. INTEREST
INTEREST $ shall refer to the payment for the use or forbearance or detention of money regardless of the name it is called or denominated. It includes the amount paid for the borrower3s use of money during the term of the loan as well as for his detention of money after the due date for its repayment. RE$%ISITES FOR &E&%CTI'ILIT/ 7RE". REG. NO. 5@,:FFF; 1. /here must be an indebtedness+ 2. /here should be an interest expense paid or incurred upon such indebtedness+ ". /he indebtedness must be that of the taxpayer+ $. /he indebtedness must be connected with the taxpayer3s trade business or exercise of profession+ &. /he interest expense must have been paid or incurred during the taxable year+ ). /he interest must have been stipulated in writing+ *. /he interest must be legally due+ @. /he interest arrangement must not be between related taxpayers+ A. /he interest must not be incurred to finance petroleum operations+ and 1B. In case of interest incurred to ac5uire property used in trade business or exercise of profession the same was not treated as a capital expenditure. 11. /he interest is not expressly disallowed by law to be deducted from gross income of the taxpayer. R%LES ON &E&%CTI'ILIT/ OF INTEREST EXPENSE Ge eral Rule - In general the amount of interest expense paid or incurred within a taxable year of indebtedness in connection with the taxpayer3s trade business or exercise of profession shall be allowed as a deduction from the taxpayer3s gross income.
*.
OPTIONAL TREAT<ENT OF INTEREST EXPENSE !t the option of the taxpayer interest incurred to acBuire property used in trade or business may be allowed as a deduction or treated as capital e:penditure. C4ec -+ (3)(-), NIRCD
C. TAXES
/axes mean TAXES PROPER> and therefore no deductions are allowed for? 1. interest 2. surcharges ". penalties or fines incident to delin5uency (4ec. .6, Rev. Reg. 5) RE$%ISITES FOR &E&%CTI'ILIT/ 1. must be in connection with taxpayer7s business+ 2. tax must be imposed by law on and payable by taxpayer ,direct tax-+ and ". paid or incurred during the taxable year. TAXES N) &E&%CTI'LE 1. income tax+ 2. estate and donor7s tax+ ". special assessments+ $. excess electric consumption tax+ &. foreign income tax war profits and excess profits tax if the taxpayer makes use of tax credit+ and ). final taxes being in the nature of income tax. N(1) /axes allowed as deductions when refunded or credited shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. ,1a: 3ene%it Rule-
1he alloAable ta: credit is the KloAer amountI betAeen the ta: credit computed under No. , and No. 5. W#EN CRE&IT FOR TAXES <A/ 'E TA8EN /he credit for taxes provided by Section "B,.-,"- to ,A- may ordinarily be taken either in the return for the year in which the taxes accrued or on which the taxes were paid dependent upon whether the accounts of the taxpayer are kept and his returns filed upon the accrual basis or upon cash receipts and disbursements basis. LI<ITATIONS ON CRE&IT FOR FOREIGN TAXES 1- /he amount of credit in respect to the taxes paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer7s net income from sources within such country taxable under /itle II ,income /ax- bears to his entire net income for the same taxable year+ and 2- /he total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer7s net income from sources without the 'hilippines taxable under /itle II ,Income /ax- bears to his entire net income for the same taxable year.
&. LOSSES
LOSSES refer to such losses which do not come under the category of bad debts inventory losses depreciation etc. and which arise in taxpayer3s profession trade or business. RE$%ISITES FOR &E&%CTI'ILIT/ 1. !ctually sustained during the taxable year
8imit
,"- /here has been no substantial change in the ownership of the business or enterprise. /here is no substantial change in the ownership of the business when? (a) not less than *&E in nominal value of the outstanding issued shares is held by or on behalf of the same persons+ or (b) not less than *&E of the paid up capital is held by or on behalf of the same person. N(1) /he " year period shall continue to run notwithstanding that the corporation paid its taxes under %.I/ or that the individual availed the 1BE FSC. See A ex S for illustration.
:efers to the excess of allowable deductions over gross income of the business for any taxable year which had not been previously offset as deduction from gross income. .an be carried over as a deduction from gross income for the next " consecutive years immediately following the year of such loss. Dor mines other that oil and gas well net operating loss incurred in any of the first ten years of operation may be carried over for the next & years. ReBuirements ,1- /he taxpayer was not exempt from income tax in the year of such net operating loss+ ,2- /he loss was not incurred in a taxable year during the taxpayer was exempt from income tax+ and
b. Ff property connected with the trade business or profession if the loss arises from fires storms shipwreck or other casualties or from robbery theft or embe00lement. 75; Total de+tru*tio /he replacement cost to restore the property to its normal operating condition but in no case shall the deductible loss be more than the net book value of the property as a whole immediately before casualty. 7:; Partial &e+tru*tio /he excess over the net book value immediately before the casualty should be capitali0ed subject to depreciation over the remaining useful life of the property. :. CAPITAL LOSSES 7LOSSES ARE &E&%CTI'LE ONL/ TO T#E EXTENT OF CAPITAL GAINS; a. 8osses from sale or exchange of capital assets
f. (osses from sa&es or exc#an"es of propert! 7et<een re&ated taxpa!ers -losses of this nature is not deductible but gains are taxable. g. (osses of farmers - if incurred in the operation of farm business it is deductible. #. (oss in s#rin=a"e in va&ue of stoc= 6 if the stock of the corporation becomes worthless the cost or other basis may be deducted by the owner in the taxable year in which the stock of its worthlessness is made. !ny amount claimed as a loss on account of shrinkage in value of the stock through fluctuation in the market or otherwise cannot be deducted from gross income.
E. 'A& &E'TS
'A& &E'TS shall refer to those debts resulting from the worthlessness or uncollectibility in whole or in part of amounts due the taxpayer by others arising from money lent or from uncollectible amounts of income from goods sold or services rendered.
International Rubber, GR No. *' 5559/, "ec. 55, ,098) Cepends upon the particular facts and the circumstances of the case. 4ood faith does not re5uire that the taxpayer be an <incorrigible optimist= but on the other hand he may not be unduly pessimistic.
F. &EPRECIATION
&EPRECIATION 6 the gradual diminution in the service or useful value of tangible property due from exhaustion wear and tear and normal obsolescence. /he term also applies to amorti0ation of intangible assets the use of which in trade or business i s o% limited duration. RE$%ISITES FOR &E&%CTI'ILIT/ 1. /he allowance for depreciation must be reasonable. 2. It must be for property use or employment in trade or business or out of its not being used temporarily during the year. ". /he allowance must be charged off within the taxable year. $. Schedule on the allowance must be attached to the return. PROPERT/ #EL& '/ ONE PERSON FOR LIFE WIT# T#E RE<AIN&ER TO ANOT#ER PERSON /he deduction shall be computed as if the life tenant was the absolute owner of the property and as such the expense shall accrue to him. PROPERT/ #EL& IN TR%ST !llowable deduction shall be apportioned between the income beneficiaries and the trustees in accordance with the pertinent provisions of the instrument creating or in the absence of such provisions on the basis of the trust income allowable to each. <ET#O&S OF &EPRECIATION /he term Preasonable allowanceP shall include ,but not limited to- an allowance computed in accordance Aith the regulations prescribed by the Cepartment of Dinance under any of the following methods. 1. Straight-line method
'1B BBB
,' A BBB-
" BBB
2 BBB
) BBB
P@>FFF
,F,
PB>FFF
ASCERTAIN<ENT OF WORT#LESSNESS 'roof of /wo Dacts? 1. taxpayer did in fact ascertain the debt to be worthless in the year for which deduction is sought 2. that in so doing he acted in good faith. (Collector vs. Goodrich
Illustration ! machine is used in the manufacturing department of .orporation ! compute the depreciation per annum with the following facts? .ost M '1& BBB Salvage JalueM '& BBB
1. 'etroleum Fperations Cepreciation of all properties directly related to production of petroleum shall be allowed under straight-line ,S8- or declining balance ,C;- method %ay shift from C; to S8 method Gseful life? 1B years or shorter life as allowed by the .ommissioner Gseful life of property not directly related to production? & years under straight line method 2. %ining Fperations Cepreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is less than 1B years. If expected life is more than 1B years depreciation shall be any number of years between & years and the expected life. ". Cepreciation deductible by nonresident aliens engaged in trade(business or non-resident corporation a. Fnly when such property is located in the Philippines.
1. 4traight *ine !ethod with estimated life M & years 1& BBB 6 & BBB M '2 BBB & years 2. "eclining balance with rate of 2BBE Iear 1? 1& BBB 6 B x 2BBE M ') BBB & Iear 2?1& BBB6) BBB x 2BBE M'" )BB & -. 4um o% the years digits SIC for & years M &T$T"T2T1 or 1& Iear 1? &(1& x ,1& BBB 6 & BBBM '" """."" Iear 2? $(1& x ,1& BBB 6 & BBBM '2 ))).)* AGREE<ENT AS TO %SEF%L LIFE ON W#IC# &EPRECIATION RATE IS 'ASE& /he ;ureau of Internal :evenue and the taxpayer may agree in writing on the useful life of the property to be depreciated. /he agreed rate may be modified if justified by facts or circumstances. /he change shall not be effective before the taxable year on which notice in writing by certified mail or registered mail is served by the party initiating. SPECIAL T/PES OF &EPRECIATION
,e,f,g,h-
A d +ati+f)i ! the If the conditions followi ! in /able ! is not *o ditio +9 complied with? 1. /he donation must be utili0ed Su(Je*t to not later than li3itatio 9 the 1&th day of ,a- Individual the "rd month 1BE taxable following the income from close of its trade taxable year. business or 2. /he profession administrative before expense must not contribution exceed "BE of ,b- .orporation total expenses. - &E taxable ". Gpon dissolution income from assets must be trade distributed to business or another nonprofession profit domestic before corporation or to contribution the state.
TAX TREAT<ENT )ither as 5. Re6e ue Ex.e diture+ :e5uisites? a. 'aid or incurred during the taxable year b. Frdinary and necessary expenses in connection with trade business or profession c. >ot chargeable to capital account :. &eferred Ex.e +e+ :e5uisites? a. 'aid or incurred in connection with trade business or profession b. >ot treated as expense c. .hargeable to capital account but not chargeable to property subject to depreciation or depletion.
A3ou t dedu*ti(le9
!mount ratably distributed over a period of )B months beginning with the month taxpayer reali0ed benefits from such expenditures. EXCL%SION FRO< RESEARC# AN& &E"ELOP<ENT EXPEN&IT%RES 1. !ny expenditure for the ac5uisition or improvement of land or for the improvement of property to be used in connection with research and development subject to depreciation and depletion. 2. !ny expenditure paid or incurred for the purpose of ascertaining the existence location extent or 5uality of any deposit of ore or other mineral including oil or gas.
RE$%ISITES FOR &E&%CTI'ILIT/ 1. /he contribution or gift must be actually paid. 2. It must be given to the organi0ations specified in the code. ". /he net income of the institution must not inure to the benefit of any private stockholder or individual. "AL%ATION .haritable contribution of property other than money shall be based on the ac5uisition cost of said property.
RE$%ISITES FOR &E&%CTI'ILIT/ 1. /he employer must have established a pension or retirement plan to
2. ". $. &. ).
S%<<AR/ OF R%LES ON RETIRE<ENT 'ENEFITS PLAN - PENSION TR%ST 1. Exe3.t fro3 I *o3e Tax employees7 trust under 4ec. 96(3) 2. Ex*lu+io fro3 Gro++ I *o3e amount received by the employee from the fund upon compliance of certain conditions under 4ec. -5(3) (9) @. &edu*tio fro3 Gro++ I *o3e a. !mounts contributed by the employer during the taxable year into the pension plan to cover the pension liability accruing during the year 6 considered as ordinary and necessary expenses under 4ec. -+(A)(,) b. 1(1B of the reasonable amount paid by the employer to cover pension liability applicable to the years prior to the taxable year or so paid to place the trust in a sound financial basis 6 deductible under 4ec. -+(<)
NON,&E&%CTI'LE EXPENSES
REASONS FOR NON,&E&%CTI'ILIT/ 1. 'ersonal expenses 2. .apital expenditures ". Items not normally subject to income tax and therefore are not deductible. $. Items taken advantage of by the taxpayer to avoid payment of income tax. SPECIFIC ITE<S 7SECTION @G; 1. 'ersonal living or family expenses+ 2. !mount paid out for new buildings or for permanent improvements or betterment made to increase the value of any property or estate ):cept that intangible drilling and development cost incurred in petroleum operations are deductible+ ". !mount expended in restoring property or in making good the exhaustion thereof for which an allowance has been made+ $. 'remiums paid on any life insurance policy covering the life of any officer or employee or of any person financially interested in any trade or
2. /he election shall be irrevocable for three ,"- consecutive years <EANING OF GROSS INCO<E Ge eral *o *e.t 4ross sales *ess ,1- Sales :eturn+ ,2- Ciscount and allowances ,"- .ost of goods sold - means all business expenses directly incurred to produce the merchandise to bring them to their present location and use.
!ny excess of %.I/ over the normal income tax can be carried forward on an annual basis. /he excess can be credited against the normal income tax due in the next " immediately succeeding taxable years. !ny amount of the excess %.I/ which cannot be credited against the normal income tax due in the next "-year period shall be forfeited.
RELIEF FRO< <CIT /he Secretary of Dinance is authori0ed to suspend the imposition of
See A ex T for interplay of normal tax optional corporate income tax and %.I/.
C. Ser6i*e+ Gro++ I *o3e Q 4ross receipts less sales returns allowances discounts and costs o% services
ban?s and other %inancial institutions. 4ross income e:cludes passive income subject to final tax. Fther income and 9xtraordinary Income are included since :: A-A@ provides that gross sales include sales contributory to income taxable under the regular corporate tax.
1. /he fact that any corporation is a mere holding company or investment company shall be prima %acie evidence of a purpose to avoid the tax upon its shareholders or members. I +ta *e+ i di*ati6e of .ur.o+e to a6oid i *o3e tax u.o +hareholder+9 1. Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business+ 2. Investment in bonds and other long-term securities+ ". !ccumulation of earnings in excess of 1BBE of paid-up capital not otherwise intended for the reasonable needs of the business as defined in these :egulations.
1. /he whole amount of income reali0ed by the employee which includes the net amount of money or net monetary value of property which has been received+ plus 2. /he amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for and in behalf of the employee. <G<"= of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by the Gro++ed u. di6i+or. /he 4rossed up divisor is the difference between 1BBE and the applicable rates. /EAR
1AA@ 1AAA
GROSSE& %P &I"ISOR
))E )*E
RATE
"$E D1/ ""E D1/
FRINGE 'ENEFITS N) S%'4ECT TO F'T 1. Dringe benefits not considered as gross income 6 a. if it is re5uired or necessary to the business of employer b. if it is for the convenience or advantage of employer 2. Dringe ;enefit that is not taxable under Sec. "2 ,;- 6 9xclusions from 4ross Income ". Dringe benefits not taxable under Sec. "" Dringe ;enefit /ax? a. Dringe ;enefits which are authori0ed and exempted under special laws such as the 1"th month 'ay and Fther ;enefits with the ceiling of '"B BBB. b. .ontributions of the employer for the benefit of the employee to retirement insurance and hospitali0ation benefit plans+ c. ;enefits given to the :ank and Dile 9mployees whether granted under a collective bargaining agreement or not+ and d. /he "e minimis benefits 6 benefits which are relatively small in value offered by the employer as a means of promoting goodwill contentment efficiency of 9mployees /he term <Ra H a d File E3.lo)ee+= shall mean all employees who are holding neither managerial nor supervisory position as defined in the 8abor .ode In the case of rank and file employees fringe benefits other than those excluded from gross income under the /ax .ode and other special laws are taxable under the individual normal tax rate. &E&%CTI'ILIT/ TO T#E TAXA'LE INCO<E OF T#E E<PLO/ER Ge eral Rule9 /he amount of taxable fringe benefit and the fringe benefits tax shall constitute allowable deductions from gross income of the employer.
Ex*e.tio 9 If the basis for computation of the fringe benefits tax is the depreciation value the 0onal value or the fair market value only the actual fringe benefits tax paid shall constitute a deductible expense for the employer. /he value of the fringe benefit shall not be deductible and shall be presumed to have been tacked on or actually claimed as depreciation expense by the employer. 'rovided however that if the aforesaid 0onal value or fair market value of the said property is greater than its cost subject to depreciation the excess amount shall be allowed as a deduction from the employer3s gross income as fringe benefit expense. (4ec. 5.--C"D, Rev. Reg. No. -'0.) EXA<PLE OF &E <INI<IS 'ENEFITS NOT S%'4ECT TO F'T 7RR NO. D,:FFF AN& 5F,:FFF; 1. %oneti0ed unused vacation leave credits of ':IJ!/9 employees not exceeding ,1B- days during the year and the moneti0ed value of leave credits paid to government officials and employees 2. %edical cash allowance to dependents of employees not exceeding '*&B.BB per employee per semester or '12& per month+ ". :ice subsidy of '1 BBB.BB or one ,1sack of &Bkg. rice per month amounting to not more than '1 BBB?BB $. Gniform and clothing allowance not exceeding '" BBB per annum+ &. !ctual yearly medical benefits not exceeding '1B BBB per annum+ ). 8aundry allowance not exceeding '"BB per month+ *. 9mployees achievement awards e. g. for length of service or safety achievement which must be in the form of a tangible personal property other than cash or gift certificate with an annual monetary value of not exceeding '1B BBB received by the employee under an established written plan which does not discriminate in favor paid employees+
(Reyes, 2irgilio. Income 1a: *aA and Accounting # A NeA Approach, 5665)
d. :eal property used in trade or business. b. Ca.ital A++et+ include all property held by the taxpayer whether or not connected in trade or business but not including those enumerated above ,W1- as ordinary assets. CAPITAL GAIN
/he gain derived from the sale or exchange of capital assets.
CAPITAL LOSS
/he loss incurred from the sale or exchange of capital assets.
:. Cor.oratio + a. Fn sale of shares of stock of a domestic corporation not listed and traded thru a local stock exchange held as capital asset
(n the Net Capital Gain # >ot over '1BB BBB 6 D/ of &E !mount in excess of '1BB BBB 6 D/ of 1BE
TRANSACTION RES%LTING IN TAXA'LE GAINS '%T NON,RECOGNITION OF LOSSES a. Sale or exchange between related parties+ b. 1ash sales by non-dealers of securities and when not subject to the stock transfer tax+ c. 9xchanges not solely in kind in merger and consolidation+ and d. Sales or exchanges that are not at arms length. OF
1. /he transaction must involve property classified as capital asset+ and 2. /he transaction must be a sale or exchange or one considered as e5uivalent to a sale or exchange. R%LES ON T#E RECOGNITION CAPITAL GAINS OR LOSSES IN&I"I&%AL
#oldi ! Period /he percentages of gain or loss to be taken into account shall be the following? a.1BBE - if the capital assets has been held for 12 mos. or less+ and b.&BE - if the capital asset has been held for more than 12 mos.
No ,
OF
CORPORATION
.apital gains and losses are recogni0ed to the extent of 1BBE. ,/here is no holding period-
Net Ca.ital Lo++ Carr) O6er !llowed /he net capital loss ,in an amount not in excess of the taxable income before personal exemption for such year- shall be treated in the succeeding year ,but not beyond 12 monthsas a deduction as short-term capital loss ,at 1BBE- from the net capital gains.
ex % for illustration.
OF
EXC#ANGE
CAPITAL ASSETS
.apital
losses
/he following are considered as sale exchange of capital assets? :etirement of bonds Short sales of property Dailure to exercise privilege or option to buy or sell property $. Securities becoming worthless &. Cistribution in li5uidation of corporations ). :eadjustment of interest in a general professional partnership. TAX FREE EXC#ANGES
b. /ransfer to a controlled corporation QSec. $B,. 2-R 1. /ransactions where gain is recogni0ed but not the loss 6 a. /ransactions between related taxpayers QSec. ")R b. Illegal transactions QSec. A) :ev. :eg. 2R c. 9xchanges of property not solely in kind in pursuance of corporate mergers and consolidations QSec. $B ,. "-R I<PORTANT &ISTINCTION If it is an ordi ar) a++et the ordinary gains and losses are considered in determining income or loss from trade business or profession. (4ee 4ecs. -5A, -+") If it is a *a.ital a++et determine further whether or not it is a real property located in the 'hilippines. If it is then it is subject to capital gains tax. (4ee 4ecs. 5+", 58"/) (4ee also 4ec s. 5+C, 58"5) If not the capital gains and losses are considered in determining the taxable income. (4ec. -0) CAPITAL GAINS AN& LOSSES %>ARE% )? % )C@ /he taxation of shares of stock whether or not listed and traded in the stock exchange is subject to %inal ta:. W#O ARE LIA'LE TO T#E TAX 1. Individual taxpayer citi0en or alien 2. .orporate taxpayer domestic or foreign ". Fther taxpayers such as estate trust trust funds and pension among others. RATES
OF TAX
EXC#ANGE
OF
OR&INAR/ ASSETS
4eneral rules of income taxation apply to both gain and loss. See A ex & ,4ross Income 6 4ains from dealings in propertyS%<<AR/ OF TAX TREAT<ENT OF GAINS-LOSSES IN T#E EXC#ANGE OF PROPERTIES Ge eral Rule9 Gpon the sale or exchange of property the entire gain or loss as the case may be shall be recogni0ed. QSec. $B ,. 1-R Ex*e.tio +9 1. /ransactions where gains and losses are not recogni0ed 6 a. 9xchange solely in kind in legitimate mergers and consolidation
1. Share+ of +to*H ot traded throu!h a lo*al +to*H ex*ha !e 6 >et capital gains derived during the taxable year from sale exchange or transfer shall be taxed as follows ,on a per transaction basis-? >ot over ' 1BB BBB - &E Fver ' 1BB BBB - 1BE
1.
turn over the tax collected to the ;.I.:. within %ive (/) banking days from the date of collection.
2.
7'IR
- It shall be paid by the seller on a per transaction basis upon filing of the re5uired return within -6 days following each sale or other disposition of shares of stock.
/he fair market value ,D%J- of the sale of shares not traded but listed in the stock exchange is the highest closing price on the day the shares were sold transferred or exchanged. 1hen no sale is made in the stock exchange the D%J shall be the highest selling price on the day nearest to the day of sale transfer or exchange. Dor shares not listed in the exchange the D%J shall be the book value nearest the valuation date /he above rules shall be used in computing for the net capital gain(loss for disposition of shares.
I<PORTANT FEAT%RES 1. Sale of shares of stock of a domestic corporation listed and traded in a local stock exchange and that of initial public offering shall be subject to 'ercentage tax ,;usiness /ax2. .apital losses sustained during the year ,not listed and traded in a local stock exchange- shall be allowed as a capital loss deductible on the same taxable year only ,no carry-over". /he entire amount of capital gain and capital loss ,not listed and traded in a local stock exchangeshall be considered without taking into account holding period irrespective of who is the taxpayer ,all 1BBE$. >on-deductibility of losses on wash sales. FILING
AN&
5. I di6idual tax.a)er+> e+tate+ a d tru+t+ Sale or exchange or other disposition of real property considered as capital assets. /he said sale shall include Lpacto de retro saleP and other conditional sale. :. &o3e+ti* Cor.oratio Sale or exchange or disposition of lands and(or building which are not actually used in business and are treated as capital asset. EXCEPTIONS TO T#E TAX 1. 4ains derived by dealers in real estate RATE AN& 'ASIS OF TAX ! final tax of )E is based on the gross selling price or %air mar?et value or Gonal value whichever is higher. Note9 4ain or loss is immaterial there being a conclusive presumption of gain. See A ex G 6 4uidelines in Cetermining 1hether a :eal 'roperty is a .apital or an Frdinary !sset. EXE<PTION
OF CERTAIN IN&I"I&%ALS FRO< T#E CAPITAL GAINS TAX ON T#E SALE OR &ISPOSITION OF A PRINCIPAL RESI&ENCE
PA/<ENT
OF
TAX
Co ditio +9
1. accounting period is other than a fiscal year 2. taxpayer has no accounting period ". taxpayer does not keep books $. taxpayer is an individual Fi+*al )ear? accounting period of 12 months ending on the last day of any month other than Cecember Cale dar )ear? accounting period from Sanuary 1 to Cecember "1
'. Period+ i whi*h ite3+ of !ro++ i *o3e i *luded 7Se*. AA; !mount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer unless any such amounts are to be properly accounted for in a different period under methods of accounting permitted In case of death of taxpayer? include for the taxable year in which falls the date of his death all amounts which accrued up to the date of his death+ if not otherwise properly includible in respect of such period or a prior period C. Period for whi*h dedu*tio a d *redit+ taHe 7Se*. AB; Ceductions provided in this /itle shall be taken for the taxable year in which Lpaid or incurred dependent upon the method of accounting upon the basis of which the net income is computed unless in order to reflect the income deductions should be taken as of a different period. In case of death of taxpayer? deductions allowed for the taxable period in which falls the date of his death amounts accrued up to the date of his death if not otherwise properly allowable in respect of such period or a prior period.
<ET#O&S
OF
I. ACCO%NTING PERIO&S A. Ge eral rule 7Se*. A@; /axable income is computed upon the basis of taxpayer7s annual accounting period ,fiscal or calendar year- in accordance with the method of accounting employed. If no method of accounting employed or method does not clearly reflect the income computation shall be made in accordance w( such method as the opinion of the .ommissioner clearly reflects the income. /axable income is computed based on calendar year if?
A. Ca+h 3ethod :ecognition of income and expense dependent on inflow or outflow of cash. 5. A**rual 3ethod %ethod under which income gains and profits are included in gross income when earned whether received or not and expenses are allowed as deductions when incurred? although not yet paid. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income 9xamples ? 1. interest or rent income earned but not yet received 2. rent expense accrued but not yet paid ". wages due to workers but remaining unpaid A**ou ti ! for lo !,ter3 *o tra*t+ *ong'term contracts? building installation or construction contracts covering a period in excess of 1 yr 'ersons whose gross income is derived in whole or in part
:.
Installments payable in 2 e5ual annual installments 4'(.' ratio M &B BBB(2BB BBB M 2&E .ollections in 2BBBM'1BB BBB Income for 2BBB M '1BB BBB x 2&E M '2& BBB ,2- Sales of realty and casual sales of 'ersonalty In cases o% a. casual sale or other casual disposition of personal property ,other than inventory on hand of the taxpayer at the close of the taxable year- for a price Y '1 BBB or b. sale or other disposition of real property if in either case the initial payments do not exceed 2&E of the selling price $oA may income be returned? same as in sales of dealer in personal property above Initial payments payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made. ,"Sales of real property considered as capital asset by individuals Individual who sells of disposes of real property considered as capital asset and is otherwise 5ualified to report the gain under ,2above may pay the capital gains tax in
@.
I +tall3e t (a+i+ ,1- Sales of dealers in personal property Gnder rules and regulations prescribed by the Sec. of Dinance a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income there from in any taxable year that proportion of the installment payments actually received in that year which the gross profit reali0ed or to be reali0ed when payment is completed bears to the contract price. ):ample 4ale in 5666 .ontract price ,.',installments receivable'2BB BBB
taxpayer must be entitled to benefits under ,1- hereof sales of dealers in personal property in computing income for the year of change or any subse5uent year? amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded.
TO
A. Allo*atio of i *o3e a d dedu*tio + !pplicable to? cases of 2 or more organi0ations trades or businesses ,incorporated and organi0ed within the 'hilippinesowned or controlled directly (indirectly by the same interest .ommissioner is authori0ed to distribute apportion or allocate gross income or deductions between or among such organi0ation trade or business if he determines that such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or to clearly reflect the income of any such organi0ation trade or business. FILING
OF
a. I di6idual 1. :esident citi0en+ 2. >on-resident citi0en on income from within the 'hil.+ ". :esident alien on income from within the 'hil.+ $. >:!9/; on income from within the 'hil. &. !n individual ,citi0ens ( aliensengaged in business or practice of a profession within the 'hil. regardless of the amount of gross income+ ). Individual deriving compensation income concurrently from two or more employers at any time during the taxable year+ *. Individual whose pure compensation income derived from sources within the 'hil. exceeds ')B BBB. b. Taxa(le E+tate a d Tru+t c. Ge eral Profe++io al Part er+hi. d. Cor.oratio 1. >ot exempt from income tax+ 2. 9xempt from income tax under Sec. "B of >I:. but has not shown proof of exemption. IN&I"I&%ALS EXE<PT FRO< FILING INCO<E TAX RET%RN 1. Individual whose gross income does not exceed total personal and additional exemptions+ 2. Individual with respect to pure compensation income derived from sources within the 'hilippines the income tax on which has been correctly withheld+ ". Individual whose sole income has been subjected to final withholding income tax+ $. Individual who is exempt from income tax.
TAX RET%RN
AN&
PA/<ENT
OF
TAX
TAX RET%RN 6 /his is a report made by the taxpayer to the ;I: of all gross income received during the taxable year the allowable deductions including
$. /he employee3s spouse also complies with all three ,"- conditions stated above. &. /he employer files the annual information return ,;I: Dorm >o. 1)B$-.D). /he employer issues ;I: Dorm 2"1) ,Fct 2BB2 9>.S- version to each employee IN&I"I&%ALS NOT $%ALIFIE& FOR S%'STIT%TE& FILING 7STILL RE$%IRE& TO FILE; 1. Individuals deriving compensation from two or more employers concurrently or successively during the taxable year. 2. 9mployees deriving compensation income regardless of the amount whether from a single or several employers during the calendar year the income tax of which has not been withheld correctly ,i.e. tax due is not e5ual to the tax withheldresulting to collectible or refundable return. ". 9mployees whose monthly gross compensation income does not exceed '& BBB or the statutory minimum wage whichever is higher and opted for non-withholding of tax on said income. $. Individuals deriving other nonbusiness non-profession-related income in addition to compensation income not otherwise subject to final tax. &. Individuals receiving purely compensation income from a single employer although the income tax of which has been correctly withheld but whose spouse falls under 1 to $ above. ). >on-resident aliens engaged in trade or business in the 'hilippines deriving purely compensation income or compensation income and other non-business nonprofession-related income. N(1) >on-filing of I/: for employees who are 5ualified for the substituted filing shall be (P1I(NA* for the taxable year 2BB1 the returns for which shall be filed on or before !pril 1& 2BB2. /hereafter substituted filing where
#OW IS 1S%'STIT%TE& FILING2 &IFFERENT FRO< 1NON,FILING20 Su(+tituted Fili ! 6 an individual taxpayer although re5uired under the law to file his income tax return will no longer have to personally file his own income tax return. 6 but instead the employerFs annual in%ormation return filed is the considered <substitute= income tax return of the employee inasmuch as the information in the employer7s return is e:actly the same in%ormation contained in the employee7s return. No ,fili ! 6 applicable to certain types of individual taxpayers who are not re5uired under the law to file an income tax return. 9xample? employee whose pure compensation income does not exceed ')B BBB and has only one employer for the taxable year and whose tax withheld is e5uivalent to his tax due.
S%'STIT%TE& FILING OF INCO<E TAX RET%RNS '/ E<PLO/EES RECEI"ING P%REL/ CO<PENSATION INCO<E. NSECTION A> RR @, :FF:M R<C F5,F@O Re=ui+ite+9 1. /he employee receives purely compensation income ,regardless of amount- during the taxable year. 2. /he employee receives the income only from one employer during the taxable year. ". /he amount o% ta: due from the employee at the end of the year eBuals the amount of tax withheld by the employer.
RE$%IRE<ENT OF 'AN8S FOR S%'<ISSION OF AN ITR FOR LOAN O R CRE&IT CAR& APPLICATIONS ;anks may re5uire the submission of ;I: Dorm >o. 1*BB ,for employees not entitled to substituted filing of I/:-. 2owever for employees entitled to substituted filing of I/: the submission of the Soint .ertification will suffice. 4OINT CERTIFICATION - It is a sworn statement made by the employer and employee which serve the following purposes? 1. It contains the employee3s consent that ;I: Dorm >o. 1)B$.D may be considered his substituted return in lieu of ;I: Dorm >o. 1*BB which the employee no longer filed. 2. It contains the employer3s certification that he has reported the employee3s income to the ;I: and that he has remitted the taxes on the employee3s income as indicated in ;I: Dorm >o. 1)B$-.D. ". It serves as proof of financial capacity in case the employee decides to apply for a bank loan or a credit-card or for any other purpose as if he had in fact filed a ;I: Dorm >o. 1*BB. IN&I"I&%ALS RE$%IRE& INFOR<ATION RET%RN TO FILE AN
Ti3e For Fili ! 7Pa) a+ )ou file +)+te3; Apri& 15 6 for those earning sole compensation income or solely business practice of profession or combination of business and compensation. RET%RN AN& PA/<ENT OF ESTI<ATE& INCO<E TAX '/ IN&I"I&%AL 7SELF,E<PLO/E& OR PRACTICE OF PROFESSION; 1. Dirst 5uarter - !pril 1& of current year 2. Second 5uarter -!ugust 1& of current year ". /hird 5uarter 6 >ovember 1& of current year $. Dinal 5uarter - !pril 1& of the following year. Note? 1hen the tax due is in excess of '2 BBB - the taxpayer may elect to pay in two ,2- e5ual installments? 1st installment - !pril 1& 2nd installment - on or before Suly 1& EXTENSION
OF
TI<E
TO
FILE RET%RN
/he .ommissioner may on meritorious cases grant a reasonable extension of time for filing income tax return and may subject the imposition of twenty ,2B- percent interest per annum from the original due date. Retur Of #u+(a d A d Wife
Individuals not re5uired to file an income tax return may nevertheless be re5uired to file an information return pursuant to rules and regulations prescribed by the Secretary of Dinance upon recommendation of the .ommissioner. PLACE OF FILING 1. 8egal residence - authori0ed agent bank+ :evenue Cistrict Ffficer+ .ollection agent or duly authori0ed treasurer 2. 'rincipal place of business
for the taxpayer year if following re5uisites complied+ a. %arried individuals ,citi0ens resident or nonresident aliensb. Co not derived income purely from compensation. If i3.ra*ti*a(le to file o e retur ? each spouse file a separate return of income but the return so filed shall be consolidated by the ;ureau for the purposes of verification for the year.
File o e 75; retur
". Insurance company doing business in the 'hilippines or deriving income therein $. Doreign corporation having income from within the 'hilippines Fili ! of retur 7Pa) a+ )ou file +)+te3; Zuarterly returns for the first three ,"- 5uarters on a strictly sixty ,)B- day basis and the final or adjusted return on the 1&th day of the fourth ,$th- month following the close of either a-fiscal on calendar year. See A ex " for Illustration.
Who +hall file0 /he return shall be filed by the president vice-president or other principal officer and shall be sworn to by such officer and by the treasurer or assistant treasurer.
WIT##OL&ING TAXES
Withholdi ! Taxe+ 8i d+9 1. 1ithholding /ax at Source? a. Dinal 1ithholding /ax b. .reditable 1ithholding /ax ,9xpanded withholding tax2. 1ithholding /ax on .ompensation ,1ages". 1ithholding /ax on .reditable Jalue-!dded /ax $. 1ithholding of 'ercentage /ax FINAL WIT##OL&ING TAX S/STE<
/he amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income due from the payee on the said income. QSec. 2.&* ,a- :ev. :eg. 2-A@R
TR%ST
AN&
PARTNES#IP
9state and /rust with gross income of '2B BBB or more and partnership ,whether professional or business- shall file their income tax return on or before !pril 1&. TAX RET%RNS OF GENERAL PROFESSIONAL PARTNERS#IPS 7GPP; 9ach 4'' shall file in duplicate a return of its income ,except those income exempt Shall set forth? a. items of gross income and deductions allowed b. names of partners c. /I> d. address and share of each partner Tax Retur of a Cor.oratio /hose re5uired to file? 1. .orporation subject to tax having existed during the taxable year whether with income or not. 2. .orporation in the process of li5uidation or receivership.
1. Coes not exceed the statutory minimum wages+ or 2. Dive thousand ,'& BBB- monthly ,')B BBB a year <#ic#ever is #i"#er. ELE<ENTS OF WIT##OL&ING ON CO<PENSATION 1. /here must be an employeremployee relationship 2. /here must be payment of compensation or wages for services rendered
Ti3e to Withhold Tax at Sour*e - arises at the time an income is paid or payable whichever comes first. /he term <payable= refers to the date the obligation becomes due demandable or legally enforceable. (4ec. 5./+.+ Rev. Regs. 5.0.) Nature of Withholdi ! A!e t?+ Lia(ilit) /he withholding agent is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittance. (Commissioner vs. Procter and Gamble, GR No. 99.-., "ecember 5, ,00,) CONSE$%ENCES FOR FAIL%RE TO WIT##OL&9 1. liable for surcharges and penalties+ 2. liable upon conviction to a penalty e5ual to the total amount of the tax not withheld or not accounted for and remitted. (4ec. 5/,, ,008 NIRC) ". any income payment which is otherwise deductible from the payor7s gross income will not be allowed as a deduction if it is shown that the income tax re5uired to be withheld is not paid to the ;I:. (4ec. 5./../, Rev. Reg. 5'0.) Withholdi ! Tax O Co3.e +atio 9very employer must withhold from compensation paid an amount computed in accordance with the regulations. Ex*e.tio 9 1here such income of an individual? compensation
GROSS ESTATE
A de*ede t?+ !ro++ e+tate i *lude+ /%ec. 254 RESI&ENT P NON, RESI&ENT CITIIEN> RESI&ENT ALIEN &ECE&ENT
1. :eal property Aherever situated 2. 'ersonal property Aherever situated a- /angible and b- Intangible
INCO<E TAX
/ax on income :ates are higher -- &E to "2E
%ore exemptions
country
"AL%ATION
- fair market value a- as determined by the .ommissioner or b- as shown in the schedule of values fixed by the provincial and city assessors
12I.29J9: IS 2I429:
,book value -par value ,arithmetic mean between the highest and lowest 5uotation at a date nearest the date of death if none is available on the date of death itself. - shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table to be approved by the Secretary of Dinance upon recommendation of the Insurance .ommissioner. - whether tangible or intangible appraised at D%J. <Sentimental value= is practically disregarded.
a.
1. in respect of intangible personal property of citi0ens of the 'hilippines not residing in that foreign country+ or 2. the laws of the foreign country of which the decedent was a citi0en and resident at the time of his death a. allow a +i3ilar exe3.tio from transfer taxes or death taxes of every character b. in respect of intangible personal property owned by citi0ens of the 'hilippines not residing in
$- 'ersonal property
I *lu+io + i the Gro++ E+tate /%ec. 254 5. &ECE&ENT?S INTEREST /o the extent of the interest in property of the decedent at the time of his death.
&
E & % C T I O N S
O
N
G
R O S S
E
S T A T E
A
P P L I C A ' L E
T
O
/ R
E ' E N * E
A
( , E N %
R
E * ( A , ) N %
A
N &
C
, , B E N %
2 2 5 5 3 4
/he following are deductible from the gross estate of citi0ens and resident aliens? 1. 9xpenses losses indebtedness taxes etc. /ordinar! deductions4 2. /ransfer for public use ". Janishing deduction $. Damily home &. Standard deduction e5uivalent to one million pesos ,'1 BBB BBB). %edical expenses *. !mounts received by heirs under :! $A1* ,:etirement ;enefits@. >et share of the surviving spouse in the conjugal or community property
5. OR&INAR/ &E&%CTIONS
A. Fu eral Ex.e +e+ /he amount deductible is the lowest among the following? 1. actual funeral expenses 2. &E of the gross estate ". '2BB BBB.
@. "ANIS#ING &E&%CTION
&EFINITION9 /he deduction allowed from the gross estate for properties that were subject to donor7s or estate taxes. It is called vanishing deduction because the deduction allowed diminishes over a period of five years. /he rate of deduction depends on the period from the date of transfer to the death of the decedent as follows? PERIO&
1 1 2 " $ year or less year 6 2 years years 6 " years years 6 $ years years 6 & years
F. TAXES /axes which have accrued as of the death of the decedent which were unpaid as of the time of death. The followi ! are ot dedu*ti(le9 1. income tax on income received after death 2. property taxes not accrued before death ". estate tax G. LOSSES Re=ui+ite+9 1. It should arise from fire storm shipwreck or other casualty robbery theft or embe00lement+ 2. >ot compensated by insurance or otherwise+ ". >ot claimed as deduction in an income tax return of the taxable estate+ $. Fccurring during the settlement of the estate+ and &. Fccurring before the last day for the payment of the estate tax ,last day to pay? six months after the decedent7s death-.
&E&%CTION
1BBE @BE )BE $BE 2BE
Re=ui+ite+9 1. the present decedent died within & years from transfer of the property from a prior decedent or donor. 2. /he property must be located in the 'hils. ". /he property formed part of the taxable estate of the prior decedent or of the taxable gift of the donor. $. /he estate tax or donor7s tax on the gift must have been finally determined and paid. &. /he property must be identified as the one received from the prior decedent or something ac5uired in exchange therefor. ). >o vanishing deduction on the property was allowable to the estate of the prior decedent.
A. FA<IL/ #O<E
Co ditio +9 1. /he family home must be the actual residential home of the decedent and his family at the time of his death as certi%ied by the 3arangay
D. NET S#ARE OF T#E S%R"I"ING SPO%SE IN T#E CON4%GAL PARTNERS#IP OR CO<<%NIT/ PROPERT/
!fter deducting the allowable deductions (only the ordinary deductions) appertaining to the conjugal or community properties included in the gross estate the share of the surviving spouse must be removed to ensure that only the decedent3s interest in the estate is taxed.
B. STAN&AR& &E&%CTION
! deduction in the amount of Fne %illion 'esos ,'1 BBB BBB- shall be allowed as an additional deduction Aithout need o% substantiation. /he full amount of '1 BBB BBB shall be allowed as deduction for the benefit of the decedent.
G. <E&ICAL EXPENSES
!ny amount of medical expenses incurred within one year from death in excess of Dive 2undred /housand 'esos ,'&BB BBB- shall no longer be alloAed as a deduction under this subsection. >either can any unpaid amount thereof in excess of the '&BB BBB threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as claim against the estate.
N
) N
R
E % , + E N
O
N
G
R O S S
A
( , E N %
/he following are deductible from the gross estate of non-resident aliens?
E
S T A T E
1. 9xpenses losses indebtedness and taxes ,98I/- (ordinary deductions) For3ula9 1a: O 'hil. 4ross Credit 9state O 1orld *imit 1orld 4ross 98I/ 9state 2. /ransfer for public use ". Janishing deduction on property in the 'hilippines. $. .onjugal spouse share of the surviving
A
P P L I C A ' L E
T
O
T
A X
C
R E & I T
S E T T L E < E N T O F T # E E S T A T E T A X
A. FILING
Noti*e Of &eath To 'e Filed In all cases of transfers subject to tax or where though exempt from tax the gross value o% the estate e:ceeds P56,666 the executor administrator or any of the legal heirs Aithin tAo months after the decedent7s death or within a like period after 5ualifying as such executor or administrator shall give a written notice thereof to the .ommissioner. (4ec. .0) A E+tate Tax Retur I+ Re=uired To 'e Filed 1. when the estate is subject to estate tax+ or 2. when the estate is not subject to estate tax but the gross estate exceeds ' 2BB BBB+ or
! tax credit is granted for estate taxes paid to a foreign country on the estate of citi0ens and resident aliens subject to the following limitations 5. O e forei! *ou tr) o l) /he tax credit is whichever is lower between? $. 9state tax paid to the foreign country &. /ax .redit 8imit M >/9 foreign country O 'hil. estate >/9 world /ax (N E ' Net 1a:able )state) :. <ore tha o e forei! *ou tr) /he credit shall be that which is the lower amount between 8imit ! and 8imit ;. Li3it A. 1hichever is lower between? 9state tax paid to a foreign country /ax .redit 8imit M >/9 foreign country O 'hil. estate >/9 world /ax Li3it '. 1hichever is lower between? /otal of estate taxes paid to all foreign countries /ax .redit 8imit M >/9 outside 'hil. O 'hil. estate NTE, world /ax
'. PA/<ENT
Pa)3e t of the e+tate tax due /he estate tax due shall paid at the time when the estate tax return is filed. 1hen the .ommissioner finds that the payment of the estate tax on the due date would impose undue hardships upon the estate or any heir? a. the payment of the estate tax may be extended for a period not to exceed five ,&- years if there is a judicial settlement of the estate+ or b. the payment of the estate tax may be extended for a period not to exceed two ,2- years if there is an extra-judicial settlement of the estate. N(1) In case the available cash is not sufficient to pay its total estate tax liability the estate may be allowed to pay ta: by installment. (4ec. 07, Rev. Reg. 5'566-) Lia(ilit) for Pa)3e t The estate ta% shall be paid b& the e%ecutor or administrator before deliver& to an& beneficiar& of his distributive share of the estate. Such beneficiary to the extent of his distributive share of the estate shall be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the value of the total net estate. (4ec. 0G, Rev. Reg. 5'566-) >o judge shall authori0e the distribution of the estate unless a certification from the .ommissioner that tax has been paid is shown. ,Sec. A$>o shares or other forms of securities shall be transferred in the books of any corporation partnership business or industry organi0ed in the 'hilippines unless a similar certification by the .ommissioner is shown. ,Sec. A*-
/here is nothing in the /ax .ode and in the pertinent remedial law that implies the necessity of the probate court or estate settlement of court7s approval of the State7s claim for estate taxes before the same can be enforced and collected by the ;I:. Fn the contrary under Section A$ it is the probate or settlement court which is bidden not to authori0e the delivery of the distributive share to any interested party without a certification from the .I: showing the payment of the estate tax. (!arcos II vs. Court o% Appeals, GR No. ,56..6, <une /, ,008) COLLECTION OF TAX FRO< T#E #EIRS !n estate or inheritance tax whether assessed before or after the death of the deceased can be collected from the heirs even after the distribution of the properties of the decedent. (Palanca vs. Commissioner o% Internal Revenue, GR No. ,999,, <anuary -,, ,095) /he 4overnment has two ways of collecting taxes due from the estate. a. ;y going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received or b. 'ursuant to the lien created by Section 21A of the /ax .ode upon all property and rights to
Re=ui+ite+ 1. .apacity of the donor 2. Conative Intent ". Celivery whether actual constructive of the subject gift
or
/he donor7s tax shall not apply unless and until there is a completed gift. /he transfer is per%ected from the moment the donor knows of the acceptance by the donee+ it is completed by the deliver either actually or constructively of the donated property to the donee. /hus the law in force at the time o% the per%ectionPcompletion o% the donation shall govern the imposition of the donor7s tax. ! gift that is incomplete because of reserved powers becomes complete when either? 1. the donor renounces the power+ or 2. his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition other than because of the donor3s death. :enunciation by the surviving spouse of his(her share in the conjugal partnership or absolute community a%ter the dissolution o% the marriage in favor of the heirs of the deceased spouse or any other person(s is subject to donor3s tax. 1hereas general renunciation by an heir including the surviving spouse of his(her share in the hereditary estate left by the decedent is not subject to donor3s tax unless specifically and categorically done in favor of identified heir(s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. (4ec. ,,, Rev. Reg. 5'566-) STRANGER , a person who is not a brother sister spouse ancestor and lineal descendant or of a relative by consanguinity in the collateral within the $th civil degree. ! legally adopted child is entitled to all the rights and obligations
"aluatio of !ift+ of .ro.ert) /he fair market value of the property given at the time of the gift shall be the value of the gift.
I ta !i(le .er+o al .ro.ertie+ with a +itu+ i the Phil. 7+a3e a+ i e+tate tax +u(Je*t to the re*i.ro*it) rule; /%ec. 1544 7ormula ((n a cumulative basis over a period o% one calendar year) 5. O the 5+t do atio of a )ear 4ross gifts *ess Ceductions from gross gifts >et gifts !ultiply by /ax :ate Conor7s tax on the net gifts xxx xxx xxx xxx xxx
:. O do atio of a +u(+e=ue t date duri ! the )ear 4ross gifts made on this date *ess Ceductions from gross gifts >et gifts Add? !ll prior net gifts within the year !ggregate net gifts !ultiply by? /ax :ate Conor7s tax on aggregate net gifts *ess Conor7s tax on all prior net gifts Conor7s tax on the net gifts on this date Exe3.tio of *ertai !ift+ 1. 4ifts made by a resident a. Cowries or gifts made on account of marriage and before OO OO OO OO OO OO OO OO OO
/he allowable tax credit is the loAer amount between the tax credit limit under ,a- and ,b-.
C. TAX RE<E&IES
%N&ER T#E NIRC
/he remedies of distraint and levy as well as collection by civil and criminal actions may in the discretion of the .ommissioner be pursued singly or independently of each other or all of them simultaneously.
75; CO<PRO<ISE
&EFINITION9 ! contract whereby the parties by reciprocal concessions avoid litigation or put an end to one already commenced (Art. 565., NeA Civil Code). Re=ui+ite+ 1. /he taxpayer must have a tax liability. 2. /here must be an offer ,by the taxpayer of an amount to be paid by the taxpayer". /here must be an acceptance ,by the .ommissioner or taxpayer as the case may be- of the offer in the settlement of the original claim. Offi*er+ authoriKed to *o3.ro3i+e 1. /he
Co33i++io er of I ter al Re6e ue ,.I:- with respect to
g.
h.
i.
2. /he financial position of the taxpayer demonstrates a *lear i a(ilit) to .a) the assessed tax C4ec. 56+(A), ,008 NIRC). In such case the taxpayer should waive the confidentiality privilege on bank deposits under :! >o. 1$B& C4ec. 9(7)(5), NIRCD. Dinancial Incapacity. [ /he offer to compromise based on financial incapacity may be accepted upon showing that? a. /he corporation ceased operation or is already dissolved. 'rovided that tax liabilities corresponding to the Subscription :eceivable or !ssets distributed(distributable to the stockholders representing return of capital at the time of cessation of operation or dissolution of business shall not be considered for compromise+ or b. /he taxpayer as reflected in its latest ;alance Sheet supposed to be filed with the ;ureau of Internal :evenue is suffering from
c. /he taxpayer is suffering from a networth deficit ,total liabilities exceed total assets- computed by deducting total liabilities ,net of deferred credits and amounts payable to stockholders(owners reflected as liabilities except business-related transactionsfrom total assets ,net of prepaid expenses deferred charges preoperating expenses as well as appraisal increases in fixed assets- taken from the latest audited financial statements provided that in the case of an individual taxpayer he has no other leviable properties under the law other than his family home+ (4ec. -, RR. -6#5665). c. /he taxpayer is a compensation earner with no other source of income and the family7s gross monthly compensation does not exceed ,'1B &BB(month if single+ '21 BBB(month if married- and that it appears that the taxpayer possesses no other leviable( distrainable assets other than his family home+ or d. /he taxpayer has been granted by the S9. or by any competent tribunal a moratorium or suspension of payments to creditors or otherwise declared bankrupt or insolvent. (4ec. -, RR. 68'566,)
<i i3u3 Co3.ro3i+e Rate+ 7<CR; of a ) tax lia(ilit) a. In case of financial incapacity? %.: M 1BE of the basic assessed tax b. Fther cases? %.: M $BE of the basic assessed tax C4ec. 56+(A), ,008 NIRCD A..ro6al of the *o3.ro3i+e () the E6aluatio 'oard i+ re=uired whe a. the basic tax involved exceeds '1 BBB BBB.BB or b. the settlement offered is less than the %.:. N(1) /he %.: may be less than the prescribed rates of 1BE or $BE as the case may be provided it is approved by the 9valuation ;oard ,composed of the ;I: .ommissioner and the four ;I: Ceputy .ommissioners-. Co3.ro3i+e of Cri3i al "iolatio + Ge eral Rule9 !ll criminal violations under the ./:' may be compromised. Ex*e.tio +9 1. /hose already filed in court 2. /hose involving fraud C4ec. 56+(3), ,008 NIRCD. Exte t of &i+*retio to "iolatio + the Co33i++io er?+ Co3.ro3i+e Cri3i al
1. 'efore the *o3.lai t i+ filed with the Pro+e*utor?+ Offi*e9 /he .I: has full discretion to compromise except those involving fraud.
A'ATE<ENT
The Co33i++io er 3a) a(ate or *a *el a tax lia(ilit) whe 1. /he tax or any portion thereof appears to be u Ju+tl) or ex*e++i6el) a++e++ed+ C4ec. 56+(3), ,008 NIRCD. a. 1hen the filing of the return(payment is made at the wrong venue+ b. 1hen the taxpayer7s mistake in payment of his tax is due to erroneous written official advice of a revenue officer+ c. 1hen the taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute force majeure legitimate business reverses provided however the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Sec. 2$A of the .ode+ d. 1hen the assessment is brought about or the result of taxpayer7s non-compliance with the law due to a difficult interpretation of said law. e. 1hen the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control provided however
".
7:; &ISTRAINT
&EFINITION9 It is the sei0ure by the government of personal property tangible or intangible to enforce the payment of taxes. /he property may be offered in a public sale if taxes are not voluntarily paid. It is a summary remedy. Nature of the Warra t of &i+trai t or Le6)
CONSTR%CTI"E &ISTRAINT
%ade on the property of any taxpayer whether delin5uent or not /he taxpayer is merely prohibited from disposing of his property 9ffected by re5uiring the taxpayer to sign
CONSTR%CTI"E &ISTRAINT
a receipt of the property or by the revenue officer preparing and leaving a list of such property >ot necessarily so
in5uiry is made on garnishment for it only earmarks a portion of the deposits. >otwithstanding any contrary provision of :! 1$B& the .ommissioner is authori0ed to in5uire into the bank deposits of? 1. a decedent to determine his gross estate 2. a taxpayer who waives his right by reason of financial incapacity to pay his tax liability ,Sec.& >I:.Pro*edure+ for the A*tual &i+trai t or Gar i+h3e t
'oth !re summary remedies for the collection of taxes+ N(1)? :efer only to personal property+ and cannot be availed of where the amount of the tax involved is not more than '1BB
I Co33e *e3e t of di+trai t .ro*eedi !+ 9ither by the .I: or his duly authori0ed representative+ or by the :evenue Cistrict Ffficer
Re=ui+ite+ for the exer*i+e of the re3ed) of di+trai t 1. /he taxpayer must be delin5uent ,except in constructive distraint- in the payment of tax+ 2. /here must be a subse5uent demand for its payment ,assessment-+ ". /he taxpayer must fail to pay the tax at the time re5uired+ and $. /he period within which to assess or collect the tax has not yet prescribed. Per+o + who +hall +eiKe a d di+trai t .er+o al .ro.ert) 7a*tual di+trai t; 1. !mount of delin5uent tax is more than '1 BBB BBB 6 .ommissioner or his duly authori0ed representatives. 2. !mount of delin5uent tax is '1 BBB BBB or less 6 :evenue Cistrict Ffficer. (4ec. 568(A), ,008 NIRC) A%T#ORIT/ OF T#E CO<<ISSIONER IN$%IRE INTO 'AN8 &EPOSIT ACCO%NTS TO
II Ser6i*e of Warra t of &i+trai t 7Se*. :FD; 1ith respect to? 1. 'ersonal property 6 ,a- upon the owner of the goods chattels or other personal property+ or ,b- upon the person from whose possession such properties are taken. 2. Stocks and other securities ,a- upon the taxpayer+ and ,b- upon the president manager treasurer or other responsible officer of the corporation company or association which issued the said stock and securities. ". ;ank accounts shall be garnished by serving a warrant of distraint 6 ,a- upon the taxpayer+ and ,b- upon the president manager treasurer or other responsible officer of the bank.
Cistraint includes garnishment of money even in bank deposits because :! 1$B& ,;ank Secrecy 8aw- covers only divulging of information of deposits. >o
III Po+ti ! of Noti*e 7Se*. :FE> NIRC; >otice specifying the time and place of sale and the articles distrained. /he posting shall be made in not less than two ,2- public places in the city or municipality where the distraint is made. Fne place for posting of such notice is at the Fffice of the %ayor of such city or municipality.
Re3ed) whe tax.a)er did ?t +i! re*ei.t If the taxpayer or person in possession of the property refuses or fails to sign the receipt referred to the revenue officer effecting the constructive distraint shall ,a- proceed to prepare a list of such property and ,b- in the presence of two ,2- witnesses leave a copy thereof in the premises where the property distrained is located after which the said property shall be deemed to have been placed under constructive distraint.
7@; LE"/
EXERCISE
OF T#E
RE<E&/
III Ad6erti+e3e t of the Ti3e a d Pla*e of Sale /he advertisement shall contain? 1. the amount of tax and penalties due+ 2. name of the taxpayer against whom taxes are levied+ ". short description the property to be sold. /he advertisement shall be made within 2B days after the levy and the same shall be for a period of at least "B days. It shall be effectuated by? a. posting a notice at the main entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which the real property lies+ and b. by publication once a week for " weeks in a newspaper of general circulation in the municipality or city where the property is located (4ec. 5,-, C1RP).
Whe 3a) Le6) (e Effe*ted0 :eal property may be levied upon before simultaneously or after the distraint of personal property belonging to the delin5uent C4ec. 568(3), ,008 NIRCD; and the remedy by distraint and levy may be repeated if necessary until the full amount including all expenses is collected (4ec. 5,8, ,008 NIRC). Pro*edure of Le6) o Real Pro.ert) I Pre.are Certifi*ate of Le6) I 'reparation of a duly authen-ticated certificate containing? ,a- description of the property levied+ ,b- name of the taxpayer and ,c- the amounts of tax and penalty due from him. /his certificate shall operate with the force of a legal execution throughout the 'hilippines (4ec. 5683, ,008 NIRC).
I" Sale
&i+trai t 6+. Le6) &ISTRAINT II Ser6i*e of Noti*e Service of written notice to? ,a- the delin5uent taxpayer+ or ,b- if he is absent from the 'hilippines to his agent or manager of the business in respect to which the liability arose+ or c. to the occupant of the property. d. the proper :egister of Ceeds shall also be notified of the levy (4ec. 5683, ,008 NIRC).
:efers to personal property Dorfeiture by the government is not provided /he taxpayer is not given the right of redemption with respect to distrained personal property.
LE"/
:efers to real property Dorfeiture is authori0ed /he right of redemption is granted in case of real property levied upon and sold or forfeited to the government.
'oth !re summary remedies for the collection of taxes+ and .annot be availed of where the amount of the tax involved is not more than '1BB
Rede3.tio of Pro.ert) Sold >ithin , year %rom the date o% sale, the property may be redeemed by the delin5uent taxpayer or anyone from him upon payment of the taxes penalties and interest thereon from the date of delin5uency to the date of sale together with interest on purchase price at 1&E per annum from the date of sale to the date of redemption. (4ec. 5,+, NIRC). Forfeiture to the Go6er 3e t If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes penalties and costs the real property shall be forfeited to the 4overnment. Further &i+trai t a d Le6) /he remedy of distraint and levy may be repeated if necessary until the full amount of the tax delin5uency due including all expenses is collected from the taxpayer. Ftherwise a clever taxpayer who is able to conceal most of the valuable part of his property would escape payment of his tax liability by sacrificing an insignificant portion of his holdings.
&ISTRAINT
>eed not be directed against the property subject to tax 'roperty sei0ed must be owned by the taxpayer
1. Court of Tax A..eal+ 6 on criminal offenses arising from violations of the >I:. or /.. and other laws administered by the ;I: and the ;F. where the principal amount of taxes and fees exclusive of charges and penalties claimed is (ne million pesos and above. 2. Re!io al Trial Court> <u i*i.al Trial Court> <etro.olita Trial Court 6 on criminal offenses arising from violations of the >I:. or /.. and other laws administered by the ;I: and the ;F. where the principal amount of taxes and fees exclusive of charges and penalties claimed is less than (ne million pesos or Ahere there is no speci%ied amount claimed. (4ec. 8, RA No. 05.5) I<PORTANT CONSI&ERATIONS 1. >o criminal action shall be begun without the approval of the .ommissioner. (4ec. 556, ,008 NIRC) 2. It shall be brought in the name of the 4overnment and shall be conducted by the legal officers of the ;I:. EFFECT OF AC$%ITTAL OF TAXPA/ER IN A CRI<INAL ACTION T#E
&efe +e+ whi*h are .re*luded () fi al a d exe*utor) a++e++3e t+ 1. Invalidity or illegality of the assessment+ and 2. 'rescription of the government7s right to assess.
It does not necessarily result in the exoneration of said taxpayer from his civil liability to pay taxes. Ratio ale9 /he duty to pay tax is imposed by statute prior to and independent of any attempt on the part of the taxpayer to evade payment. It is not a mere conse5uence of the felonious acts charged nor is it a mere civil liability derived from a crime. (Republic vs. Patanao, GR No. *',+,+5, !ay -6, ,09,) EFFECT OF S%'SE$%ENT SATISFACTION OF CI"IL LIA'ILIT/ /he subse5uent satisfaction of civil liability by payment or prescription does not e:tinguish the taxpayer7s criminal liability. NO S%'SI&IAR/ I<PRISON<ENT
CRI<INAL ACTION <A/ 'E FILE& &%RING T#E PEN&ENC/ OF AN A&<INISTRATI"E PROTEST IN T#E 'IR It is not a re5uirement for the filing thereof that there be a precise computation and assessment of the tax since what is involved in the criminal action is not the collection of tax but a *ri3i al .ro+e*utio for the 6iolatio of the NIRC. Provided, hoAever, that there is a .ri3a fa*ie showing of a willful atte3.t to evade taxes. (4ee Hngab vs. Cusi, GR Nos. *'+,0,0'5+, !ay -6, ,0.6 in relation to Commissioner vs. Court o% Appeals, GR No. ,,0-55, <une +, ,009)
d. Other arti*le+ +u(Je*t to ex*i+e tax whi*h ha6e (ee 3a ufa*tured or re3o6ed i 6iolatio of the Code> die+ for .ri ti ! or 3aHi ! faHe re6e ue +ta3.+ a d la(el+ Gpon forfeiture may be sold or destroyed at the discretion of the .ommissioner. Dorfeited property shall not be destroyed until at least 2B days from sei0ure. EFFECT OF PROPERT/ T#E FORFEIT%RE OF
7C; FORFEIT%RE
&EFINITION9 divestiture of property without compensation in conse5uence of a default or offense. ENFORCE<ENT OF T#E RE<E&/ OF FORFEIT%RE a. I *a+e of .er+o al .ro.ert) /he forfeiture of chattels and removable fixtures of any sort is enforced by +eiKure a d +ale or de+tru*tio of the specific forfeited property. b. I *a+e of real .ro.ert) /he forfeiture of real property is enforced by a Jud!3e t of *o de3 atio a d +ale in a legal action or proceeding civil or criminal as the case may re5uire. c. I *a+e of di+tilled +.irit+> li=uor+> *i!ar+> *i!arette+ 3a ufa*tured> .rodu*t+ of to(a**o a d a..aratu+ u+ed for their .rodu*tio Gpon forfeiture may be destroyed by order of the .ommissioner where the
/he effect is to transfer the title to the specific thing from the owner to the government. !ll the proceeds in case of a sale go to the coffers of the government (H.4. vs. 4urla, GR No. 9/-9, 4eptember 5, ,0,,). In sei0ure for the enforcement of a tax lien the residue after deducting the tax liability and expenses will go to the taxpayer (3an? o% the Phil. Island vs. 1rinidad, GR No. ,96,+, (ctober +, ,0+,). INFOR<ER?S REWAR& 7Se* :D:; A. Dor violations of the >I:. a reward of 1BE of the revenues surcharges or fees re*o6ered and(or fine or penalty imposed and *olle*ted or ' 1 % per case whichever is lower shall be given to? 1. any person who voluntarily gives definite and sworn information not yet in the possession of the ;I: leading to the discovery of fraud upon the Internal :evenue 8aws and(or any violations thereof 2. an informer where the offender has offered to compromise the violation of law comiited by him and his offer has been accepted and *olle*ted by the .I: . /his
FOR
T#E
Ge eral Rule9 1hree (-) years after the date the return is due or filed whichever is later (4ec. 56-, ,008 NIRC). Ex*e.tio +9 ,. Failure to file a retur 9 ten ,1Byears from the date of the discovery of the omission to file the return (4ec.555CAD); 5. Fal+e or fraudule t retur with i te tio to e6ade the tax9 ten ,1B- years from the date of the discovery of the falsity or fraud (4ec.555 CAD); Note >othing in Section 222,!shall be construed to authori0e the examination and investigation or in5uiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree. Draud must be alleged and proved as a %act. It must be the product of a deliberate intent to evade taxes. It may be established by the? a. Intentional and substantial understatement of tax liability by the taxpayer+ b. Intentional and substantial overstatement of deductions of exemptions+ and(or c. :ecurrence of the above circumstances Dalsity constitutes a deviation from the truth due to mista?e, carelessness or ignorance.
There i+ fraud i the followi ! de*ided *a+e+9 1. Draud must be the product of a deliberate intent to evade taxes ,<alandoni vs. Republic2. Simple statement that return filed was not fraudulent does not disprove existence of fraud ,1ayengco vs. Collector-
Ge eral Period+9 7ive (/) years 6 from assessment or within period for collection agreed upon in writing before expiration of the &-year period (4ec. 555, ,008 NIRC). 1en (,6) years 6 without assessment in case of false or fraudulent return with intent to evade or failure to file return (4ec. 555, ,008 NIRC). W#AT IS T#E PRESCRIPTI"E PERIO& W#ERE T#E GO"ERN<ENT?S ACTION IS ON A 'ON& W#IC# T#E TAXPA/ER EXEC%TES IN OR&ER TO SEC%RE T#E PA/<ENT OF #IS TAX O'LIGATION0 1en (,6) years under !rt. 11$$,1- of the .ivil .ode and not three ,"- years under the >I:.. In this case the 4overnment proceeds by court action to forfeit a bond. /he action is for the enforcement of a contractual
TAX CRE&IT
/he taxpayer asks that the money so paid be applied to his existing tax liability /wo-year period starts from the date such credit was allowed ,in case credit is wrongly made-.
RE$%ISITES OF TAX REF%N& OR TAX CRE&IT 1. Clai3 3u+t (e i writi !M 2. It 3u+t (e filed with the Co33i++io er withi two 7:; )ear+ after the .a)3e t of the tax or .e alt). Note >o suit or proceeding shall be begun after the expiration of the said two ,2- years regardless of any supervening cause that may arise after payment. ". Show .roof of .a)3e t. CO<<ENCE<ENT OF T#E TWO 7:; /EAR PERIO& 74%RISPR%&ENCE;
1. /here is a pending litigation between the 4overnment and the taxpayer+ and 2. .I: in that litigated case agreed to abide by the decision of the S. as to the collection of taxes relative thereto (Panay )lectric Co. vs. Collector, GR No. *',6/8+, !ay 5., ,0/.). INTEREST ON TAX REF%N&S Ge eral Rule9
If taxpayer is not satisfied with the assessment file a .rote+t withi @F da)+ from receipt thereof
Su(3it +u..orti ! do*u3e t+ withi GF da)+ from date of the filing of the protest
If protest is denied> ele6ate the 3atter to the .ommissioner of Internal :evenue ,.I:; withi @F da)+ from receipt of the decision of the .I:7s duly authori0ed representative officer
A..eal to the &i6i+io of the Court of Tax A..eal+ 7CTA; withi @F da)+ from receipt of final decision of .I: or his duly authori0ed representative ,the taxpayer has the option to appeal straight to the ./! upon receipt of the decision of the .I:7s duly authori0ed representative-
If the .I: or his duly authori0ed representative fail+ to a*t o the .rote+t withi 5DF da)+ from date of submission by taxpayer the latter may a..eal withi @F da)+ from lapse of the 1@B-day period with the ./! Civision
/he 'arty adversely affected by the ./! Civision7s decision may file one motion for reconsideration(new trial withi 5B da)+ from receipt of decision. If the %: is denied file a petition for review with the ./! en banc
1. Dorfeiture of refund in favor of the government when a refund check or warrant remains unclaimed or uncashed within five ,&- years from date of mailing or delivery. 2. Dorfeiture of /ax .redit 6 a tax credit certificate which remains unutili0ed after five ,&- years from date of issue shall be invalid unless revalidated (4ec. 5-6, ,008 NIRC).
A..eal to the Su.re3e Court withi 5B da)+ from receipt of the ./! en banc decision under :ule $& of the :ules of .ourt Pre,A++e++3e t Noti*e> Whe Re=uired /%ec. 2220 N,RC4 Not
REGLE<ENTAR/ PERIO&S IN INCO<E TAX I<POSE& '/ LAW %PON T#E TAXPA/ER
7P%RS%ANT TO RE". REG. NO. 5:,EE> SEC. ::D OF T#E 5EEC NIRC> AN& RA NO. 55:B AS A<EN&E& '/ RA NO. E:D:;
1. 1hen the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return+ or
See
ex
!ssessment
b.
in case a false or fraudulent return is willfully made Prima 7acie evidence substantial underdeclaration (e:ceeding -6Q o% that declared) of taxable sales receipts or income or a substantial overstatement (e:ceeding -6Q o% actual deductions) of deductions ,Sec. 2$@-
.ongress cannot enact laws depriving 84G from exercising such power to tax but it may set guidelines and limitations for the exercise. %uc# taxes0 fees0 and c#ar"es s#a&& accrue exc&usive&! to t#e &oca& "overnment units. Nature of the Taxi ! Power a. >ot inherent+ b. 9xercised only if delegated to them by law or .onstitution+ c. >ot absolute+ subject to limitations provided for by law. Gnder the present constitutional rule <where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although .ongress may provide statutory limitations and guidelines. /he basic rationale for the current rule is to safeguard the viability and selfsufficiency of local government units by directly granting them general and broad tax powers.= ,!anila )lectric Co. vs. Province o% *aguna, G.R. No. ,-,-/0 A+.e*t+ of Lo*al Taxi ! Power a. local taxation b. real property taxation Fu da3e tal Pri *i.le+ !o6er i ! Lo*al Taxatio 7Se*. 5@F> l!*; a. Shall be uniform in each local sub-unit b. Shall be e5uitable and based as much as possible on the taxpayer7s ability to pay c. 8evied for public purposes d. Shall not be unjust excessive oppressive or confiscatory e. Shall not be contrary to law public policy national economic policy or in restraint of trade f. .ollection of local taxes and other impositions shall not be let to any person
2. INTEREST - 2BE per annum or such higher rate as may be prescribed by the rules and regulations a. Ceficiency interest (4ec. 5+03) b. Celin5uency interest (4ec. 5+0C) c. Interest on 9xtended 'ayment (4ec. 5+0") ". OT#ER CI"IL PENALTIES A&<INISTRATI"E FINES OR
a. Dailure to file certain information returns (4ec. 5/6) b. )ailure of a withholding agent to collect and remit ta% (Sec. 251) c. )ailure of a withholding agent of refund e%cess withholding ta% (Sec. 252)
III.
LOCAL TAXATION
POWERS
AN&
LI<ITATIONS
NAT%RE AN& SO%RCE OF LOCAL TAXING POWER 7SEE. SEC B> ART. X> 5EDC CONSTIT%TION AN& SEC. 5:E> LGC; /he 8ocal 4overnment Gnit has the power? a. to create its own sources of revenue and b. to levy taxes fees and charges.
h.
Lo*al Taxi ! Authorit) 7Se*. 5@:> l!*; Shall be exercised by the Sanggunian of the 84G concerned through an appropriate ordinance. Power to .re+*ri(e Pe altie+ for Tax "iolatio + a d Li3itatio + thereo 7Se*. B5G> l!*; 1. /he Sanggunian is authori0ed to prescribe fines or other penalties for violations of tax ordinances. a. in no case shall fines be less than '1 BBB nor more than '& BBB b. nor shall the imprisonment be less than one ,1- month nor more than six ,)- month. 2. Such fine or other penalty shall be imposed at the discretion of the court. ". /he Sangguniang ;arangay may prescribe a fine of not less than '1BB nor more than '1 BBB. Power to AdJu+t Lo*al Tax Rate 7Se*. 5E5> l!*; !djustment of the tax rates as prescribed herein should not be oftener than once every five ,&- years and in no case shall such adjustment exceed ten percent ,1BE- of the rates fixed under the 84.. Power to Gra t Lo*al Tax Exe3.tio + 7Se*. 5E:> l!*; 8ocal government units may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary. Tax Exe3.tio + Exi+ti ! 'efore the Effe*ti6it) of the LGC ha+ (ee A(oli+hed 7Se*. 5E@> l!*;
LI<ITATIONS OF T#E RESI&%AL POWER 1. .onstitutional limitations on taxing power 2. .ommon limitations prescribed in Sec. 1"" of the 84. ". Dundamental principles governing the exercise of the taxing power of the 84Gs prescribed under Sec. 1"B of the 84. $. /he ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and &. /he principle of preemption. Pri *i.le of Pree3.tio or Ex*lu+io ar) do*tri e 1here the >ational 4overnment elects to tax a particular area it impliedly withholds from the local government the delegated power to tax the same field. /his doctrine principally rests on the intention of the .ongress. Ex*luded i3.o+itio + 7.ur+ua t to the do*tri e of .ree3.tio ;9 a. /axes which are levied under the >I:. unless otherwise provided by 84. of 1AA1+ b. /axes fees etc. which are imposed under the /ariffs and .ustoms .ode+ c. /axes fees etc. the imposition of which contravenes existing governmental policies or which violates the fundamental principles of taxation+ d. /axes fees and other charges imposed under special law. CO<<ON LI<ITATIONS ON LOCAL TAXING POWER 7SEC. 5@@> LGC; 8ocal government units cannot levy? 1. Income tax except on banks and other financial institutions+ 2. &ocumentary stamp tax+
1. 2. ". $. &. ). *.
7'; <%NICIPALITIES /%EC. 1430 (-C4 5. <u i*i.al Taxe+, taxes on the businesses of the following? a. Fn manufacturers assemblers repackers processors brewers distillers rectifiers and compounders of li5uors distilled spirits and wines or manufacturers of any article of commerce of whatever kind or b. Fn wholesalers distributors or dealers in any article of commerce of whatever kind or c. Fn exporters and on manufacturers millers producers wholesalers distributors dealers or retailers of essential commodities d. Fn retailers e. Fn contractors and other independent f. Fn banks and other financial g. Fn peddlers engaged in the sale of any merchandise or article of commerce h. Fn any business not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax. :. <u i*i.al o ,re6e ue fee+ a d *har!e+ /he municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. ,Sec. 1$*. 84.Rate+ of Tax withi the <etro.olita <a ila Area 7+e*. 5AA> l!*; - >ot to exceed by &BE the maximum rates prescribed in the preceding Section.
Pa)3e t of 'u+i e++ Taxe+ a. It shall be payable for every separate or distinct establishment or place where business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. b. /he tax on a business must be paid by the person conducting the same. c. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 1$" of 84. - which are subject to the same rate o% ta: the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. - which are subject to di%%erent rates o% ta: the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. See A ex 8 for the rates and details. 7C; CITIES /%EC. 1510 (-C4 /he city may levy the taxes fees and charges which the province or municipality may impose. /he tax rates that the city may levy may e:ceed the maximum rates allowed for the province or municipality by not more than &BE except the rates of professional and amusement taxes. 7&; 'ARANGA/S /%EC. 1520 (-C4
2.
".
$. &.
).
CO<<ON RE"EN%E,RAISING POWERS OF LG%+ /%EC. 153 ) 1554 1. Service fees and charges for services rendered 2. 'ublic Gtility .harges for the operation of public utilities owned operated and maintained by 84Gs within their jurisdiction. ". /oll fees or charges for the use of any public road pier or wharf waterway bridge ferry or telecommunication system funded and constructed by the local government unit concerned Ex*e.tio +9 a. Ffficers and enlisted men of the !D' and '>'+ b. 'ost office personnel delivering mail+ and c. 'hysically handicapped and disabled citi0ens who are sixty-five ,)&- years or older. ,Sec. 1&2 84.1hen public safety and welfare so re5uires the sanggunian concerned may discontinue the collection of the tolls and thereafter the said facility shall be free and open for public use. CO<<%NIT/ TAX .ities or municipalities may levy a community tax. A. I di6idual+ Lia(le /%ec. 1534 a. every inhabitant of the 'hilippines+ b. eighteen ,1@- years of age or over+ c. under any of the following instances? d. who has been regularly employed on a wage or salary basis for at least thirty (-6) consecutive Aor?ing days during any calendar year+ or e. who is engaged in business or occupation+ or f. who owns real property with an aggregate assessed value of '1 BBB or more+ or g. who is re5uired by law to file an income tax return
PRESCRIPTI"E PERIO&S FOR T#E ASSESS<ENT AN& COLLECTION OF LOCAL TAXES PRESCRIPTI"E PERIO&S OF ASSESS<ENT 1. Lo*al taxe+> fee+> or *har!e+ 6 five ,&- years from the date they became due. (4ec. ,0+, *GC). 2. Whe there i+ fraud or i te t to e6ade the .a)3e t of taxe+> fee+ or *har!e+ 6 ten ,1B- years %rom discovery of the fraud or intent to evade the payment (4ec. ,0+ *GC).
2. TAX
A. A&<INISTRATI"E Before assessment a. A..eal 6 any 5uestion on constitutionality or legality of tax ordinance within "B days from effectivity thereof to Secretary of Sustice 74ec. ,.8 *GC) b. &e*larator) relief whenever applicable. After assessment a. Prote+t 6 within )B days from receipt of assessment (4ec. ,0/ *GC). 'ayment under protest is not necessary. b. Pa)3e t P +u(+e=ue t refu d or tax *redit within 2 years from payment of tax to local treasurer (4ec. ,09 *GC). It is to be noted that unlike in internal revenue taxes the supervening cause applies in local taxation because the period for the filing of claims for refund or credit of local taxes is counted not necessarily from the date of payment but from the date the
I".
&efi itio +9 REAL PROPERT/ TAXATION ! direct tax on ownership of lands and buildings or other improvements thereon payable regardless of whether the property is used or not although the value may vary in accordance with such factor. Gnder the 84. it covers the administration appraisal assessment levy and collection of :eal 'roperty /ax i.e. tax on land and building and other structures and improvements on it including machineries. REAL PROPERT/ 6 subject to the definition given by Art. +,/ o% the Civil Code.
F%N&A<ENTAL PRINCIPLES GO"ERNING REAL PROPERT/ TAXATION /%EC. 1120 (-C4 1. :eal property shall be appraised at its current and Dair market value+ 2. :eal property shall be classified for assessment purposes on the basis of actual Gse. ". :eal property shall be assessed on the basis of Gniform classification within each 84G $. /he appraisal assessment levy and collection of :' /ax shall not be let to any 'rivate person &. /he appraisal and assessment of real property shall be 95uitable.
SPECIAL CLASSES OF REAL PROPERT/ /%EC. 21$0 (-C4 1. 2ospitals 2. .ultural and Scientific purposes ". owned and used by 8ocal water districts $. 4F..s rendering essential public services in the supply and distribution of water and(or generation or transmission of electric power. PROPERTIES EXE<PT FRO< REAL PROPERT/ TAX 7%EC. 2340 (-C; 9xemption is limited only to the following? 1. :eal property ow ed by the government e:cept when the (e efi*ial u+e thereof has been granted to a taxable person+ 2. .haritable institutions churches personages or convents appurtenant thereto mos5ues non-profit or religious cemeteries and all lands buildings and improvements a*tuall)> dire*tl) a d ex*lu+i6el) u+ed for religious charitable or educational
PROCE&%RE
STEP 59 &ECLARATION OF REAL PROPERT/
&ECLARATION '/ OWNER OR A&<INISTRATOR 7SEC. :F:,:F@; Dile a sworn declaration with the assessor - once every " years during the period from Sanuary 1 to Sune "B. 7or neAly acBuired property 6 W#EN? %ust file with the assessor within )B days from date of transfer W#AT? Sworn statement containing the fair market value and description of the property.
W#EN9 within "B days from the date of declaration of property. IF PROPERT/ IS &ECLARE& FOR T#E FIRST TI<E 7SEC.:::; If Ceclared for the first time real property shall be assessed for back taxes? Dor ot 3ore tha 5F )ear+ prior to date of initial assessment /axes shall be computed on the basis of applicable schedule of values in force during the corresponding period.
STEP :9 LISTING OF REAL PROPERT/ IN T#E ASSESS<ENT ROLLS 7SECS. :FB> :FC;
!ll declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor.
7*; I tere+t for Late Pa)3e t (4ec. 5//) 1. two percent 7:L; for ea*h 3o th on unpaid amount until the delin5uent amount is paid 2. provided in no case shall the total interest exceed thirty-six ,")- months. 7d; For Ad6a *e a d Pro3.t Pa)3e t
1. 2. !dvance payment exceeding 2BE of 2&1 8.4'rompt payment exceeding 1BE of ,!rt "$2 I::6 discount not annual tax ,Sec. 6 discount not annual tax due
Colle*tio of Tax /%ec. 2434 It shall be the responsibility of the city or municipal treasurer concerned. /he city or municipal treasurer may deputi0e the barangay treasurer to collect all taxes on real property located in the barangay+ provided the barangay treasurer is properly bonded. Period to Colle*t /%ec. 2354 1. within five ,&- years from the date they become due 2. within ten ,1B- years from discovery of fraud in case there is fraud or intent to evade Su+.e +io of Pre+*ri.ti6e Period /%ec. 2354 1. local treasurer is le!all) .re6e ted to collect tax. 2. the owner or property re5uests for rei 6e+ti!atio and write+ a wai6er before expiration of period to collect. ". the owner of property is out of the country or cannot be located.
Re3ed) a!ai +t the A++e++3e t-A..eal ,st within )B days from notice of assessment of provincial city or municipal assessor to 8;!! (4ec. 559 *GC) 5nd within "B days from receipt of decision of 8;!! to .;!! (4ec. 5-6 *GC) -rd within "B days from receipt of decision of .;!! to .ourt of /ax !ppeals en banc +th within 1& days from receipt of decision of .ourt of /ax !ppeals en banc to the Supreme .ourt
'. 4%&ICIAL 1. Court A*tio appeal of .;!!7s decision to .ourt of /ax !ppeals en banc. 2. Suit a++aili ! 6alidit) of taxM re*o6er) of refu d of taxe+ paid (4ec. 9+ P" +9+). ". Suit to de*lare i 6alidit) of tax due to irre!ularit) i a++e++3e t a d *olle*tio (4ec. 9+ P" +9+) $. Suit a++aili ! the 6alidit) of tax +ale (4ec. .- P" +9+) (4ec. 598 *GC) Co do atio of Real Pro.ert) Taxe+ 1. ;y the Sanggunian :eal property taxes may be condoned wholly or partially in a given local government unit when? a. /here is general failure of crops+ b. /here is substantial decrease in the price of agricultural or agribased products+ or c. /here is calamity. 2. ;y the 'resident of the 'hilippines when public interest so re5uires.
within )B days
Fwner('erson with legal interest must file? 1- 1ritten 'etition under Fath 2- 1ith Supporting Cocuments LOCAL 'OAR& OF ASSESS<ENT APPEALS 7L'AA +hould de*ide withi 5:F da)+ fro3 re*ei.t of .etitio ;
C%STO<S &%TIES
W#EN TARIFF AN& C%STO<S APPLIE& Fnly after importation has begun but before importation is terminated.
1. !ssessment and collection of revenues from imported articles and all other impositions under the tariff and customs laws+ 2. .ontrol smuggling and related frauds+ ". Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce+ $. 9nforcement of /.. and related laws+ &. Supervision and control over the handling of foreign mails arriving in the 'hilippines+ ). Supervise and control all import and export cargoes for the protection of government revenue+ *. 9xclusive original jurisdiction over sei0ure and forfeiture cases under the tariff and customs laws.
Importation begins 1- when the conveying vessel or aircraft 2- enters the jurisdiction of the 'hil. "- with intention to unload therein Importation is deemed terminated ,a- upon payment of the duties taxes and other charges due upon the articles. ,b- and legal permit for withdrawal shall have been granted. In case the articles are free of duties taxes and other charges until they have legally left the jurisdiction of the customs (4ec. ,565, 1CC) INTENTION TO %NLOA& 9ven if not yet unloaded and there is unmanifested cargo forfeiture may take place because importation has already begun.
NAT%RE OF SPECIAL C%STO<S &%TIES Special customs duties are additional import duties imposed on specific kinds of imported articles under certain conditions. P%RPOSE OF SPECIAL C%STO<S &%TIES /he special customs duties are imposed for the protection of consumers and manufacturers as well as 'hil. products from undue competition posed by foreign-made products.
CO%NTER"AILING &%T/
Imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated. 95uivalent to bounty subsidy subvention. the or
<AR8ING &%T/
Imposed upon those not properly marked as to place of origin of the goods.
&ISCRI<INATOR/ &%T/
Imposed upon goods coming from countries that discriminate against 'hilippine products.
5. AmountCRate Cifference between the actual price and the normal value of the article. ". ,mposin" Aut#orit! Special committee on !nti-Cumping ,composed of the Secretary of Dinance as .hairman+ %embers? the Secretary of C/I and either the Secretary of !griculture if article in 5uestion is agricultural product or the Secretary of labor if nonagricultural product
!ny amount not exceeding 1BBE ad valorem of the subject articles 'resident of the 'hilippines
Secretary of Dinance
.ommissioner of .ustoms
FLEXI'LE TARIFF CLA%SE /he 'resident may fix tariff rates import and export 5uotas etc. under /.. (4ee 4ec. 5., Art. 2I, Constitution and 4ec. +6,, 1CC) 1. to increase reduce or remove existing protective rates of import duty ,including any necessary change in classification-. /he existing rates may be increased or decreased to any level on one or several stages but in no case shall the increased rate of import duty be higher than a maximum of one hundred ,1BBE- per cent ad valorem
2. to establish import 5uota or to ban imports of any commodity as may be necessary+ and ". to impose an additional duty on all imports not exceeding ten ,1BE- per cent ad valorem whenever necessary? LI<ITATIONS I<POSE& REGAR&ING T#E FLEXI'LE TARIFF CLA%SE a. .onduct by the /ariff .ommission of an investigation in a public hearing. /he .ommission shall also hear the views and recommendations of any government office agency or instrumentality concerned.
A. A&<INISTRATI"E 5. Tax Lie 7Se*. 5:FA TCC; attaches on the goods regardless of ownership while still in the custody or control of the 4overnment availed of when the importation is neither prohibited nor improperly made :. Ad3i i+trati6e Fi e+ a d Forfeiture+ applied when the importation is unlawful and it may be exercised even where the articles are not or no longer in .ustom7s custody ' unless the importation is merely attempted in which case it may be effected only while the goods are still within the .ustoms jurisdiction or in the hands of a person who is aware
'. 4%&ICIAL 1. thi+ re3ed) i+ or3all) a6ailed of whe the tax lie i+ lo+t () the relea+e of the !ood+ .ivil !ction ,Sec. 12B$ /.. .riminal !ction
/he .ollector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse
/he .ollector shall assess li5uidate and collect the duties thereon or detain the said goods if the party liable does not pay the same
/he party adversely affected ,the protestant- may file a written protest on his foregoing liability with the .ollector within 1& days after paying the li5uidated amount ,the payment under protest rule applies-
2earing within 1& days from receipt of the duly presented protest. Gpon termination of the hearing the .ollector shall decide on the same within "B days
!ppeal with the .ourt of /ax !ppeals Civision within "B days from notice
!ppeal by certiorari with the Supreme .ourt within 1& days from notice
If decision of .ommissioner or Secretary of Dinance is adverse to the protestant he may appeal to the ./! and S. under the same procedure on the left.
d.
2. /he 'hilippines is divided into various ports of entry 6 entry other than port of entry will be S%G448I>4. PORT OF ENTR/ ! domestic port open to both foreign and coastwise trade including <airport of entry=. (4ec. -/,+, 1CC) !88 articles imported into the 'hilippines whether subject to duty or not shall be entered through a customshouse at a port of entry. 9>/:I? in .ustoms law means1. the documents filed at the .ustoms house 2. the submission and acceptance of the documents ". the procedure of passing goods through the customs house (RodrigueG vs. Court o% Appeals, GR No. ,,/5,., 4eptember ,., ,00/) CONTRA'AN&9 !rticles of prohibited importations or exportations. (4ec. -/,+, 1CC)
Rea+o + for the auto3ati* re6iew of de*i+io + ad6er+e to the Go6er 3e t 1. /o protect the interest of the 4overnment 2. ! favorable decision will not be appealed by the taxpayer and certainly a .ollector will not appeal his own decision. ". 8ifeblood /heory '. SEII%RE AN& FORFEIT%RE CASES &EFINITION9 /hese refer to matters involving smuggling. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. /hese are actions in rem. /hus It is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. /he absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. (Commissioner o% Customs vs. !anila 4tar 7erry, Inc., GR Nos. -,889'8., (ctober 5,, ,00-) S<%GGLING 1. !n act of any person who shall? a. Draudulently import any article contrary to law or b. !ssist in so doing or c. :eceive conceal buy sell facilitate transport conceal or sell such article knowing its illegal importation (4ec. -96,, 1CC)
E"I&ENCE FOR CON"ICTION IN S<%GGLING CASES %ere possession of the article in 5uestion - unless defendant could explain that his possession is lawful to the satisfaction of the court (4ec. -96,, 1CC). 'ayment of the tax due after apprehension is not a valid defense (RodrigueG vs. Court o% Appeals, GR No. ,,/5,., 4eptember ,., ,00/) T#INGS S%'4ECT TO CONFISCATION IN S<%GGLING CASES !nything that was used for smuggling is subject to confiscation like the vessel plane etc. (*lamado vs. Commissioner o% Customs, GR No. *' 5..60, !ay ,9, ,0.-).
:eport of sei0ure to the .omm. of .ustoms and the .hairman .omm. on !udit
Dormal hearing
PERSONS #A"ING POLICE A%T#ORIT/ TO ENFORCE T#E TARIFF P C%STO<S LAWS AN& EFFECT SEARC#ES> SEII%RES AN& ARRESTS /%EC. 22530 CC4
A'ATE<ENT /he reduction or non-imposition of customs duties on certain imported materials as a result of? 1- Camage incurred during voyage+ 2- Ceficiency in contents packages "- 8oss or destruction of articles after arrival $- Ceath or injury of animals FRA%&%LENT PRACTICES CONSI&ERE& AS CRI<INAL OFFENSES AGAINST C%STO<S RE"EN%E LAWS 1- Gnlawful importation+ 2- 9ntry of imported or exported article by means of any false or fraudulent practices invoice declaration affidavit or other documents+ "- 9ntry of goods at less than their true weights or measures or upon a classification as to 5uality or value+ $- 'ayment of less than the amount due+ &- Diling any false or fraudulent claim for the payment of drawback or refund of duties upon the exportation of merchandise+ or )- Diling any affidavit certificate or other document to secure to himself or others the payment of any drawback allowance or refund of duties on the exportation of mdse. greater than that legally due thereon. (4ec. -965, 1CC)
AC$%ITTAL IN CRI<INAL C#ARGE NOT RES 4%&ICATA IN SEII%RE OR FORFEIT%RE PROCEE&INGS Rea+o +9 1- .riminal proceedings are actions in personam while sei0ure or forfeiture proceedings are actions in rem. 2- .ustoms compromise does not extinguish criminal liability. (People vs. "esiderio, GR No. *'56.66/, November 59, ,09/) Note. !t any time prior to the sale the delin5uent importer 3a) +ettle hi+ o(li!atio + with the ;ureau of .ustoms in which case the aforesaid articles may be delivered upon payment of the corresponding duties and taxes and
4%RIS&ICTION
I. EXCL%SI"E APPELLATE 4%RIS&ICTION TO RE"IEW '/ APPEAL 7a; Cecisions of the Commissioner of ,nterna& Revenue 1. in cases involving disputed assessments refunds of internal revenue taxes fees or other charges penalties in relation thereto 2. or other matters arising under the >I:. or other laws administered by the ;I:+ 7(; Inaction by the Commissioner of ,nterna& Revenue 1. in cases involving disputed assessments refunds of internal revenue taxes fees or other charges penalties in relation thereto 2. or other matters arising under the >I:. or other laws administered by the ;I: where the >I:. provides a specific period for action in which case the inaction shall be deemed a denial+ 7*; Cecisions orders or resolutions of the R C 6 in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction+
/a4 Exc&usive ori"ina& Durisdiction over all criminal cases arising from violations of the >I:. or /ariff and .ustoms .ode and other laws
/74 Exc&usive appe&&ate Durisdiction in tax collection cases Fver appeals from the judgments resolutions or orders of :/. in tax collection cases originally decided by them in their respective territorial jurisdiction. Fver petitions for review of the judgements resolutions or orders of the :/. in the exercise of their appellate jurisdiction over tax collection cases originally decided by the %etropolitan /rial .ourts %unicipal /rial .ourts and %unicipal .ircuit /rial .ourts in their respective jurisdiction.
4overnment may directly file the said cases with the ./! covering amounts within its exclusive and original jurisdiction.
1Other <atter+2 /hose controversies which can be considered within the scope of the function of the ;I: ( ;F. under ejusdem generis rule ,e.g. action for the nullity of distraint and levy+ 5uestioning the propriety of the assessment+ collection of compromise penalties-.
;. !ny party adversely affected by a resolution of a Civision of the ./! on a motion for reconsideration or new trial may file a petition for review with the ./! en banc. .. !ny party adversely affected by a decision or ruling of the ./! en banc may file with the Supreme .ourt a verified petition for review on certiorari pursuant to :ule $& of the 1AA* :ules on .ivil 'rocedure.
APPEAL
Whe
Gamble Phils. !%g. Corp, GR No. 99.-., April ,/, ,0..) N(1) 2owever this was reversed in Supreme .ourt7s subse5uent resolution wherein it was held that <in the absence of explicit statutory provisions to the contrary the 4overnment must follow the same rules of procedure which bind private parties.= (Commissioner vs. Procter and Gamble, GR No. 99.-., "ecember 5, ,00,, Resolution) Tax *olle*tio A..eal Not Su+.e ded duri !
Ge eral Rule9 >o appeal taken to the ./! shall suspend the payment levy or distraint and(or sale of any property of the taxpayer. Ex*e.tio 9 /he ./! is empowered to suspend the collection of internal revenue taxes and custom duties only when there was a 6 c- showing that collection of the tax may jeopardi0e the interest of the government and ( or the taxpayer+ d- deposit of the amount claimed or file a surety bond for not more than double the amount of tax with the .ourt when re5uired+ and e- showing by taxpayer that appeal is not frivolous nor dilatory. Ca The CTA E Joi Taxe+0 Colle*tio of
'reliminary collection letters post reporting notices and pre-assessment notices are not appealable because they are not the final decision of the .ommissioner. !n assessment can be appealed if taxpayer does not seek a reconsideration. !t times there is an exchange of communications between taxpayer and .ommissioner states that his action is final then period for appeal begins to run. .ommissioner must state that his decision is final for period of appeal to run. Dinal decision cannot be implied from issuance of warrant of distraint and levy unless it is issued after a re5uest for reconsideration. GENERAL R%LE9 >ew issues cannot be raised for the first time on appeal. EXCEPTIONS9 a. Cefense of prescription :eason? /his is a statutory right. (2isayan *and 1ransportation vs. Collector) b. 9rrors of administrative officials :eason? State can never be in estoppel and lifeblood theory. (Commissioner vs. Procter and
Sec. 11 of :! >o. 112& as amended by Sec. A of :! >o. A2@2 grants ./! power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or government. 2owever Sec. 21@ of the /ax .ode provides no court may grant injunction to restrain collection of any tax fee or charge imposed by /ax .ode. /he provision in /ax .ode refers to courts other than the ./!. (3laBuera vs. RodrigueG, GR No. *' ,,50/, !arch 50, ,0/.) !ppeal to the ./! does not automatically suspend collection
H,NP* A6H means the value-added tax due from or paid by a J!/-registered person in the course of his trade or business on importation of goods or local purchase of goods or services including lease or use of property from a J!/registered person. It shall also include the transitional input tax determined in
)P ,)N% )? A A6PAAER A% PR)',+E+ ,N %EC ,)N 112. 1. to claim for tax credit+ or 2. to claim for refund /he claim which must be in writing for both cases must be filed within 2 years after the close of the taxable 5uarter when the sales were made for? a- the issuance of a tax credit certificate+ b- refund of creditable input tax due or paid attributable to such sales. #OW TO &ETER<INE CRE&ITA'LE INP%T TAX /he sum of the excess input tax carried over from the preceding month or 5uarter and the input tax creditable to a J!/-registered person during the taxable month or 5uarter shall be reduced reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments such as purchase returns or allowances and input tax attributable to exempt sale.