Beda Tax Reviewer

8/13/2019 Beda Tax Reviewer

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TAXATION: San Beda College of LAW ALABANG

GENERAL PRINCIPLES

I. Concepts, Nature and Characteristics of Taxation and Taxes.

Taxation Defined:

As a process, it is a means by which the sovereign, through itslaw-making body, raises revenue to defray the necessary expensesof the government. It is merely a way of apportioning the costs ofgovernment among those who in some measures are privileged toenjoy its benefits and must bear its burdens.

As a poer, taxation refers to the inherent power of the state todemand enforced contributions for public purpose or purposes.

Rationa!e of Taxation " The Supreme ourt held!"It is said that taxes are what we pay for civili#ed society.

$ithout taxes, the government would be paraly#ed for lack of themotive power to activate and operate it. %ence, despite the naturalreluctance to surrender part of one&s hard-earned income to the

taxing authorities, every person who is able must contribute his sharein the running of the government. The government for its part isexpected to respond in the form of tangible and intangible benefitsintended to improve the lives of the people and enhance their moraland material values. The s#$%iotic re!ationship is the rationa!e oftaxationand should dispel the erroneous notion that it is an arbitrarymethod of exaction by those in the seat of power.

Taxation is a symbiotic relationship, whereby in exchangefor the protection that the citi#ens get from the government, taxes arepaid.' (ommissioner of Internal )evenue vs *llegre, Inc.,et al., +-/, 0eb. 12, 13

Purposes and &%'ecti(es of Taxation

1. Re(enue ) to provide funds or property with which the Statepromotes the general welfare and protection of its citi#ens.

. Non"Re(enue45)657

a. Pro$otion of Genera! *e!fare ) Taxation may be used as animplement of police powerin order to promote the general welfare ofthe people. 4see +ut# vs *raneta ( 5hil 183 and 9sme:a vs 9rbos(;.). 1, 1>37

b. Re+u!ation ) *s in the case of taxes levied on excises andprivileges like those imposed in tobacco or alcoholic products or

amusement places like night clubs, cabarets, cockpits, etc.In the case of Caltex Phils. Inc. vs COA(;.). S 7

1. It is levied by the !a"$a-in+ %od#of the StateThe power to tax is a legislative power which under the

onstitution only ongress can exercise through the enactment olaws. *ccordingly, the obligation to pay taxes is a statutory liability.

. It is an enforcedcontribution* tax is not a voluntary payment or donation. It is not

dependent on the will or contractual assent, express or implied, othe person taxed. Taxes are not contracts but positive acts of thegovernment.

>. It is generally payable in $one#Tax is a pecuniary burden @ an exaction to be discharged

alone in the form of money which must be in legal tender, unlessAualified by law, such as )* >B8 which allows backpay certificatesas payment of taxes.

8. It is proportionate in character - It is ordinarily based on thetaxpayers ability to pay.

?. It is levied on persons or propert# " * tax may also be imposedon acts, transactions, rights or privileges.

/. It is levied for pu%!ic purpose or purposes " Taxation involvesand a tax constitutes, a burden to provide income for publicpurposes.

2. It is levied by the Statewhich has jurisdiction over the persons oproperty. - The persons, property or service to be taxed must besubject to the jurisdiction of the taxing state.

Theor# and asis of Taxation

/. Necessit# Theor#Taxes proceed upon the theory that the existence of the

government is a necessityC that it cannot continue without the meansto pay its expensesC and that for those means, it has the right tocompel all citi#ens and properties within its limits to contribute.

In a case, the Supreme ourt held that!Taxation is a power emanating from necessity. It is a

necessary burden to preserve the State&s sovereignty and a means

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because of the constitutional restraints placed on a taxing power thatviolated fundamental rights.

In the case ofoxas, et al vs C2A (April -, !*-)&, the Sreminds us that although the power of taxation is sometimes calledthe power to destroy, in order to maintain the general public&s trustand confidence in the ;overnment, this power must be used justlyand not treacherously. The Supreme ourt held!

"The power of taxation is sometimes called also the powerto destroy. Therefore it should be exercised with caution to minimi#einjury to the proprietary rights of a taxpayer. It must be exercisedfairly, eAually and uniformly, lest the tax collector kill the F hen thatlays the 3olen e33&. *nd, in order to maintain the general public&trust and confidence in the ;overnment this power must be used

justly and not treacherously.'The doctrine seeks to describe, in an extreme, the

conseAuential nature of taxation and its resulting implications, to wit!a. The power to tax must be exercised with caution to minimi#e

injury to proprietary rights of a taxpayerCb. If the tax is lawful and not violative of any of the inherent and

constitutional limitations, the fact alone that it may destroy an activityor object of taxation will not entirely permit the courts to afford any

reliefC andc. * subject or object that may not be destroyed by the taxing

authority may not likewise be taxed. (e.g. exercise of a constitutionalright3

Poer of 7udicia! Re(ie in TaxationThe courts cannot review the wisdom or advisability or

expediency of a tax. The court&s power is limited only to theapplication and interpretation of the law.

Eudicial action is limited only to review where involves!1. The determination of validity on the tax in relation toconstitutional precepts or provisions.. The determination, in an appropriate case, of the application of

the law.

Aspects of Taxation1. Le(# @ determination of the persons, property or excises to betaxed, the sum or sums to be raised, the due date thereof and thetime and manner of levying and collecting taxes (strictly speaking,such refers to taxation3

. Co!!ection @ consists of the manner of enforcement of theobligation on the part of those who are taxed. (this includes paymentby the taxpayer and is referred to as tax administration3

The two processes together constitute the "taxations#ste$'.

asic Princip!es of a Sound Tax S#ste$ 40*T71. 8isca! Adeuac# ) the sources of tax revenue should coincide

with, and approximate the needs of government expenditure. . Theoretica! 7ustice @ the tax burden should be in proportion tothe taxpayer&s ability to pay (ability4to4pay principle&. The 12onstitution reAuires taxation to be eAuitable and uniform.

II. C!assifications and Distinction

C!assification of Taxes

A. As to Su%'ect $atter

1. Persona!, capitation or po!! taxes@ taxes of fixed amount uponall persons of a certain class within the jurisdiction of the taxingpower without regard to the amount of their property or occupationsor businesses in which they may be engaged in.

example! community tax

. Propert# Taxes @ taxes on things or property of a certain classwithin the jurisdiction of the taxing power.

example! real estate tax

>. Excise Taxes @ charges imposed upon the performance of anact, the enjoyment of a privilege, or the engaging in an occupation.

examples! income tax, value-added tax, estate tax odonor&s tax

B. As to urden

1. Direct Taxes@ taxes wherein both the 0incience1as well as the0impact1or burden of the tax faces on one person.

examples! income tax, community tax, donor&s tax, estatetax

. Indirect Taxes@ taxes wherein the incidence of or the liability fothe payment of the tax falls on one person, but the burden thereofcan be shifted or passed to another person.

examples! H*T, percentage taxes, customs duties excisetaxes on certain specific goods

I$portant Points to Consider re+ardin+ Indirect Taxes!1. $hen the consumer or end-user of a manufacturer product istax-exempt, such exemption covers only those taxes for which suchconsumer or end-user is directly liable. Indirect taxes are noincluded. %ence, the manufacturer cannot claim exemption from thepayment of sales tax, neither can the consumer or buyer of theproduct demand the refund of the tax that the manufacturer mighhave passed on to him. (Phil. Acetylene Co. inc. vs Commissioner oInternal evenue et. al., +4!*$5$, Au3.!$, !*)$&

. $hen the transaction itself is the one that is tax-exempt buthrough error the seller pays the tax and shifts the same to the buyerthe seller gets the refund, but must hold it in trust for buyer(American ubber Co. case, +4!5*-", April "5, !*-"&

>. $here the exemption from indirect tax is given to the contracteebut the evident intention is to exempt the contractor so that suchcontractor may no longer shift or pass on any tax to the contracteethe contractor may claim tax exemption on the transaction

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(Commissioner of Internal evenue vs 6ohn Gotamco an #ons,Inc., et.al., +4"!5*, 7eb. $, !*)$&

8. $hen the law granting tax exemption specifically includesindirect taxes or when it is clearly manifest therein that legislativeintention to exempt embraces indirect taxes, then the buyer of theproduct or service sold has a right to be reimbursed the amount ofthe taxes that the sellers passed on to him. (/acea vs/acarai3,supra&

C. As to Purpose

1. Genera!98isca!9Re(enue @ tax imposed for the general purposesof the government, i.e., to raise revenues for governmental needs.

6xamples! income taxes, H*T, and almost all taxes

. Specia!9Re+u!ator#@ tax imposed for special purposes, i.e., toachieve some social or economic needs.

6xamples! educational fund tax under )eal 5ropertyTaxation

D. As to easure of App!ication

1. Specific Tax@ tax imposed per head, unit or number, or bysome standard of weight or measurement and which reAuires noassessment beyond a listing and classification of the subjects to betaxed.

6xamples! taxes on distilled spirits, wines, and fermentedliAuors

. Ad ;a!ore$ Tax@ tax based on the value of the article or thingsubject to tax.

example! real property taxes, customs duties

E. As to Date

1. Pro+ressi(e Tax@ the rate or the amount of the tax increases asthe amount of the income or earning (tax base3 to be taxedincreases.

examples! income tax, estate tax, donor&s tax

. Re+ressi(e Tax @ the tax rate decreases as the amount ofincome or earning (tax base3 to be taxed increases.

. ixed Tax @ tax rates are partly progressive and partlyregressive.

8. Proportionate Tax @ tax rates are fixed on a flat tax base.examples! real estate tax, H*T, and other percentage

taxes

F. As to Scope or authorit# i$posin+ the tax

1. Nationa! Tax )tax imposed by the . generally, no l imit as toamount imposed

>. amount depends on the cosof construction or maintenanceof the public improvement used

8. imposed only by thegovernment

8. imposed by the governmenor private individuals or entities

b. Pena!t# (s TaxPena!t# @ any sanctions imposed as a punishment fo

violations of law or acts deemed injurious.

Tax (s Pena!t#

1. generally intended to raiserevenue

1. designed to regulate conduct

. imposed only by thegovernment

. imposed by the governmenor private individuals or entities

c. Specia! Assess$ent (s TaxSpecia! Assess$ent @ an enforced proportiona

contribution from owners of lands especially or peculiarly benefitedby public improvements.

Tax (s Specia! Assess$ent1. imposed on persons,property and excise

1. levied only on land

. personal l iabili ty of theperson assessed

. not a personal liability of theperson assessed, i.e. his liabilityis limited only to the landinvolved

>. based on necessity as wellas on benefits received

>. based wholly on benefits

8. general application (see*postolic 5refect vs Treas. 9fJaguio, 21 5hil ?823

8. exceptional both as time andplace

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I$portant Points to Consider Re+ardin+ Specia!Assess$ents:1. Since special assessments are not taxes within the constitutionalor statutory provisions on tax exemptions, it follows that theexemption under Sec. (>3, *rt. HI of the onstitution does notapply to special assessments.

. %owever, in view of the exempting proviso in #ec. " of the+ocal Government Coe,properties which are actually, irectly anexclusively use for reli3ious, charitable an eucational purposesare not exactlyexempt from real property taxes but are exempt fromthe imposition of special assessments as well.( see Aban&> .The general rule is that an exemption from taxation does notinclude exemption from special assessment.

d. License or Per$it 8ee (s TaxLicense or Per$it fee@ is a charge imposed under the

police power for the purposes of regulation.

Tax (s License9Per$it 8ee

1. enforced contributionassessed by sovereign authorityto defray public expenses

1. legal compensation orreward of an officer for specificpurposes

. for revenue purposes . for regulation purposes

>. an exercise of the taxingpower

>. an exercise of the policepower

8. generally no limit in theamount of tax to be paid

8. amount is limited to thenecessary expenses ofinspection and regulation

?. imposed also on personsand property

?. imposed on the right toexercise privilege

/. non-payment does notnecessarily make the act orbusiness illegal

/. non-payment makes the actor business illegal

Three -inds of !icenses are reco+ni=ed in the !a:1. +icenses for the regulation of useful occupations.. +icenses for the regulation or restriction of non-usefuloccupations or enterprises>. +icenses for revenue only

I$portance of the distinctions %eteen tax and !icensefee:1. Some limitations apply only to one and not to the other, and thatexemption from taxes may not include exemption from license fees.. The power to regulate as an exercise of police power does not

include the power to impose fees for revenue purposes. (seeAmerican /ail +ine vs City of 8utuan, +4!-$, /ay "!, !*-$ anrelate cases&>. *n extraction, however, maybe considered both a tax and alicense fee.8. Jut a tax may have only a regulatory purpose.?. The general rule is that the imposition is a tax if its primarypurpose is to generate revenue and regulation is merely incidentalCbut if regulation is the primary purpose, the fact that incidentallyrevenue is also obtained does not make the imposition of a tax. (seePro3ressive 9evelopment Corp. vs :ue'on City, !$ #CA -*&

e. De%t (s Taxebt is based upon juridical tie, created by law, contracts

delicts or Auasi-delicts between parties for their private interest oresulting from their own acts or omissions.

Tax (s De%t

1. based on law 1. based on contracts, expressor implied

. generally, cannot beassigned

. assignable

>. generally payable in money >. may be paid in kind

8. generally not subject to set-off or compensation

8. may be subject to set-off ocompensation

?. imprisonment is a sanctionfor non-payment of tax exceptpoll tax

?. no imprisonment for nonpayment of debt

/. governed by specialprescriptive periods provided forin the Tax ode

/. governed by the ordinaryperiods of prescriptions

2. does not draw interestexcept only when delinAuent

2. draws interest when sostipulated, or in case of default

Genera! Ru!e: Taxes are not subject to set-off or legacompensation. The government and the taxpayer are not creditorsand debtors or each other. 9bligations in the nature of debts are dueto the government in its corporate capacity, while taxes are due tothe government in its sovereign capacity (Philex /inin3 Corp. vsCI, * #CA -)$; epublic vs /ambulao +umber Co., - #CA-&

Exception: $here both the claims of the government and thetaxpayer against each other have already become due anddemandable as well as fully liAuated. (see 9omin3o vs Garlitos, +4!)*5, 6une *, !*-"&

Pertinent Case:

Phi!ex inin+ Corp. (s Co$$issioner of Interna! Re(enue;.).


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c. &ther Constitutiona! Pro(isions re!ated to Taxation

1. Su%'ectand Title of Jills. 5ower of the President to Heto an items in an *ppropriation,)evenue or Tariff Jill>. 3 directly to promote the welfare of the community(taxation as an implement of police power3

b. The term 0public purpose1 is synonymous with03overnmental purpose1;a purpose affecting the inhabitants of thestate or taxing district as a community and not merely as individuals.

c. * tax levied for a private purpose constitutes a taking ofproperty without due process of law.

d. The purposes to be accomplished by taxation need not beexclusively public. *lthough private individuals are directly benefited,the tax would still be valid provided such benefit is only incidental.

e. The test is not as to who receives the money, but thecharacter of the purpose for which it is expendedC not the immediate

result of the expenditure but rather the ultimate.

g. In the imposition of taxes, public purpose is presumed.

. Test in deter$inin+ Pu%!ic Purposes intax

a. Dut# Test @ whether the thing to be threatened by theappropriation of public revenue is something which is the duty of theState, as a government.

b. Pro$otion of Genera! *e!fare Test@ whether the law providingthe tax directly promotes the welfare of the community in eAualmeasure.

asic Princip!es of a Sound Tax S#ste$ ?8AT@

a. 8isca! Adeuac# ) the sources of tax revenue should coincidewith, and approximate the needs of government expenditure.


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. Territoria!it# or Situs of Taxation

/. I$portant Points to Consider:a. Territoriality or Situs of Taxation means 0place of taxation1

depending on the nature of taxes being imposed.b. It is an inherent mandate that taxation shall only be

exercised on persons, properties, and excise within the territory ofthe taxing power because!

b.13 Tax laws do not operate beyond a country&s territoriallimit.b.3 5roperty which is wholly and exclusively within the

jurisdiction of another state receives none of the protectionfor which a tax is supposed to be compensation.

c. %owever, the fundamental basis of the right to tax is thecapacity of the government to provide benefits and protectionto the object of the tax. * person may be taxed, even if he isoutside the taxing state, where there is between him and thetaxing state, a privity of relationship justifying the levy.

0. 8actors to Consider in deter$inin+ Situs of Taxationa. kind and lassification of the Taxb. location of the subject matter of the taxc. domicile or residence of the persond. citi#enship of the persone. source of incomef. place where the privilege, business or occupation is beingexercised

.Exe$ption of the Go(ern$ent fro$ Taxes

/. I$portant Points to Consider:

Reasons for Exe$ptions:a.13 To levy tax upon public property would rendernecessary new taxes on other public property for thepayment of the tax so laid and thus, the government wouldbe taxing itself to raise money to pay over to itselfCa.3 In order that the functions of the government shall notbe unduly impedeC anda.>3 To reduce the amount of money that has to be handedby the government in the course of its operations.

. Mnless otherwise provided by law, the exemption appliesonly to government entities through which the governmentimmediately and directly exercises its sovereign powers(Infantry Post =xchan3e vs Posaas, % Phil )--&

>. 3 foreign government may not be sued without its

consent so that it is useless to assess the tax since it cannot becollected

b.83 reciprocity among states

Constitutiona! Li$itations

1. Due Process of La

a. asis: #ec. ! Art. " 0>o person shall be eprive of lifeliberty or property without ue process of law x x x.'

Reuisites :1. The interest of the public generally as

distinguished from those of a particular class reAuire the interventionof the stateC

. The means employed must be reasonablynecessary to the accomplishment for the purpose and not undulyoppressiveC

>. The deprivation was done under the authority oa valid law or of the constitutionC and

8. The deprivation was done after compliance withfair and reasonable method of procedure prescribed by law.

In a string of cases, the Supreme ourt held that inorder that due process of law must not be done in an arbitrarydespotic, capricious, or whimsical manner.

. Eua! Protection of the La

a. asis: #ec.! Art. " 0 xxx >or shall any person be eniethe eual protection of the laws.I$portantPoints to Consider!

1. 6Aual protection of the laws signifies that apersons subject to legislation shall be treated under circumstancesand conditions both in the privileges conferred and l iabilities imposed

. This doctrine prohibits class legislation whichdiscriminates against some and favors others.

b. )eAuisites for a Halid lassification1. =ust not be arbitrary

. =ust not be based upon substantial distinctions>. =ust be germane to the purpose of law.8. =ust not be limited to exiting conditions onlyC and?. =ust play eAually to all members of a class.

>. >nifor$it#, Euita%i!it# and Pro+ressi(it# of Taxation

a. asis: Sec. (13 *rt. HI. The rule of taxation shall beuniform and eAuitable. The ongress shall evolve aprogressive system of taxation.b. I$portant Points to Consider:

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1. >nifor$it#(eAuality or eAual protection of the laws3means all taxable articles or kinds or property of the same class shallbe taxed at the same rate. * tax is uniform when the same force andeffect in every place where the subject of it is found.

. Euita%!e means fair, just, reasonable andproportionate to one&s ability to pay.

>. Pro+ressi(e s#ste$ of Taxation places stress ondirect rather than indirect taxes, or on the taxpayers& ability to pay

8. IneAuality which results in singling out one particularclass for taxation or exemption infringes no constitutional limitation.(see Commissioner vs. +in3ayen Gulf =lectric, !- #CA $&

?. The rule of uniformity does not call for perfectuniformity or perfect eAuality, because this is hardly attainable.

8. 8reedo$ of Speech and of the Press

a. asis:Sec. 8 *rt. III.


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?. The constitutional exemption applies only toproperty tax.

/. %owever, it would seem that under existing law,gifts made in favor or religious charitable and educationalorgani#ations would nevertheless Aualify for donor&s gift taxexemption. (Sec. 1B1(3(>3,


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preacher, minister or dignitary is assigned to the armed forces or toany penal institution, or government orphanage or leprosarium.'

?. Taxes !e(ied for Specia! Purpose ?Sec. 0F?2@, Art. ;I ofthe /F Constitution@

"*ll money collected or any tax levied for a specialpurpose shall be treated as a special fund and paid out for suchpurpose only. It the purpose for which a special fund was created hasbeen fulfilled or abandoned the balance, if any, shall be transferred tothe general funds of the government.'

*n example is the 9il 5rice Stabili#ation 0und created under

5.. 1?/ to stabili#e the prices of imported crude oil. In a decidecase, it was held that where under an executive order of the5resident, this special fund is transferred from the general fund toa "trust liability account,' the constitutional mandate is notviolated. The 95S0, according to the court, remains as a specialfund subject to 9* audit (Osmea vs Orbos, et al., G.. >o.**))-, /ar. "!, !**"&

/. A!!ot$ent to Loca! Go(ern$ents asis:Sec. 5, Art. of the /F Constitution

"+ocal ;overnment units shall have a just share, asdetermined by law, in the national taxes which shall beautomatically released to them.'

I;. Situs of Taxation and Dou%!e Taxation

Situs of Taxation

1. Situs of Taxationliterally means the P!ace of Taxation.

. asic Ru!e@ state where the subject to be taxed has a situsmay rightfully levy and collect the tax

So$e asic Considerations Affectin+ Situs of Taxation

/. Protection* legal situs cannot be given to property for the purpose of

taxation where neither the property nor the person is within theprotection of the taxing state

In the case of /anila =lectric Co. vs atco (-* Phil )*& , theSupreme ourt ruled that insurance premium paid on a fire insurancepolicy covering property situated in the 5hils. are taxable in the 5hils.6ven though the fire insurance contract was executed outside the5hils. and the insurance policy is delivered to the insured therein.

This is because the Philippines Government must 3et somethin3 inreturn for the protection it 3ives to the insure property in the Phils.an by reason of such protection, the insurer is benefite thereby.

0. The $axi$ of Mobilia Sequuntur Personamand Situs ofTaxation

*ccording to this maxim, which means 'movable follow theperson,' the situs of personal property is the domicile of the owner.This is merely a fiction of law and is not allowed to stand in the wayof taxation of personalty in the place where it has its actual situs andthe reAuisite legislative jurisdiction exists.

Exa$p!e: shares of stock may have situs for purposes otaxation in a state in which they are permanently kept regardless othe domicile of the owner, or the state in which he corporation isorgani#ed.

2. Le+is!ati(e Poer to 8ix SitusIf no constitutional provisions are violated, the power of the

legislative to fix situs is undoubted.

Exa$p!e: our law fixes the situs of intangible personaproperty for purposes of the estate and gift taxes. (see Sec. /H3/FF NIRC3

Note: In those cases where the situs for certain intangiblesare not categorically spelled out, there is room for applying themobilia rule.

8. Dou%!e Taxation and the Situs Li$itation (see later topic3

Criteria in 8ixin+ Tax Situs of Su%'ect of Taxation

a. Persons@ 5oll tax may be levied upon persons who areresidents of the State.

b. Rea! Propert# @ is subject to taxation in the State in which itis located whether the owner is a resident or non-resident, and istaxable only there.

Ru!e of Lex Rei Sitae

c. Tan+i%!e Persona! propert#@ taxable in the state where ihas actual situs @ where it is physically located. *lthough the owneresides in another jurisdiction.

Ru!e of Lex Rei Sitae

d. Intan+i%!e Persona! Propert# @ situs or personal propertyis the domicile of the owner, in accordance with the principle&ILIA SE1>>NT>R PERS&NAB, said principle, however, isnot controlling when it is inconsistent with express provisions ostatute or when justice demands that it should be, as where theproperty has in fact a situs elsewhere. (see Eells 7ar3o 8anH vCollector $5 PDI+ "%; Collector v. 7isher +4!!-, 6anuary, !*-!&

e. Inco$e @ properly exacted from persons who are residentsor citi#ens in the taxing jurisdiction and even those who are neitheresidents nor citi#ens provided the income is derived from sources

within the taxing state.

f. usiness, &ccupation, and Transaction@ power to levyan excise tax depends upon the place where the business is done, othe occupation is engaged in of the transaction not place.

g. Gratuitous Transfer of Propert#@ transmission of propertyfrom donor to donee, or from a decedent to his heirs may be subjectto taxation in the state where the transferor was a citi#en or residentor where the property is located.

;. u!tip!icit# of Situs

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There is multiplicity of situs when the same subject oftaxation, like income or intangible, is subject to taxation in severaltaxing jurisdictions. This happens due to!

a. Hariance in the concept of "domicile' for tax purposesCb. =ultiple distinct relationship that may arise with respect to

intangible personalityC andc. The use to which the property may have been devoted, all

of which may receive the protection of the laws of jurisdiction otherthan the domicile of the owner

Re$ed#@ taxation jurisdiction may provide!a. 6xemption or allowance of deductions or tax credit for

foreign taxesb. 6nter into treaties with other states

Dou%!e Taxation

To ?0@ inds of Dou%!e Taxation1. &%noxious or Direct Dup!icate Taxation (9ouble taxation

in its strict sense& - In the objectionable or prohibited sense means

that the same property is taxed twice when it should be taxed onlyonce.

Reuisites:1. Same property is taxed twice. Same purpose>. Same taxing authority8. $ithin the same jurisdiction?. uring the same taxing period/. Same kind or character of tax

. Per$issi(e or Indirect Dup!icate Taxation(9ouble taxationin its broa sense& @ This is the opposite of direct double taxation

and is not legally objectionable. The absence of one or more of theforegoing reAuisites of the obnoxious direct tax makes i t indirect.

Instances of Dou%!e Taxation in its road Sense

1. * tax on the mortgage as personal property when themortgaged property is also taxed at its full value as real estateC

. * tax upon a corporation for its capital stock as a whole andupon the shareholders for their sharesC

>. * tax upon a corporation for its capital stock as a whole andupon the shareholders for their sharesC

8. * tax upon depositions in the bank for their deposits and atax upon the bank for their property in which such deposits areinvested

?. *n excise tax upon certain use of property and a property taxupon the same propertyC and/. * tax upon the same property imposed by two different

states.

eans to Reduce the Jarsh Effect of Taxation

1. Tax Deduction ) subtraction from gross income in arriving ataxable income

. Tax Credit ) an amount subtracted from an individual&s orentity&s tax liability to arrive at the total tax liability

* deduction differ from a tax credit in that a deduction

reduces taxable income while credit reduces tax liability

>. Exe$ptions8. Treatieswith other States?. Princip!e of Reciprocit#

Constitutiona!it#ouble Taxation in its stricter sense is undoubtedlyunconstitutional but that in the broaersense is not necessarily so.Genera! Ru!e: 9ur onstitution does not prohibit double taxationhence, it may not be invoked as a defense against the validity of taxlaws.

a. $here a tax is imposed by the


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. %e who claims an exemption must justify that the legislativeintended to exempt him by words too plain to be mistaken. (@isayanCebu 2erminal vs CI, +4!*%"5, 7eb. $, !*-%&

>. %e who claims exemptions should convincingly proved thathe is exempt

8. Tax exemptions must be strictly construed (Phil. Acetylenevs CI, +4!*$5$, Au3. !$, !*-$&

?. Tax 6xemptions are not presumed. (+eala =lectric Co. vsCI, +4!-), Apr. "5, !*-"&

/. onstitutional grants of tax exemptions are self-executing(Opinion >o. !"5, !*)$, #ec. Of 6ustice&

2. Tax exemption are personal.. eductions for income tax purposes partake of the nature of

tax exemptions, hence, they are strictly construed against the taxpayer

. * tax amnesty, much like a tax exemption is never favoredor presumed by law (CI vs CA, G.. >o. !5)%$-, 6an. 5, !***&

1B. The rule of strict construction of tax exemption should not beapplied to organi#ations performing strictly religious, charitable, andeducational functions

;II. &ther Doctrines in Taxation

Prospecti(it# of Tax Las

Genera! Ru!e: Taxes must only be imposedprospectively

Exception: The language of the statute clearly emans or expressthat it shall have a retroactive effect.

Important Points to Consider

1. In order to declare a tax transgressing the due process clauseof the onstitution it must be so harsh and oppressive in its

retroactive application (7ernane' vs 7ernane', ** PDI+*"&. Tax laws are neither political nor penal in nature they are

deemed laws of the occupied territory rather than the occupyingenemy. (Dilao vs Collector, !55 PDI+ ))&

>. Tax laws not being penal in character, the rule in theonstitution against the passage of the ex post facto laws cannot beinvoked, exceptfor the penalty imposed.

I$prescripti%i!it# of Taxes

Genera! Ru!e: Taxes are imprescriptible

Exception: $hen provided otherwise by the tax law itself.

6xample! o.!5!$!, 7eb. , !***&

Doctrine of Euita%!e Recoup$ent

It provides that a claim for refund barred by prescription maybe allowed to offset unsettled tax liabilities should be pertinent only totaxes arising from the same transaction on which an overpayment ismade and underpayment is due.

This doctrine, however, was rejected by the Supremeourt, saying that it was not convinced of the wisdom and proprietarythereof, and that it may work to tempt both the collecting agency and

the taxpayer to delay and neglect their respective pursuits of legaaction within the period set by law. (Collector vs


15/52


TA ADINISTRATI&N AND EN8&RCEENT

A+encies In(o!(ed in Tax Ad$inistration

1. Jureau of Internal )evenue and the Jureau ofustoms for internal revenue and customs law

enforcement. It is noteworthy to note that the JI) islargely decentrali#ed in that a great extent of taxenforcement duties are delegated to the )egionalirectors and )evenue istrict 9fficers.

. 5rovincial, ity and =unicipal assessors andtreasures for local and real property taxes.

A+ents and Deputies for Co!!ection of Nationa! Interna! Re(enueTaxes

Mnder Sec. 1 of the 12


16/52


investigation is conducted. The liability is determinedand isC therefore, assessed for the following reasons!

1. The amount ascertained exceeds that whichis shown as tax by the taxpayer in his returnC

. . The taxpayer did not file any return at all.

(#ec. %- J8K K!K an JK !**$ >IC&

c. I!!e+a! and ;oid Assess$ents" This is anassessment wherein the tax assessor has no power toact at all (@ictorias /illin3 vs. C2A, +4!", !" /ar!*-)&

d. Erroneous Assess$ent ) This is an assessmentwherein the assessor has the power to assess buterrs in the exercise of that power (Ibid.3

Princip!es Go(ernin+ Tax Assess$ents

/.ssessments are prima fa'ie presumed 'orre't andmade in !ood faith*

The taxpayer has the duty of proving otherwise(Interprovincial Autobus vs. CI, *) Phil *5&

In the absence of any proof of any irregularities in theperformance of official duties, an assessment will notbe disturbed. (#y Po. @s. C2A, G.. >o )!-, ) Au3!*))

*ll presumptions are in favor of tax assessments(9ayrit vs. Cru', +4"**!5, - #ept. !*))&

0ailure to present proof of error in the assessment willjustify judicial affirmation of said assessments. (CIvs C.C. G.. >o. !5!%! an !5%%-", !5 /ar !**%&

* party challenging an appraiser&s finding of value is

reAuired to prove not only that the appraised value iserroneous but also what the proper value is (Caltexvs. C.C. G.. >o. !5$)!, !5 6uly !**)&

. *ssessments should not be based on presumptions nomatter how logical the presumption might be. In order to standthe test of judicial scrutiny it must be based on a'tual fa'ts.

>. *ssessment is discretionary on the part of theommissioner. Mandamus will not lie to 'ompel him toassess a tax after investi!ation if he finds no !round toassess* Mandamus to 'ompel the Commissioner to assess

will result in the en'roa'hment on exe'utive fun'tions,/eralco #ecuirities Corp. vs. #avellano, +4"-!)! an +4"-$),

" Oct !**&.

=xceptF

$he -IR Commissioner may be 'ompelled to assessby mandamus if in the exer'ise of his dis'retion there iseviden'e of arbitrariness and !rave abuse of dis'retion asto !o beyond statutory authority,/acea vs. /acarai3, G..>o. ))*, ) 6une !**".*

8. The authority vested in the ommissioner to assess taxesmay be delegated. n assessment si!ned by an employeefor and in behalf of the Commissioner of Internal Revenueis valid* /owever) it is settled that the power to ma%e finaassessments 'annot be dele!ated* $he person to whom aduty is dele!ated 'annot lawfully dele!ate that duty to

another* ,City +umber vs. 9omin3o, +4!)-!!, "5 6an !*-&.

?. *ssessments must be directed to the right party. /en'e) iffor example) the taxpayer bein! assessed is an estate of ade'edent) the administrator should be the party to whomthe assessment should be sent,epublic vs. ela ama, +4

!!5), * >ov. !*--&) and not the heirs of the de'edent

eans E$p!o#ed in the Assess$ent of Taxes

A. Exa$ination of Returns: Confidentiality Rule

The Tax ode reAuires that after the return is filed, theommissioner or his duly authori#ed representative shall examinethe same and assess the correct amount of tax. The tax or thedeficiency of the tax so assessed shall be paid upon notice anddemand from the ommissioner or from his duly authori#edrepresentative. *ny return, statement or declaration filed in any officeauthori#ed to receive the same shall not be withdrawn. %owever

within three (>3 days from the date of such filing, the same may bemodified, changed or amended, provided that no notice for audit oinvestigation of such return, statement or declaration has in themeantime been actually served upon the taxpayer. (#ec -JAK, !**$>IC&

*lthough Sec. 21 of the 12 . $hen the production of the tax return is materiaevidence in a criminal case wherein the ;overnmenis interested in the result. (Cu


17/52


. Assess$ent ased on the est E(idence &%taina%!e

The law authori#es the ommissioner to assess taxes onthe basis of the best evidence obtainable in the following cases!

1. if a person fails to file a return or other document atthe time prescribed by lawC or. he willfully or otherwise files a false or fraudulent

return or other document.

$hen the method is used, the ommissioner makes oramends the return from his knowledge and from such information ashe can obtain through testimony or otherwise. *ssessments made assuch are deemed prima facie correct and sufficient for all legalpurposes. (#ec. - J8K, !**$ >IC&

-est Eviden'e 0btainable refers to any data, record,papers, documents, or any evidence gathered by internal revenueofficers from government offices or agencies, corporations,employers, clients or patients, tenants, lessees, vendees and from allother sources, with whom the taxpayer had previous transactions orfrom whom he received any income, after ascertaining that a reportreAuired by law as basis for the assessment of any internal revenuetax has not been filed or when there is reason to believe that anysuch report is false, incomplete or erroneous.

* case in point on the use of the best evidence obtainableis #y Po vs C2A. In that case, there was a demand made by theommissioner on the Silver up $ine ompany owned bypetitioner&s deceased husband 5o Jien Seng. The demand was forthe taxpayer to submit to the JI) for examination the factory&s booksof accounts and records, so JI) investigators raided the factory and

sei#ed different brands of alcoholic beverages.

The investigators, on the basis of the wines sei#ed and thesworn statements of the factory&s employees on the Auantity of rawmaterials consumed in the manufacture of liAuor, assessed thecorresponding deficiency income and specific taxes. The Supremeourt, on appeal, upheld the legality of the assessment.

C* Inventory1$a%in!) Surveillan'e and Presumptive "ross Salesand Re'eipts

The ommissioner is authori#ed at any time during the taxableyear to order the inventory-taking of goods of any taxpayer as abasis for assessment.

If there is reason to believe that a person is not declaringhis correct income, sales or receipts for internal revenue taxpurposes, his business operation may be placed under observationor surveillance. The finding made in the surveillance may be used asa basis for assessing the taxes for the other months or Auarters ofthe same or different taxable years. (#ec. - JCK, !**$ >IC&

2* $ermination of $axable Period

The ommissioner shall declare the tax period of a taxpayerterminated at any time when it shall come to his knowledge!

a. That the taxpayer is retiring from business subject totaxC

b. That he intends to leave the 5hilippines or remove hisproperty therefromC

c. That the taxpayer hides or conceals his propertyC ord. That he performs any act tending to obstruct the

proceedings for the collection of the tax for the past ocurrent Auarter or year or to render the same totally opartly ineffective unless such proceedings are begunimmediately.

The written decision to terminate the tax period shall beaccompanied with a reAuest for the immediate payment of the tax fo

the period so declared terminated and the tax for the preceding yeaor Auarter, or such portion thereof as may be unpaid. Said taxes shalbe due and payable immediately and shall be subject to all thepenalties prescribed unless paid within the time fixed in the demandmade by the ommissioner (#ec. - JK, !**$ >IC3

E. 8ixin+ of Rea! Propert# ;a!ues

0or purposes of computing any internal revenue tax, the

value of the property shall be whichever is the higher of ! (13 the faimarket value as determined by the ommissionerC or (3 the faimarket value as shown in the schedule of values of the 5rovinciaand ity *ssessors for real tax purposes (#ec - J=K, !**$ >IC&.

8. Inuir# into an- Deposits

6xamination of bank deposits enables the ommissioner toassess the correct tax liabilities of taxpayers. %owever, bankdeposits are confidential under ).*. 18B?. IC&.

17


18/52


Net *orth ethod in In(esti+ation

The basis of using the


19/52


case may be, must be added to the increase ordecrease in the net worth!

1. personal, living or family expensesC. premiums paid on any life insurance policyC>. losses from sales or exchanges of property

between members of the familyC8. income taxes paidC?. estate, inheritance and gift taxesC/. other non-deductible taxesC2. election expenses and other expenses

against public policyC. non-deductible contributionsC. gifts to othersC1B. net capital loss, and the like

9n the other hand, non-taxable items should bededucted therefrom. These items are necessaryadjustments to avoid the inclusion of what otherwise

are non-taxable receipts. They are!

1. inheritance, gifts and beAuests receivedC. non-taxable capital gainsC>. compensation for injuries or sicknessC8. proceeds of life insurance policiesC?. sweepstakes winningsC/. interest on government securities and the

like

Increase in net worth are not taxable if theyare shown not to be the result of unreported income

but to be the result of the correction of errors in thetaxpayer&s entries in the books relating toindebtedness to certain creditors, erroneously listedalthough already paid. (7ernane' Dermanos Inc. vs.CI, +4!%%!, "5 #ept. !*-*&

Enforce$ent of 8orfeitures and Pena!ties

Statutor# &ffenses and Pena!ties

/. Additions to the Tax

*dditions to the tax are increments to the basictax incident due to the taxpayer&s non-compliance withcertain legal reAuirements, like the taxpayer&s refusal orfailure to pay taxes andKor other violations of taxingprovisions.

*dditions to the tax consist of the!

(13 civil penalty, otherwise known as surchar3ewhich may either be ?N or ?B N of the tax dependingupon the nature of the violationC

(3 interest either for a deficiency tax o

delinAuency as to paymentC

(>3 other civil penalties or administrative finessuch as for failure to file certain information returns andviolations committed by withholding agents. (#ecs. $ to

%, !**$ >IC&

Genera! Considerations on the Addition to tax

a. *dditions to the tax or deficiency tax apply toall taxes, fees, and charges imposed in the Tax ode.

b. The amount so added to the tax shall becollected at the same time, in the same manner, and aspart of the tax.

c. If the withholding agent is the government oany of its agencies, polit ical subdivisions oinstrumentalities, or a government owned or controlledcorporation, the employee thereof responsible for the

withholding and remittance of the tax shall be personallyliable for the additions to the tax prescribed (#ec. $JbK!**$ >IC& such as the ?N surcharge and the BN

interest per annum on the delinAuency (#ecs. ) an* JCK, !**$ >IC&

Surchar+e

The payment of the surcharge is manatory andthe ommissioner of Internal )evenue is not vested withany authority to waive or dispense with the collectionthereof. In one case, the Supreme ourt held that the facthat on account of riots directed against the hinese oncertain dates, they were prevented from paying thei

internal revenue taxes on time, does not authori#e theommissioner to extend the time prescribed for thepayment of taxes or to accept them without the additionapenalty (+im Co Chui vs. Posaas, $ Phil -5&

The ommissioner is not vested with anyauthority to waive or dispense with the collection therof(CI vs. CA, supra&. The penalty and interest are not penabut compensatory for the concomitant use of the funds bythe taxpayer beyond the date when he is supposed to have

19


20/52


paid them to the ;overnment.(Philippine efinin3Company vs. C.A., G.. >o. !!))$*, ) /ay !**-&.

*n extension of time to pay taxes granted by theommissioner does not excuse payment of the surcharge(CI vs. Cu


21/52


?. 0orfeiture/. 9ther *dministrative )emedies

II. Eudicial1. ivil *ction. riminal *ction

istraint of 5ersonal 5roperty

istraint- Sei#ure by the government of personal property,tangible or intangible, to enforce the payment of faces, to befollowed by its public sale, if the taxes are not voluntarily paid.

DI. Taxpayer must fail to pay delinAuent tax at time reAuired.8. 5eriod within to assess or collect has not yet prescribed.

In case of constructive distraint, reAuisite no. 1 isnot essential (see Sec. B/ T3

$hen remedy not available!

$here amount involved does not exceed 51BB (Sec. B?T3.

In keeping with the provision on the abatement of thecollection of tax as the cost of same might even be more than 51BB.

5rocedure!

1. Service of warrant of distraint upon taxpayer or uponperson in possession of taxpayer&s personal property.

. 5osting of notice is not less than two places in themunicipality or city and notice to the taxpayer specifyingtime and place of sale and the articles distrained.

>. Sale at public auction to highest bidder8. isposition of proceeds of the sale.

$ho may effect distraint *mount Involved

1. commissioner or his due authori#edrepresentative

. )9

In excess o51,BBB,BBB.BB51,BBB,BBB.BB oless

%ow *ctual istraint 6ffected

1. In case of Tangible 5roperty!

a. opy of an account of the property distrained

signed by the officer, left either with the owner operson from whom property was taken, at thedwelling or place of business and with someoneof suitable age and discretion

b. Statement of the sum demanded.c. Time and place of sale.

. In case of intangible property!

a. Stocks and other securitiesServing a copy of the warrant upon taxpayer andupon president, manager, treasurer or otheresponsible officer of the issuing corporation

company or association.

b. ebts and credits1. +eaving a copy of the warrant with the

person owing the debts or having in hispossession such credits or his agent.

. $arrant shall be sufficient authority for suchperson to pay I) his credits or debts.

c. Jank *ccounts @ garnishment1. Serve warrant upon taxpayer and president

manager, treasurer or responsible officer othe bank.

. Jank shall turn over to I) so much of the

bank accounts as may be sufficient.

%ow constructive istraint 6ffected

1. )eAuire taxpayer or person in possession toa. Sign a receipt covering property distrainedb. 9bligate him to preserve the same properties.c. 5rohibit him from disposing the property from

disposing the property in any manner, with outhe authority of the I).

. $here Taxpayer or person in possession refuses to sign!

21


22/52


a. 9fficer shal l prepare list of the propertydistrained.

b. In the presence of two witnesses of sufficient ageand discretion, leave a copy in the premises

where property is located.

;rounds of onstructive istraint

1. Taxpayer is retiring from any business subject to tax.. Taxpayer is intending to leave the 5hilippinesC or>. To remove his property there from.8. Taxpayer hides or conceals his property.?. Taxpayer acts tending to obstruct collection proceedings.

. $hen the amount of the bid for the property under distraintis not eAual to the amount of the tax or is very much lessthan the actual market value of articles, the I) or hisdeputy may purchase the distrained property on behalf ofthe national government.

+evy of )eal 5roperty

+evy @ *ct of sei#ure of real property in order to enforce thepayment of taxes. The property may be sold at public sale,

if after sei#ureC the taxes are not voluntarily paid. The reAuisites are the same as that of distraint.

5rocedure!

1. International )evenue off icer shall prepare a dulyauthenticated certificate showing

a. . Service of written notice to!a. The taxpayer, andb. ) where property is located.

8. *dvertisement of the time and place of sale.?. Sale at public auction to highest bidder./. isposition of proceeds of sale.

The excess shall be turned over to owner.

)edemption of property sold or forfeited

a. 5erson entitled! Taxpayer or anyone for himb. Time to redeem! one year from date of sale or forfeiture

- Jegins from registration of the deed of sale odeclaration of forfeiture.

- annot be extended by the courts.c. 5ossession pending redemption @ owner not deprived o

possessiond. 5rice! *mount of taxes, penalties and interest thereon from

date of delinAuency to the date of sale together withinterest on said purchase price at 1?N per annum fromdate of purchase to date of redemption.

istraint and +evy compared

1. Joth are summary remedies for collection of taxes.. Joth cannot be availed of where amount involved is no

more than 51BB.>. istraint @ personal property

+evy @ real property8. istraint @ forfeiture by government, not provided

+evy @ forfeiture by government authori#ed where there isno bidder or the highest bid is not sufficient to pay thetaxes, penalties and costs.

?. istraint @ Taxpayer no given the right of redemption+evy @ Taxpayer can redeem properties levied upon andsoldKforfeited to the government.

. 0ailure to file notice of such lien in the office of register o

eeds, purchases or judgment creditor.

22


23/52


8. estruction of the property subject to the lien.

In case and 8, the taxpayer is stillliable.

6nforcement of Tax +ien vs. istraint* tax lien is distinguished from disttraint in that, in distraint

the property sei#ed must be that of the taxpayer, although it need notbe the property in respect to the tax is assessed. Tax lien is directedto the property subject to the tax, regardless of its owner.

. There must be acceptance of the offer in settlement of the

original claim.

$hen taxes may be compromised!

1. * reasonable doubt as to the validity if the claim againstthe taxpayer existsC

. The financial position of the taxpayer demonstrates a clearinability to pay the assessed tax.

>. riminal violations, except!a. Those already filed in courtb. Those involving fraud.

+imitations!

1. =inimum compromise rate!a. 1BN of the basic tax assessed @ in case of

financial incapacity.

b. 8BN of basic tax assessed @ other cases.. Subject to approval of 6valuation Joarda. $hen basic tax involved exceeds 51,BBB,BBB.BB

orb. $here sett lement offered is less than the

prescribed minimum rates.

elegation of 5ower to ompromise

;)! The power to compromise or abate shall not be delegated bythe commissioner.

6! The )egional 6valuation Joard may compromise the assessmenissued by the regional offices involving basic taxes of 5 ?BB D oless.

)emedy in case of failure to comply!The I) may either!

1. enforce the compromise, or. )egard it as rescinded and insists upon the origina

demand.

ompromise 5enalty1. It is a certain amount of money which the taxpayer pays to

compromise a tax violation.. It is pain in lieu of a criminal prosecution.>. Since it is voluntary in character, the same may be

collected only if the taxpayer is willing to pay them.

6nforcement of forfeiture

0orfeiture! Implies a divestiture of property with out compensation, inconseAuence of a default or offense.

Includes the idea of not only losing but also having theproperty transferred to another with out the consent of the owner and

wrongdoer.

1. 6ffect! Transfer the title to the specific thing from theowner to the government.

. $hen available!a. . %ow enforced!

a. In case of personal property @ by sei#ure andsale or destruction of the specific forfeitedproperty.

b. In case of real property @ by a judgment ocondemnation and sale in a legal action oproceeding, civil or criminal, as the case mayreAuire.

8. $hen forfeited property to be destroyed or sold!a. To be destroyed @ by order of the I) when the

sale for consumption or use of the followingwould be injurious to the public health oprejudicial to the enforcement of the law! (aleast B days after sei#ure3

1. distilled spirits. liAuors>. cigars8. cigarettes, and other manufactured

products of tobacco?. playing cards/. *ll apparatus used in or about the illici

production of such articles.b. To be sold or destroyed @ depends upon the

discretion of I)1. *ll other articles subject to exercise

tax, (wine, automobile, minera

23


24/52


products, manufactured oils,miscellaneous products, non-essentiali tems a petroleum products3manufactured or removed in violationof the Tax ode.

. ies for printing or making I) stamps,labels and tags, in imitation of orpurport to be lawful stamps, labels ortags.

?. $here to be sole!a. 5ublic sale! provided, there is notice of not less

than B days.b. 5rivate sale! provided, it is with the approval of

the Secretary of 0inance./. )ight of )edemption!

a. 5ersonal entitled @ taxpayer or anyone for himb. Time to redeem @ with in one (13 year from

forfeiturec. *mount to be paid @ full amount of the taxes and

penalties, plus interest and cost of the saled. To whom paid @ ommissioner or the )evenue

ollection 9fficere. 6ffect of failure to redeem @ forfeiture shall

become absolute.2. . ;iving reward to informers @ Sum eAuivalent to1BN of revenues, surcharges or fees recoveredandKor fine or penalty imposed and collected or51, BBB,BBB.BB per case, whichever is lower.

8. Imposition of surcharge and interest.?. =aking arrest, search and sei#ure

+imited to violations of any penal law orregulation administered by the JI), committedwith in the view of the Internal )evenue 9fficer or66.

/. eportation in case of aliens @ on the followinggrounds

a. Dnowingly and fraudulently evadespayment of I) taxes.

b. $illfully refuses to pay such tax and itsaccessory penalties, after decision onhis tax liability shall have become finaland executory.

2. Inspection of booksJooks of accounts and other accounting

records of taxpayer must be preserved, generallywithin three years after date the tax return wasdue or was filed whichever is later.

. Mse of . InAuiring into bank deposit accounts of

a. * deceased person to determine grossestate

b. *ny taxpayer who filed application focompromise by reasons of financia

incapacity his tax liability.18. )egistration of Taxpayers.

Eudicial )emedies

ivil and riminal *ctions!1. Jrought in the name of the ;overnment of the

5hilippines.. onducted by +egal 9fficer of JI)>. =ust be with the approval of the I), in case o

action, for recovery of taxes, or enforcement of afine, penalty or forfeiture.

*. ivil *ction

*ctions instituted by the government to collecinternal revenue taxes in regular courts ()T or =Tsdepending on the amount involved3

$hen assessment made has become final andexecutory for failure or taxpayer to!

a. ispute same by filing protest with I)b. *ppeal adverse decision of I) to T*

J. riminal *ction* direct mode of collection of taxes, the judgmen

of which shall not only impose the penalty but also ordepayment of taxes.

*n assessment of a tax deficiency is no

necessary to a criminal prosecution for tax evasionprovided there is a prima facie showing of willful attempt toevade.

6ffect of *cAuittal on Tax +iability!

oes not exonerate taxpayer his civil liability to pay the taxdue. Thus, the government may still collect the tax in the sameaction.)eason! Tax is an obligation, does not arise from a criminal act.

6ffect of Satisfaction of Tax +iability on riminal +iability

24


25/52


$ill not operate to extinguish taxpayer&s criminal liability

since the duty to pay the tax is imposed by statute, independent ofany attempt on past of taxpayers to evade payment.

This is true in case the criminal action is based on the actto taxpayer of filing a false and fraudulent tax return and failure topay the tax.

3 years after the last day prescribed by law forthe filing of the return or from the day the return wasfiled, in case it is filed beyond the period prescribedthereof. (Section B> of the Tax ode3

B,123

*n affidavit executed by a revenue office indicating the tax

liabilities of a taxpayer and attached to a criminal complaintfor tax evasion, cannot be deemed an assessment. ( I)vs. 5ascoi )ealty orp. Eune , 13

* transcript sheets are not returns, because they do notcontain information necessary and reAuired to permit thecomputation and assessment of taxes (Sinforo *lca vs.ommissioner, ec. , 1/83

J.3 6xceptions! (Sec. ic3

1. $here no return was filed - within ten (1B3 years after thedate of discovery of the omission.

. $here a return was filed but the same was false ofraudulent @ within ten (1B3 years from the discovery ofalsity or fraud.

, 1283

c. * fraud assessment which has become final andexecutory, the fact of fraud shall be judiciallytaken cogni#ance of in the civil or criminal actionfor the collection thereof. (Sec. paragraph(a33

0raud may be established by the following ! (Jadges o

0raud3a. Intentional and substantial understatement of tax

liability of the taxpayer.

b. Intentional and substantial overstatement odeductions of exemption

c. )ecurrence of the foregoing circumstances.

InstancesKircumstances negating fraud!

a. $hen the ommissioner fails impute fraud in theassessment noticeKdemand for payment.

b. $hen the ommissioner failed to allege in hisanswer to the taxpayer&s petition for review whenthe case is appealed to the T*.

c. $hen the ommissioner raised the Auestion ofraud only for the first time in his memorandum

which was filed the T* after he had rested hiscase.

d. $here the JI) itself appeared, "not sure' as tothe real amount of the taxpayer&s net income.

e. * mere understatement of income does noprove fraud, unless there is a sufficient evidenceshaving fraudulent intent.

>. $here the commissioner and the taxpayer, before theexpiration of the three (>3 year period of limitation haveagree in writing to the extension of said period.


26/52


+imitations!

a. The agreement extending the period of prescriptionshould be in writing and duly signed by the taxpayerand the commissioner.

b. The agreement to extend the same should be modebefore the expiration of the period previously agreedupon.

8. $here there is a written waiver or renunciation of theoriginal >-year limitation signed by the taxpayer.

. *ssessment of unpaid taxes, where the bases of which isnot reAuired by law to be reported in a return such as excisetaxes. (armen vs. *yala Securities orp., years afterthe return was due or was filed, whichever islater.

J. 6xceptions!1. $here a fraudulentKfalse return with intent to

evade taxes was filed a proceeding in court for

the collection of the tax may be filed withoutassessment, at anytime within ten years after thediscovery of the falsity or fraud.

years3

would apply ()ep. vs. )et., =arch >1, 1/3

. $hen the taxpayer omits to file a return @ a courtproceeding for the collection of such tax may be

filed without assessment, at anytime within 1Byears after the discovery of the omission.

>. $aiver of statute of limitations @ any internarevenue tax, which has been assessed within theperiod agreed upon, may be collected be distincor levy of by a proceeding in court within theperiod agreed upon in writing before theexpiration of ?-year period.

B1/>3

?. $here the assessment is revised because of an

amended return @ the period for collection iscounted from the last revised assessment.

/. $here a tax obligation is secured by a suretybond @ the government may proceed thru a couraction to forfeit a bond and enforce suchcontractual obligation within a period of tenyears.

2. $here the action is brought to enforce acompromise entered into between thecommission and the taxpayer @ the prescriptiveperiod is ten years.

. $hen tax is deemed collected for purposes of theprescriptive period.

1. ollection by summary remedies @ It is effected bysummary methods when the government avail odistraint and levy procedure.

. ollection by judicial action @ The collection begins byfiling the complaint with the proper court. ()T3

>. $here assessment of the commissioner is protectedQ appealed to the T* @ the collection begin when the

26


27/52


government file its answer to taxpayer&s petition forreview.

III. )ules of 5rescription In riminal ases

*. )ule! *ll violations of any provision of the tax code shallprescribe after five (?3 years.


28/52


T*O5*6)&S )6=6I6S

Ad$inistrati(e

(13 Jefore 5ayment

a. 0iling of a petition or reAuest forreconsideration or reinvestigation(*dministrative 5rotest3C

b. 6ntering into compromise

(3 *fter 5aymenta. 0iling of claim for tax refundC andb. 0iling of claim for tax credit

7udicia!

(13 ivil action

a. *ppeal to the ourt of Tax *ppealsb. *ction to contest forfeiture of chattelC andc. *ction for amages

(3 riminal *ction

a. 0iling of complaint against erring Jureau ofInternal )evenue officials and employees.

ADINISTRATI;E PR&TEST

Reuest for reconsideration- a plea for the re-evaluation of anassessment on the basis of existin3 recors without nee ofaitional evience. It may involve a Auestion of fact or law or both.

Reuest for rein(esti+ation- a plea for reinvestigation of anassessment on the basis of newly4iscovere or aitional eviencethat a taxpayer intends to present in the reinvestigation. It may alsoinvolve Auestion of fact or law or both.

Issuance of Assessment

5rocedure

Issuance of written a 5reliminary *ssessment o. !4** ate #ept. -, !***&.

Disputed Assess$ent

Taxpayer or his duly authori#ed representative mayadministratively protest against a 0ormal +etter of emand and*ssessment notice within thirty (>B3 days from date of receipt thereof

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If the protest is denied in whole or part, or is not acted uponwithin one hundred eighty (1B3 days from submission of documents,the taxpayer adversely affected by the decision or inaction mayappeal to the T* within >B days from receipt of the said decision, orfrom lapse of the one hundred (1B3-day period! otherwise, thedecision shall become final and executory

#everal issues in the assessment notice but taxpayer onlyisputesMprotests valiity of some of the issues

Taxpayer reAuired to pay the deficiency tax or taxesattributable to the undisputed issues.

ollection letter to be issued calling for the payment ofdeficiency tax, including applicable surcharge andKorinterest.


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0ailure to discharge burden of giving proof is fatal to claim It must be shown that payment was an independent single

act of voluntary payment of a tax believed to be due,collectible and accepted by the government, and whichtherefore, become part of the state moneys subject toexpenditure and perhaps already spent or appropriated(CI vs. +i ao, +4!!)$%, 9ec. ), !*-"&.

#tatutory euirements for efun Claims

a. *ritten c!ai$ for refund or tax credit fi!ed %# the taxpa#er iththe Co$$issioner

This reAuirement is $andator#. )easons: (a3 to afford the commissioner an opportunity to

correct the action of subordinate officer and (b3 to notify thegovernment that the taxes sought to be refunded are under

Auestion and that, therefore, such notice should then beborne in mind in estimating the revenue available forexpenditure (8ermeBo vs. CI )$ Phil *-&.

6xcept! Tax credit or tax refund where on the face of thereturn upon which payment is made, such paymentappears clearly to have been erroneous. (#ec. *, !**$>IC&.

%. Cate+orica! de$and for rei$%urse$ent

c. C!ai$ for refund or tax credit $ust %e fi!ed or the suitproceedin+ thereof $ust %e co$$enced in court ithin to ?0@#ears fro$ date of pa#$ent of tax or pena!t# re+ard!ess of an#super(enin+ e(ent.(#ec. 5 (c& * !**$ >IC&

)eAuirement a condition precedent and non-compliancetherewith bars recovery (Phil. Acetylene Co. Inc, vs.Commissioner, C2A Case >o. !"!, >ov. $, !*-&.

)efers not only to the "administrative' claim that thetaxpayer should file within years from date of payments

with the JI), but also the judicial claim or the action forrefund the taxpayer should commence with the T* (seeGibbs vs.. Collector of Internal evenue, !5$ Phil "&.

Taxpayer may file an action for refund in the T* evenbefore the ommissioner decides his pending claim in theJI) (Commissioner of Internal evenue vs. Palanca 6r., +4!---, Oct. *, !*--&.

Suspension of the -yaer prescriptive period may be hadwhen!

(13 there is a pending litigation between the twoparties (government and taxpayer3 as to the propertax to be paid and of the proper interpretation of thetaxpayer&s charter in relation to the disputed taxC and

(3 the commissioner in that li tigated case agreed toabide by the decision of the Supreme ourt as to thecollection of taxes relative thereto (Panay =lectric Co.,Inc. vs. Collector of Internal evenue !5" Phil. )!*&

6ven if the -year period has lapsed the same is nojurisdictional and may be suspended for reasons of eAuityand other special circumstances. (CI vs. Phil. American+ife Ins. Co., G.. >o. !5%5), /ay *, !**%&.

-year prescriptive period for filing of tax refund or creditclaim computed from date of payment of tax of penaltyexcept in the following!

orporations

-year prescriptive period for overpaid Auarterlyincome tax is counted not from the date the corporationfiles its Auarterly income tax return, but from the date thefinal adjusted return is filed after the taxable year(Commissioner of Internal evenue vs. 2/? #ales, Inc.,G.. >o. )"$"-, 6an. !%, !**&.

Taxes payable in installment

-year period is counted form the payment of the lastinstallment (CI vs Palanca, 6r., supra&

$ithholding Taxes

5rescriptive period counted not from the date the taxis withheld and remitted to the JI), but from the end of thetaxable year (Gibbs vs. Commissioner of Internal evenue,supra&

H*T )egistered 5erson whose sales are #ero-rated or effectively#ero-rated

-year period computed from the end of the taxable

Auarter when the sales transactions were made (#ec. !!(A& !**$ >IC&.

Interest on 2ax efun

The ;overnment cannot be reAuired to pay interest ontaxes refunded to the taxpayer unless!

/. The Co$$issioner acted ith patent ar%itrariness

TA RE8>ND TA CREDIT

There is actually areimbursement of the tax

The government issues a taxcredit memo covering theamount determined to bereimbursable which can beapplied after properverification, against any sumthat may be due andcollectible form the taxpayer

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*rbitrariness presupposes inexcusable or obstinatedisregard of legal provisions (CI vs. @ictorias /illin3 Corp., Inc. +4!*-5$, >ov. *, !*--&.

0. In case of Inco$e Tax ithhe!d on the a+es ofe$p!o#ees.

*ny excess of the taxes withheld over the tax due from thetaxpayer shall be returned or credited within > months from thefifteenth (1?th3 day of *pril. )efund or credit after such time earninterest at the rate of /Nper annum, starting after the lapse of the >-month period to the date the reund or credit is made ( #ec $* (c& (&!**$ >IC&

APPEAL to the CTA

*dverse decision or ruling rendered by the ommissionerof Internal )evenue in disputed assessment or claim for taxrefund or credit, taxpayer may appeal the same within thirty(>B3 days after receipt. (Sec. 11, ).*. B days from notice. %ence, itcould not become final and executory. ()epublic vs. e la)ama, 1 S)* /13

=otion for reconsideration suspends the running of the >B@day period of perfecting an appeal. =ust advance newgrounds not previously alleged to toll the reglementaryperiodC otherwise, it would be merely pro forma. ()omanatholic *rchbishop vs. oll., +-1//>, Ean. >1, 1/3.

)eAuirements for *ppeal in isputed *ssessment

a. Tax assessed has not been paidCb. Taxpayer has filed with the ommissioner of Internal

)evenue a petition for the reconsideration orcancellation of the assessmentC

c. 0inal decision or ruling has been rendered on suchpetitionC

d. Suit or proceeding in the T* is made within >B daysfrom receipt of the decision

6ffect of 0ailure to *ppeal *ssessment

a. Taxpayer barred, in an action for collection of the taxby the government, from using defense of excessiveor illegal assessment.

b. *ssessment is considered correct.

)eAuirements for *ppeal in )efund and Tax redit

a. Tax has been paidCb. Taxpayer has filed with the I) a written claim fo

refund or tax credit within years from payment of thetax or penaltyC and

c. Suit or proceeding is instituted in the T* also withinthe same prescriptive period of two years from thedate of payment regardless of any supervening cause(see Secs. B8, 12 RE &8 CJATTEL

In case of sei#ure of personal property under claim for forfeiturethe owner desiring to contest the validity of the forfeiture may bringan action!

a. Jefore sale or destruction of the property to recover theproperty from the person sei#ing the property or inpossession thereof upon filing of the proper bond to enjointhe sale.

b. *fter the sale and within / months to recover the ne

proceeds reali#ed at the sale (see. Sec. >1, 12 E &88ICIALS

Taxpayer may file an action for damages against any internalrevenue officer by reason of any act done in the performance ofofficial duty or neglect of duty. In case of willful neglect of duty,taxpayer&s recourse is under *rt 2 of the ivil ode.

)evenue officer acting negligently or in bad faith or with willfuloppression would be personally liable. %e ceases to be an officer ofthe law and becomes a private wrongdoer.

8ILING &8 CRIINAL C&PLAINT AGAINST RE;EN>E&88ICERS

* taxpayer may file a criminal complaint against any official,agent or employee of the JI) or any other agency charged with the

enforcement of the provisions of the Tax ode who commits any ofthe following offenses!

13 6xtortion or willful oppression through the use of his officeC3 $illful oppression and harassment of a taxpayer who

refused, declined, turned down or rejected any of his offersmentioned in no. ?C

>3 Dnowingly demanding or receiving sums or compensationnot authori#ed or prescribed by lawC

83 $illfully neglecting to give receipts as by law reAuired or toperform any other duties enjoined by lawC

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?3 9ffering or undertaking to accomplish, file or submit areport or assessment on a txpayer without the appropriateexamination of the books of account or tax liability, oroffering or undertaking to submit a report or assessmentless than the amount due the government for anyconsideration or compensationC or conspiring or colluding

with another or others to defraud the revenues or otherwiseviolate the provisions of the tax codeC

/3


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Procedure:

?. Service of warrant of distraint upon taxpayer or uponperson in possession of taxpayer&s personal property.

/. 5osting of notice is not less than two places in themunicipality or city and notice to the taxpayer specifyingtime and place of sale and the artic les distrained.

2. Sale at public auction to highest bidder

. isposition of proceeds of the sale.

$ho may effect distraint *mount Involved

>. commissioner or his due authori#edrepresentative

8. )9

In excess of51,BBB,BBB.BB51,BBB,BBB.BB orless

Jo Actua! Distraint Effected

>. In case of Tangible 5roperty!

a. opy of an account of the property distrained,signed by the officer, left either with the owner orperson from whom property was taken, at thedwelling or place of business and with someoneof suitable age and discretion

b. Statement of the sum demanded.

c. Time and place of sale.

8. In case of intangible property!

a. Stocks and other securities

Serving a copy of the warrant upon taxpayer andupon president, manager, treasurer or otherresponsible officer of the issuing corporation,company or association.

b. ebts and credits

>. +eaving a copy of the warrant with theperson owing the debts or having in hispossession such credits or his agent.

8. $arrant shall be sufficient authority for suchperson to pay I) his credits or debts.

c. Jank *ccounts @ garnishment

>. Serve warrant upon taxpayer and presidentmanager, treasurer or responsible officer othe bank.

8. Jank shall turn over to I) so much of thebank accounts as may be sufficient.

Jo constructi(e Distraint Effected

>. )eAuire taxpayer or person in possession to

a. Sign a receipt covering property distrained

b. 9bligate him to preserve the same properties.

c. 5rohibit him from disposing the property fromdisposing the property in any manner, with out theauthority of the I).

8. $here Taxpayer or person in possession refuses to sign!

a. 9fficer shall prepare list of the property distrained.

b. In the presence of two witnesses of sufficient age anddiscretion, leave a copy in the premises whereproperty is located.

Grounds of Constructi(e Distraint

/. Taxpayer is retiring from any business subject to tax.

2. Taxpayer is intending to leave the 5hilippinesC or

. To remove his property there from.

. Taxpayer hides or conceals his property.

1B. Taxpayer acts tending to obstruct collection proceedings.


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+evy @ *ct of sei#ure of real property in order to enforcethe payment of taxes. The property may be sold at public sale, ifafter sei#ureC the taxes are not voluntarily paid. The reAuisites are thesame as that of distraint.

Procedure:

2. International )evenue off icer shall prepare a dulyauthenticated certificate showing

a.


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/. 5rescription of the right of the government to assess orcollect.

2. 0ailure to file notice of such lien in the office of register ofeeds, purchases or judgment creditor.

. estruction of the property subject to the lien.

In case and 8, the taxpayer is still liable.

Enforce$ent of Tax Lien (s. Distraint

* tax lien is distinguished from disttraint in that, in distraintthe property sei#ed must be that of the taxpayer, although it need notbe the property in respect to the tax is assessed. Tax lien is directedto the property subject to the tax, regardless of its owner.

. This is superior to judgment claim of private individuals or

parties

8. *ttaches not only from time the warrant was served butfrom the time the tax was due and demandable.

Co$pro$ise

ompromiseUa contract whereby the parties, by reciprocalconcessions, avoid litigation or put an end to one alreadycommenced.

Reuisites:

8. Taxpayer must have a tax liability.

?. There must be an offer by taxpayer or I), of an amount tobe paid by taxpayer.

/. There must be acceptance of the offer in settlement of theoriginal claim.

*hen taxes $a# %e co$pro$ised:

8. * reasonable doubt as to the validity if the claim againstthe taxpayer existsC

?. The financial position of the taxpayer demonstrates a clearinability to pay the assessed tax.

/. riminal violations, except!

a. Those already filed in court

b. Those involving fraud.

Li$itations:

>. =inimum compromise rate!

a. 1BN of the basic tax assessed @ in case ofinancial incapacity.

b. 8BN of basic tax assessed @ other cases.

8. Subject to approval of 6valuation Joard

c. $hen basic tax involved exceeds 51,BBB,BBB.BBor

d. $here sett lement offered is less than theprescribed minimum rates.

De!e+ation of Poer to Co$pro$ise

General ule! The power to compromise or abate shall nobe delegated by the commissioner.

=xception! The )egional 6valuation Joard may

compromise the assessment issued by the regional offices involvingbasic taxes of 5 ?BB D or less.

Re$ed# in case of fai!ure to co$p!#:

The I) may either!

>. enforce the compromise, or

8. )egard it as rescinded and insists upon the originademand.

Co$pro$ise Pena!t#

8. It is a certain amount of money which the taxpayer pays tocompromise a tax violation.

?. It is pain in lieu of a criminal prosecution.

/. Since it is voluntary in character, the same may becollected only if the taxpayer is willing to pay them.

Enforce$ent of forfeiture

0orfeitureUimplies a divestiture of property with oucompensation, in conseAuence of a default or offense. It includes theidea of not only losing but also having the property transferred toanother with out the consent of the owner and wrongdoer.

. 6ffect! Transfer the title to the specific thing from theowner to the government.

. $hen available!a.


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- $ith in two days thereafter, a return of the proceedingis duly made.

1B. %ow enforced!

c. In case of personal property @ by sei#ure andsale or destruction of the specific forfeitedproperty.

d. In case of real property @ by a judgment ofcondemnation and sale in a legal action orproceeding, civil or criminal, as the case mayreAuire.

11. $hen forfeited property to be destroyed or sold!

c. To be destroyed @ by order of the I) when thesale for consumption or use of the following

would be injurious to the public health orprejudicial to the enforcement of the law! (at

least B days after sei#ure3

1. distilled spirits

. liAuors

>. cigars

8. cigarettes, and other manufactured productsof tobacco

?. playing cards

/. *ll apparatus used in or about the illicitproduction of such articles.

d. To be sold or destroyed @ depends upon thediscretion of I)

>. *ll other articles subject to exercise tax,(wine, automobile, mineral products,manufactured oils, miscellaneous products,non-essential items a petroleum products3manufactured or removed in violation of theTax ode.

8. ies for printing or making I) stamps, labelsand tags, in imitation of or purport to belawful stamps, labels or tags.

1. $here to be sold!

c. 5ublic sale! provided, there is notice of not lessthan B days.

d. 5rivate sale! provided, it is with the approval ofthe Secretary of 0inance.

1>. )ight of )edemption!

f. 5ersonal entitled @ taxpayer or anyone for him

g. Time to redeem @ with in one (13 year fromforfeiture

h. *mount to be paid @ full amount of the taxes andpenalties, plus interest and cost of the sale

i. To whom paid @ ommissioner or the )evenueollection 9fficer

j. 6ffect of failure to redeem @ forfeiture shalbecome absolute.


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d. $illfully refuses to pay such tax and its accessorypenalties, after decision on his tax liability shall havebecome final and executory.

1B. Inspection of books

Jooks of accounts and other accounting records oftaxpayer must be preserved, generally within three yearsafter date the tax return was due or was filed whichever islater.

11. Mse of . Inventory @ Taking of stock-in-trade and makingsurveillance.

18. 5rescribing presumptive gross sales or receipt!

c. 5erson failed to issue receipts and invoices

d. )eason to believe that records do not correctly reflectdeclaration in return.

1?. 5rescribing real property values

1/. InAuiring into bank deposit accounts of

c. * deceased person to determine gross estate

d. *ny taxpayer who filed application for compromise by

reasons of financial incapacity his tax liability.

12. )egistration of Taxpayers.

7udicia! Re$edies

Civil an Criminal ActionsF

1. Jrought in the name of the ;overnment of the 5hilippines.

. onducted by +egal 9fficer of JI)

>. =ust be with the approval of the I), in case of action, forrecovery of taxes, or enforcement of a fine, penalty orforfeiture.

C. Ci(i! Action

*ctions instituted by the government to collect internalrevenue taxes in regular courts ()T or =Ts, dependingon the amount involved3

$hen assessment made has become final and executoryfor failure or taxpayer to!

c. ispute same by filing protest with I)

d. *ppeal adverse decision of I) to T*

D. Cri$ina! Action

* direct mode of collection of taxes, the judgment of whichshall not only impose the penalty but also order paymentof taxes.

*n assessment of a tax deficiency is not necessary to acriminal prosecution for tax evasion, provided there is aprima facie showing of willful attempt to evade.

Effect of Acuitta! on Tax Lia%i!it#:

oes not exonerate taxpayer his civil liability to pay the taxdue. Thus, the government may still collect the tax in the sameaction.)eason! Tax is an obligation, does not arise from a criminal act.

Effect of Satisfaction of Tax Lia%i!it# on Cri$ina! Lia%i!it#

$ill not operate to extinguish taxpayer&s criminal liabilitysince the duty to pay the tax is imposed by statute, independent oany attempt on past of taxpayers to evade payment.

This is true in case the criminal action is based on the acto taxpayer of filing a false and fraudulent tax return and failure topay the tax.

3 years after the last day prescribed by law for the filing of thereturn or from the day the return was filed, in case it is filed beyondthe period prescribed thereof. (Section B> of the Tax ode3


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1. * return filed before the last day prescribed by law for thefiling thereof shall be considered as filed on such last day.

. In case a return is substantially amended, the governmentright to assess the tax shall commence from the filing of theamended return (I) vs. 5hoenix, =ay B, 1/?C Dei Q o.vs. ollector, 8 S)* 23

>. In computing the prescriptive period for assessment, thelatter is deemed made when notice to this effect isreleased, mailed or sent by the ommissioner to thecorrect address of the taxpayer. %owever, the law doesnot reAuire that the demandKnotice be received within theprescriptive period. (Jasilan 6states, Inc. vs.ommissioner 1, S)* 12C )epublic vs. * *pril >B,123

8. *n affidavit executed by a revenue office indicating the taxliabilities of a taxpayer and attached to a criminal complaintfor tax evasion, cannot be deemed an assessment. ( I)vs. 5ascoi )ealty orp. Eune , 13

?. * transcript sheets are not returns, because they do notcontain information necessary and reAuired to perm

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