UNDER: ATTY. BOBBY LOCK BY: MEL ANDREW YU REYES
TAXATION 02 PART I REMEDIES UNDER THE NIRC I. ASSESSMENT OF INTERNAL REVENUE TAXES A. DEFINITION, NATURE, EFFECT AND BASIS 1) LOA, AUDIT NOTICE, TAX VERIFICATION NOTICE RAMO 1-00 CIR v. SONY PHILIPPINES, INC. MAY 17, 2007 CTA 90 The revenue examiner went beyond the authority conferred by LOA. A LOA authorizes or empowers a designated revenue officer to examine, verify and scrutinize a taxpayers books and records in relation to his internal revenue tax liability for a particular period. The LOA, the examiners were authorize to examine Sonys book of accounts and other accounting records for the period 1997 and unverified prior years. However, CIRs basis for deficiency vat for 1997 was 1998. They acted without authority in arriving at the deficiency vat assessment. It should be considered without force and effect a nullity. A LOA should cover a taxable period not exceeding 1 year. The practice of issuing LOA covering audit of unverified prior years is prohibited. 2) TAX ASSESSMENT CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATION JUNE 29, 1999 GR. 128315 An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine the remedies thereon, due process requires that it must be served and received by the taxpayer. Accordingly, an affidavit which was executed by the revenue officer stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion cannot be deemed an assessment that can be questioned before the CTA. The fact that the complaint itself was specifically directed and sent to DOJ and not to Pascor shows that the intent of the CIR was to file a criminal complaint for tax evasion and not to issue an assessment. B. PERIOD TO ASSESS DEFICIENCY TAX 1) PRESCRIPTION a) RATIONALE, CONSTRUCTION, INTERPRETATION REPUBLIC OF THE PHILIPPINES v. LUIS ABLAZA The law prescribing a limitation of actions for collection of income tax is beneficial both to the government and to its citizens. a) The Government because tax officers would be obliged to act promptly in making of assessment.
b) The Citizens because after the lapse of the period of prescription, citizens would have the feeling of securityagainst unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest, peaceful law-abiding citizens. Without such legal defenses, taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bring about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commissioner which recommends the approval of the law. b) COUNTING OF PERIODS
UNDER: ATTY. BOBBY LOCK BY: MEL ANDREW YU REYES
CIR v. PRIMETOWN PROPERTY GROUP AUG. 28, 2007 GR. 162155 The 2-year prescriptive period is reckoned from the filing of the final adjusted return. Art. 13 NCC, provides that when the law speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of whether it is a regular year or a leap year. c) RULE ON WRONG RETURNS OR AMENDED RETURNS CIR v. AYALA SECURITIES CO. NOV. 21, 1980 GR. L-29485 The SC is persuaded by the fundamental principle invoked by CIR that limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible. The SC, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and collect the assessment in question had prescribed after 5 years, and instead rules that there is no such time limit on the right of the CIR to assess the 25% tax on unreasonably accumulated surplus provided in Sec. 25 of NIRC, since there is no express statutory provision limiting such right or providing for its prescription. The underlying purpose of the additional tax in question on a corporation's improperly accumulated profits or surplus is as set forth in the text of Sec. 25 of NIRC itself to avoid the situation where a corporation unduly retains its surplus instead of declaring and paving dividends to its shareholders or members who would then have to pay the income tax due on such dividends received by them. The record amply shows that Ayala Securities is a mere holding company of its shareholders through its mother company, a registered co-partnership then set up by the individual shareholders belonging to the same family and that the prima facie evidence and presumption set up by the Tax Code, therefore applied without having been adequately rebutted by the Ayala Securities. CIRs plausible alternative contention is that even if the 25% surtax were to be deemed subject to prescription, computed from the filing of the income tax return in 1955, the intent to evade payment of the surtax is an inherent quality of the violation and the return filed must necessarily partake of a false and/or fraudulent character which would make applicable the 10-year prescriptive period provided in Sec. 332(a) of the Tax Code and since the assessment was made in 1961 (the 6th year), the assessment was clearly within the 10-year prescriptive period. The Court sees no necessity, however, for ruling on this point in view of its adherence to the ruling in the earlier raise of United Equipment & Supply Co., supra, holding that the 25% surtax is not subject to any statutory prescriptive period. BUTUAN SAWMILL INC. v. CTA FEB. 28, 1966 GR. L-20601 FILING OF WRONG RETURN Since no percentage tax return was actually filed by taxpayer to reflect the sales of its logs to Japan, the 10-year prescriptive period for cases where returns are not filed applies. Even if an ITR which happens to be the wrong return had been filed, and even considering that the income from said sales were all reflected therein, still, this would not take the place of the correct return which for purposes of tax in question should actually be the percentage tax return. The percentage tax on sale has now been replaced by the 10% VAT. WHEN THERE IS FRAUD Mere understatement of gross earnings not of itself proves fraud. The allegation of fraud with intention to evade the franchise tax has not been proved satisfactorily. The 1st quarter of 1960, the gross receipts of Butuan Sawmill as a franchise grantee amounted to P1,369,383.10. Only P16,799.56 represented the alleged unrecorded and under reported receipts of Butuan Sawmill. However, a big portion of the unrecorded receipts of P16,799.56 was not reflected in the book of accounts of the taxpayer because it represented the cost f the electric current used free of charge by its officer and employees. It cannot be charged that Butuan Sawmill intended to defraud the government of the franchise tax. Fraud, being absent, the right of the government to assess the franchise tax had already prescribed. CIR v. PHOENIX ASSURANCE CO.
MAY 20, 1965 GR. L-19727
UNDER: ATTY. BOBBY LOCK BY: MEL ANDREW YU REYES
Where the amended return is substantially different from the original return, the right of the BIR to assess the tax counted from the filing of the amended return. If the assessment is counted from the filing of the original return, this would permit taxpayers to evade taxes by simply reporting in their original return, heavy losses and amending the same after the lapse of the prescriptive period when the Commissioner has already lost his authority to assess the tax. The objective of the Tax Code is to impose taxes, not to enhance tax avoidance to the prejudice of the government. CIR. v. LILIA GONZALES Where the return was made in the wrong form, the filing thereof did not start the running of the period of limitations, and where the return was very deficient; there was no return at all. If the taxpayer failed to observe the law, Sec. 332 of NIRC grants CIR a 10 year period within which to bring an action for tax collection, applies. Sec. 94 obligates him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations should be reckoned from the date the fraud was discovered. 2) SUSPENSION OF PRESCRIPTIVE PERIODS/ EXCEPTIONS SEC. 203, 222, 223 OF NIRC RMO 20-90 ORDER 05-01 CIR v. CTA MAR. 20, 1991 GR. 44007 Sec. 203 of NIRC states that internal revenue taxes shall be assessed within 5 years after the taxpayers return was filed. It is undisputed that Eastern failed to file any corporate ITR for a period of 20-years from 1952-1971. CIR argued that under Sec. 223(a), Easterns failure to file ITR authorizes him to assess income tax due from Eastern with 10 years, after the discovery of falsity, fraud or omission. The omission was discovered only in 1971. CIR has 10 years from 1971 or until 1981 within which to assess. The assessment of deficiency income tax was issued on 1973, which is well within the period prescribed by law. But while it is true that the assessment is within the prescribed period, it does not follow that it is a valid statement in its entirety. RA 808 is an operative act. Eastern is exempted from payment of all taxes, whether local, provincial or national, except franchise and real property taxes. It goes without saying that the assessment cannot be held valid against the income derived from