TRANSFER TAXATION

Transfer Taxes

those imposed upon the gratuitous disposition of private property

Under our law they are taxes levied on the transmission of private properties from a prior decedent to his heirs in the case of estate tax or from a donor to a donee in the case of donorrsquos tax

Kinds of Transfer Taxes

1 Death Estate taxes - those levied on the gratuitous transfers of property upon onersquos death formerly comprised of the estate and inheritance taxes Both taxes are now integrated into one estate tax

2 Gift Taxes- Are imposed on the gratuitous transfers of property during onersquos lifetime formerly comprised of the donorrsquos and doneersquos gift taxes both taxes are now integrated into a donorrsquos tax

I DEATH ESTATE TAX

Estate tax graduated tax imposed on the privilege of

the decedent to transmit property at death and is base on the entire net estate regardless of the number heirs and relations to the decedent

a ldquotransferrdquo tax not a property tax

tax on the right to transmit property at death and on certain transfers which are made by the statute the equivalent of testamentary dispositions

Nature of Estate Tax It is not a direct tax on property nor is it a

capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate

It is not a property tax but an excise tax

Purpose and justification of estate taxThe following theories have been advanced to justify death taxation (BRAP)

a) Benefit-Received TheoryFor the performance of services rendered by the government in the distribution of the estate of the decedent and other benefits that accrue to the estate and the heirs the state collects the tax

b) Redistribution of Wealth TheoryEstate tax is a contributing factor to the inequalities in wealth and income The imposition of death tax reduces the property received by the successor bringing about a more equitable distribution of wealth in society

c) Ability to pay theoryThe receipt of inheritance places assets in the hands of the heirs and beneficiaries thereby creating an ability to pay the tax

and thus ability to contribute to governmental income and

d) Privilege theory or State Partnership theory

Inheritance is not a right but a privilege granted by the state and large estates have been acquired only with the protection of the state The State as a ldquopassive and silent partnerrdquo in the accumulation of property has the right to collect the share which is properly due to it

Incidence or burden of estate of tax

Three views on who is the taxpayer in estate taxation

1 PREDECESSOR ndash the object of the tax is the property which has been held or accumulated by the deceased and the tax has fallen upon him in the sense it has affected the amount of the property which he could dispose

2 SUCCESSOR ndash the tax is not paid by the predecessor who has no liability till he dies and who is free to ignore the duty if he wishes while the successor comes into less than he would have and has no kind of redress

3 No Personal Incidence - the estate tax has no personal incidence at all merely falling upon the estate as such

Law applicableEstate taxation is governed by the statute

in force at the time of the death of the decedent

ReciprocityThere is reciprocity if the foreign country

of which the decedent was a citizen or resident at the time of his death

1) Did not impose an estate tax or2) Allowed a similar exemption from estate tax with respect to intangible personal property owned by Filipino citizens residing in that foreign country

Note1 Reciprocity applies only when

a) The property is an intangible andb) The decedent is a nonresident alien

2 The following intangibles are deemed located in the Philippines (an exception to the principle of Res Mobilia Sequuntur Personam and Situs of Taxation)

a) Franchises which must be exercised in the Philippines b) Shares obligations or bonds issued by any corporation or

sociedad anonima organized or constituted in the Philippines in accordance with its laws

c) Shares obligations or bonds issued by any foreign corporation 85 of the business of which is located in the Philippines

d) Shares obligations or bonds issued by any foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

1

e) Shares or rights in any partnership business or industry

established in the Philippines

GROSS ESTATE the total value of all property whether

real or personal tangible or intangible belonging to the decedent at the time of his death situated within or outside the Philippines where such decedent was a resident or citizen of the Philippines

In the case of a nonresident alien decedent it shall include only property situated in the Philippines

Property Included in the Gross Estate (INCLUSIONS)A In case of resident citizens nonresident citizens and resident aliens1 Real Property within and without the

Philippines2 Tangible personal property within and without

the Philippines and 3 Intangible personal property within and without

the Philippines

B In cases of nonresident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines and3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note These are eitherA) Properties actually owned at the time of deathB) Properties deemed by law to be owned by the decedent under Sec 85

Inter Vivos Transfers Subject to Estate Tax

The gross estate extends to gratuitous transfers made by the decedent during his lifetime which are treated by the law as substitutes for testamentary dispositions They are transfers inter vivos in form but mortis causa in substance

Rationale for taxability

To reach such transfers which are really substitutes for testamentary dispositions and thus prevent the evasion of the estate tax

These transfers area) transfers in contemplation of death

(sec85 b)b) transfers with retention or reservation of

certain rights (sec85 b)c) revocable transfers (sec85 c) d) transfers of property arising under a

general power of appointment ( sec85 d) and

e) transfers for insufficient consideration (sec85 g)

Note Transfers by virtue of a bona fide sale of

property for an adequate and full consideration in money or moneyrsquos worth are excluded and not taxable

INCLUSIONS IN THE GROSS ESTATE (CR2IG

DIP)

1) Decedentrsquos interest at a specific property

- To the extent of the interest therein of the decedent at the time of his death (Sec 85 A)

- Ex partnership interest dividends

2) Transfer in contemplation of death- A transfer with the thought of death - The term ldquoin contemplation of deathrdquo means

that the impelling or controlling motive is the thought of death regardless of whether the transferor is near the possibility of death or not which induces the disposition of the property for the purpose of avoiding the tax

- Example donation was made concurrently with the execution of a will (Vidal de Rocs vs Posadas 58 Phil 108)

Circumstances taken into account in determining in whether the transfer was made in contemplation of deathA) Age and state of health of the decedent at

the time of the giftB) Length of time between the gift and the

date of death andC) Concurrent making of a will or making a

will within a short time after the transfer

Note Check the factual settings before and at time of death because proximity to death is not always conclusive

Examples of motives precluding the category of a transfer in contemplation of death

a) To relieve the donor from the burden of management

b) To save income or property taxesc) To settle family litigated and unlitigated

disputesd) To provide independent income for

dependentse) To see the children enjoy the property

while the donor is alivef) To protect the family from hazards of

business operationsg) To reward services rendered

NoteThe THREE (3) YEAR PRESUMPTION provides that any transfer of a material part of his property in the nature of a final disposition or distribution thereof made by the decedent within three years prior to his death without such adequate and full consideration shall unless shown to the contrary be deemed to be have been made in contemplation of death

This provision however has been already deleted in Sec 100 (b) now sec 85 (B) of the Tax Code by PD No 1705

Under BIR Ruling No 261 September 2 1987 the law does not specify the number of years prior to a decedentrsquos death within which a transfer can be considered in contemplation of death

Note In relation to transfers with retention of rights which are made in contemplation of death ndash if the right of retention by the Decedent is co-terminous with his lifetime

- Ex X has a house and lot which he transferred to Y

2

a) with the condition that X will use it while X lives - Effect Still part of estate of X as he has control over it

b) with the condition that X will use it only for 10 years and then X dies before 10 years - Effect Not part of the estate of X as he is not the actual owner

3) Transfer with retention or reservation of certain rights- This contemplates the instances where the owner transfers his property during his lifetime but still retains economic benefits (the possession or enjoyment of the property or the power to designate the person who may exercise such rights)

- It includesA Transfer without retention of interest but intended to take effect at or after the decedents death- Example donations mortis causa

B Transfer with retention of interest in respect to- 1 The possession or enjoyment of or the right

to the income from the property or 2 The right either alone or in conjunction with

any person to designate the person who shall possess or enjoy the property or the income therefrom And such interest is retained by the decedent for his life or for any period which does not in fact end before his death

C Transfer with reversionary interest wherein there is a possibility that the transferred property may return to the decedent or his estate or that it may become subject to a power of disposition by the decedent

- Ex A transfers his property to B in naked ownership and to C in usufruct throughout Crsquos lifetime subject to the condition that if C predeceases A the property shall return to A If A dies during Crsquos lifetime the value of the reversionary interest of A at death is included in his gross estate

3) Revocable transfer- the decedent has full control of disposition of property- even if the control is not exercised it is enough that it is exists- A transfer wherea) The decedent or in conjunction with any other

person has reserved the right to alter amend revoke or terminate or

b) Any such power is relinquished in contemplation of the decedentrsquos death

The power to alter amend or revoke shall be considered to exist on the date of the decedentrsquos death even though

a) the exercise of the power is subject to a precedent giving of notice or

b) The alteration amendment or revocation takes effect only upon the expiration of a stated period after the exercise of the power

If the notice has not been given or the power has not been exercised on or before the decedentrsquos death such notice

or the power shall be considered to have been given or exercised on the date of the decedentrsquos death

4) Transfer of property under a general power of appointment

- A transfer where the donor of the power of appointment authorizes the donee of such power to designate any person he chooses to be given the right over the appointed property

- The transferee may choose freely any person who will own the property after he dies

- Rationale the will of the transferee is followed hence part of transfereersquos estate

Note the decedent is the transferee in this provision

General power of appointment vs special power of appointment

A) A power is general when it authorizes the donee of the power to appoint any person he pleases including himself thus having a full dominion over the property as if he owned it

B) It is special when the donee can appoint only among a restricted or designated class of persons other than himself

NoteIf the power of appointment is general it

makes the appointed property a part of the doneersquos property

Under a general power of appointment title to the property is legally transferred to the donee Therefore the property shall form part of the gross estate of the donee

5) Transfer for insufficient consideration- A transfer that is not a bona fide sale of

property for an adequate and full consideration in money or moneyrsquos worth The excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate

- However if the purported absolute sale inter vivos by the decedent is shown to be fictitious then the total value of the property transferred is subject to inclusion in the taxable estate

- Ex X owns a house and lot he wants to help Y so he sells his house worth P5M for only P1M At the time of Xrsquos death his house and lot is worth P10M

How much is included in the gross estatre of X 10-1 = 9M

- Ex X bought a car worth P13M X needed money so he sells his car to Y for only P1M This is not a transfer for insufficient consideration as this is a bona fide transfer at armrsquos length hence a valid transfer

6) Proceeds of life insurance

3

- Proceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary

A) Is the estate of the decedent his executor or administrator (regardless whether the designation is revocable or irrevocable) or

B) Third person other than the estate executor administrator but the designation of the beneficiary is revocable

- Presumption proceeds are revocable- include in the estate only if it is revocable as the decedent retained control over the proceeds

7) Prior Interest- Except as otherwise specifically provided

therein subsections (B) (C) (E) of Section 85 referring to transfer in contemplation of death revocable transfer and proceeds of life insurance respectively shall apply to the transfers trusts estates interests rights powers and relinquishment of powers as severally enumerated and described therein whether made created arising existing exercised or relinquished before or after the effectivity of the CTRP

NOTEIn most of these transfers the property

remains substantially that of the transferor during his lifetime notwithstanding the transfer since he still retains either the ldquobeneficial ownershiprdquo or ldquonaked titlerdquo to the property

EXCLUSIONS FROM THE GROSS ESTATE

1 Merger of usufruct in the owner of the naked title- ex X has a house and lot X gave the title to Z X also allows Y to use the same and that in case Y dies the use goes to Z What are the effectsa) If X dies ndash include the house and lot in Xrsquos estateb) If Y dies ndash exclude from the estate of Y as the will of X is being followed there is a merger of usufruct in Z (the owner of the naked title)

2 Fideicommisary and transmissions from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor- ex X has a house and lot In the will of X Y may have the title to the house and lot but in case Y dies the property will go to Z What are the effectsa) If X dies ndash include as part of Xrsquos estate as he actually owns it b) If Y dies ndash excluded from the estate of Y as he has no control over its disposition

- Ex X has a house and lot which he wants to give to Y but Y is a minor at the moment so that X institutes T to hold the property in trust for Y until Y reaches the age of majority X died The property passed to T T died Y reached the age of majority Effect if T dies Not part of estate of T

Note Common reasons for 1 and 2 ndash the will of the first decedent is followed the second decedent has no control over the disposition

3 Transfers to social welfare cultural and charitable institutions- Requisites a) Qualified organization

b) Not more than 30 will be used for administrative purposes-Reason to encourage such transfers

4 Proceeds of insurance not includible in the gross estate of the decedent a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insuredb) Proceeds of a group insurance policy taken out by a company for its employeesc) Proceeds of insurance policies issued by the GSIS to government officials and employeesd) Benefits accruing under the Social Security Acte) Proceeds of life insurance payable to the heirs of deceased members of the military personnel of the United States Army or Philippine Army under laws administered by the United States Veterans Administration f) Accident insurance proceeds

5 Separate property of the surviving spouse

NoteIn the determination of the gross estate the nature of the property whether common property of the spouses separate or exclusive property either of the deceased or of the surviving spouse becomes of vital importance

What regime of property relations shall govern the spouses

Under the Civil Code the husband and wife who got married before August 3 1988 are governed by the Conjugal Partnership of Gains while those who got married on or after August 3 1988 are governed by the Absolute Community of Property unless a different regime was agreed upon in the marriage settlement

EXEMPTION FROM ESTATE TAX

A The first P200 00000 value of the estate (sec 84 NIRC)

B The merger of the usufruct in the owner of the naked title

C The transmission from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor

D All bequest devises legacies or transfers to social welfare cultural and charitable institutions no part of the net income of which inured to the benefit of any individual and provided that not more than 30 of the said bequest etc shall be used by such institution for administration purposes

E Intangible personal property of non-resident aliens under the principle of reciprocity

F Retirement benefits of employees of private firms from private pension plans approved by the BIR

G Amount received for war damagesH Grants and donations to the Intramuros

administrationALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE- Granted by mere legislative grace- Construed strictly against the taxpayer- Requisites

a) Substantiate the claim for deduction

4

b) Identify the provision granting the deduction The provision must be clear and definite

RESIDENT DECEDENT

A Ordinary Deductions (ELIT)

1) Funeral Expenses- The amount deductible is equal to 5 of the gross estate or the amount of the actual funeral expenses whichever is lower but in no case to exceed P200000

- ldquoActual funeral expensesrdquo are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased

- Funeral expenses include a) Costs of coffin tombstone mausoleum

and burial lotb) Funeral parlor feesc) Mourning clothing of the surviving spouse

and the unmarried minor childrend) Costs of obituary notices ande) Expenses during the wake

- The following cannot be deducted under funeral expensesa) Cash advances of the surviving spouse and

the heirsb) Expenses paid by the relatives and friends

andc) Expenses after the burial

- Requisites a) The expenses must be due to the

interment wake and burial hence expenses on the death anniversary are not included

b) The expenses must have been shouldered by the estate and not by other people

2) Judicial expenses of the testamentary or

intestate proceedings- Requisite ldquoadministration expensesrdquo to those actually incurred in the administration of the estate

- Examplesa) fees of the executor or administratorb) attorneyrsquos feesc) accountantrsquos feesd) court feese) salaries of employees andf) All other expense related to the

administration of the estate

Note This includes ldquoall expenses necessary to

settle or preserve the estaterdquo hence extrajudicial expenses are included

Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees are not allowed as deductions- ex expenses to be declared as administrator vs an oppositor is a personal expense

3) Claims against the decedentrsquos estate

- Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met

a) They were contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

b) They must be existing against the estatec) They must be legally enforceable

obligations of the decedent and ought to be enforced by the claimants

d) They must be reasonably certain in amount and

e) At the time the indebtedness was incurred the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

4) Claims against the insolvent persons- Requisites for deductibility

a) The amount of said claims has been initially included as part of the gross estate and

b) The incapacity of the debtors to pay their obligations is proven and not merely alleged

5) Unpaid mortgages indebtedness

- Requisites for deductibility a) The fair market value of the property

mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate

b) The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

- ex X obtained a 3M loan from Y and executed a Real Estate Mortgage over his house and lot worth 5M X paid 1M X died Effect in the estate of X include the 5M in the gross estate of X and claim as deduction the unpaid 2M

Accommodated Loan- Ex X owns a house and lot worth 5M Y obtained a 3M loan from Z with Xrsquos house and lot as collateral Y paid 1M Z died X died Effect Include in the gross estate of X the 5M as receivable from Y (reason right of reimbursement) and claim as deduction the unpaid 2M 6) Casualty Losses (TRECUSO)- They include all losses incurred during the settlement of the estate arising from fires storms shipwreck or other casualties or from robbery theft or embezzlement

- Requisites for deductibilitya) Losses not compensated by an insurance or otherwiseb) Losses that were not claimed as a deduction for income tax purposes andc) Losses incurred not later than the last day for payment of the estate tax (6 months from death)

d) Include the worth of the property in the gross estate e) File a sworn declaration of the fact of loss within 45 days from its occurrence

5

7) Unpaid Taxes- Unpaid income tax on income due or received

before death of the decedent and real property taxes which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible

- Income taxes upon income received after the death of the decedent or property taxes not accrued before his death or any estate tax cannot be deducted because they are chargeable to the income of the estate

- except estate tax because estate tax liability is determined at the time of death

B Vanishing Alternating Deduction Or Property Previously Taxed- an amount allowed to reduce the taxable estate of a decedent where the property was

a received by him from prior decedent by gift bequest devise or inheritance or

b transferred to him by gift has been the object of previous transfer deduction

- VANISHING DEDUCTION because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers

- ALTERNATING DEDUCTION because the present decedentrsquos estate cannot claim it if the prior decedentrsquos estate claimed it

- Factors necessary in vanishing deduction these are

a There are two (2) deceased persons and the first is the donor and

b The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ndash donee dies within the same period after the date of the gift

- RationaleThe deduction operates to ease the

harshness of successive taxation of the same property within a relatively short period of time Requisites for deductibility 1 The present decedent must have acquired the property by inheritance or by donation 2 The property must have been acquired within five (5) years prior to the death of the present decedent 3 The property must have formed part of the gross estate of the prior decedent if acquired by inheritance or the taxable gift of the donor if acquired by donation 4 The estate tax or the donorrsquos tax as the case may be must have been paid on the previous transfer 5 The property must be identified as the one received from the prior decedent or from the donor as the case may be 6 The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property

Procedure in computing vanishing deductions1 Value taken of property previously taxed

LessMortgage paid by the present decedent on property previously mortgaged by prior decedent donor if any (Ist deduction)

= Initial basis

2 Initial basis divided by the value of the gross estate of present decedent X Expenses and transfer for public purpose =2nddeduction

3 Initial Basis Less 2 nd deduction Final Basis Multiplied by rate deduction (sec86 (A2) NIRC) Vanishing Deduction

C Transfers For Public Use- Requisites

1 The disposition must be testamentary in character

2 To take effect after death3 In favor of the government of the

Philippines or any political subdivision thereof4 Exclusively for public purpose5 Included in the gross estate

Query If in a will the property was bequeathed to a city and an NGO are the tax effects the same No a) City - included in the gross estate and claimed as deductionb) NGO ndash excluded from the gross estate and subject to the limitation that not more than 30 must be used for administrative purposes

D Family Home- Refers to the dwelling house including the

land on which it is situated where the husband and wife or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality

- For the purpose of availing of a family home deduction to the extent provided by law a person may constitute only one family home

- The amount deductible is equivalent to the current fair market value of the decedentrsquos family home if said current fair market value exceeds P1000000 the excess shall be subject to estate tax

- Requisites to be deductiblea The family home must be the actual residential

home of the decedent and his family at the time of his death (Decedent is married and has dependents or is a head of family with dependents)

b Such fact must be certified by the Barangay Captain of the locality where the family is situated

c The total value of the family home must be included in the gross estate of the decedent

d The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding

P1 000000 E Standard Deduction Of P1 00000000

6

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

e) Shares or rights in any partnership business or industry

established in the Philippines

GROSS ESTATE the total value of all property whether

real or personal tangible or intangible belonging to the decedent at the time of his death situated within or outside the Philippines where such decedent was a resident or citizen of the Philippines

In the case of a nonresident alien decedent it shall include only property situated in the Philippines

Property Included in the Gross Estate (INCLUSIONS)A In case of resident citizens nonresident citizens and resident aliens1 Real Property within and without the

Philippines2 Tangible personal property within and without

the Philippines and 3 Intangible personal property within and without

the Philippines

B In cases of nonresident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines and3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note These are eitherA) Properties actually owned at the time of deathB) Properties deemed by law to be owned by the decedent under Sec 85

Inter Vivos Transfers Subject to Estate Tax

The gross estate extends to gratuitous transfers made by the decedent during his lifetime which are treated by the law as substitutes for testamentary dispositions They are transfers inter vivos in form but mortis causa in substance

Rationale for taxability

To reach such transfers which are really substitutes for testamentary dispositions and thus prevent the evasion of the estate tax

These transfers area) transfers in contemplation of death

(sec85 b)b) transfers with retention or reservation of

certain rights (sec85 b)c) revocable transfers (sec85 c) d) transfers of property arising under a

general power of appointment ( sec85 d) and

e) transfers for insufficient consideration (sec85 g)

Note Transfers by virtue of a bona fide sale of

property for an adequate and full consideration in money or moneyrsquos worth are excluded and not taxable

INCLUSIONS IN THE GROSS ESTATE (CR2IG

DIP)

1) Decedentrsquos interest at a specific property

- To the extent of the interest therein of the decedent at the time of his death (Sec 85 A)

- Ex partnership interest dividends

2) Transfer in contemplation of death- A transfer with the thought of death - The term ldquoin contemplation of deathrdquo means

that the impelling or controlling motive is the thought of death regardless of whether the transferor is near the possibility of death or not which induces the disposition of the property for the purpose of avoiding the tax

- Example donation was made concurrently with the execution of a will (Vidal de Rocs vs Posadas 58 Phil 108)

Circumstances taken into account in determining in whether the transfer was made in contemplation of deathA) Age and state of health of the decedent at

the time of the giftB) Length of time between the gift and the

date of death andC) Concurrent making of a will or making a

will within a short time after the transfer

Note Check the factual settings before and at time of death because proximity to death is not always conclusive

Examples of motives precluding the category of a transfer in contemplation of death

a) To relieve the donor from the burden of management

b) To save income or property taxesc) To settle family litigated and unlitigated

disputesd) To provide independent income for

dependentse) To see the children enjoy the property

while the donor is alivef) To protect the family from hazards of

business operationsg) To reward services rendered

NoteThe THREE (3) YEAR PRESUMPTION provides that any transfer of a material part of his property in the nature of a final disposition or distribution thereof made by the decedent within three years prior to his death without such adequate and full consideration shall unless shown to the contrary be deemed to be have been made in contemplation of death

This provision however has been already deleted in Sec 100 (b) now sec 85 (B) of the Tax Code by PD No 1705

Under BIR Ruling No 261 September 2 1987 the law does not specify the number of years prior to a decedentrsquos death within which a transfer can be considered in contemplation of death

Note In relation to transfers with retention of rights which are made in contemplation of death ndash if the right of retention by the Decedent is co-terminous with his lifetime

- Ex X has a house and lot which he transferred to Y

2

a) with the condition that X will use it while X lives - Effect Still part of estate of X as he has control over it

b) with the condition that X will use it only for 10 years and then X dies before 10 years - Effect Not part of the estate of X as he is not the actual owner

3) Transfer with retention or reservation of certain rights- This contemplates the instances where the owner transfers his property during his lifetime but still retains economic benefits (the possession or enjoyment of the property or the power to designate the person who may exercise such rights)

- It includesA Transfer without retention of interest but intended to take effect at or after the decedents death- Example donations mortis causa

B Transfer with retention of interest in respect to- 1 The possession or enjoyment of or the right

to the income from the property or 2 The right either alone or in conjunction with

any person to designate the person who shall possess or enjoy the property or the income therefrom And such interest is retained by the decedent for his life or for any period which does not in fact end before his death

C Transfer with reversionary interest wherein there is a possibility that the transferred property may return to the decedent or his estate or that it may become subject to a power of disposition by the decedent

- Ex A transfers his property to B in naked ownership and to C in usufruct throughout Crsquos lifetime subject to the condition that if C predeceases A the property shall return to A If A dies during Crsquos lifetime the value of the reversionary interest of A at death is included in his gross estate

3) Revocable transfer- the decedent has full control of disposition of property- even if the control is not exercised it is enough that it is exists- A transfer wherea) The decedent or in conjunction with any other

person has reserved the right to alter amend revoke or terminate or

b) Any such power is relinquished in contemplation of the decedentrsquos death

The power to alter amend or revoke shall be considered to exist on the date of the decedentrsquos death even though

a) the exercise of the power is subject to a precedent giving of notice or

b) The alteration amendment or revocation takes effect only upon the expiration of a stated period after the exercise of the power

If the notice has not been given or the power has not been exercised on or before the decedentrsquos death such notice

or the power shall be considered to have been given or exercised on the date of the decedentrsquos death

4) Transfer of property under a general power of appointment

- A transfer where the donor of the power of appointment authorizes the donee of such power to designate any person he chooses to be given the right over the appointed property

- The transferee may choose freely any person who will own the property after he dies

- Rationale the will of the transferee is followed hence part of transfereersquos estate

Note the decedent is the transferee in this provision

General power of appointment vs special power of appointment

A) A power is general when it authorizes the donee of the power to appoint any person he pleases including himself thus having a full dominion over the property as if he owned it

B) It is special when the donee can appoint only among a restricted or designated class of persons other than himself

NoteIf the power of appointment is general it

makes the appointed property a part of the doneersquos property

Under a general power of appointment title to the property is legally transferred to the donee Therefore the property shall form part of the gross estate of the donee

5) Transfer for insufficient consideration- A transfer that is not a bona fide sale of

property for an adequate and full consideration in money or moneyrsquos worth The excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate

- However if the purported absolute sale inter vivos by the decedent is shown to be fictitious then the total value of the property transferred is subject to inclusion in the taxable estate

- Ex X owns a house and lot he wants to help Y so he sells his house worth P5M for only P1M At the time of Xrsquos death his house and lot is worth P10M

How much is included in the gross estatre of X 10-1 = 9M

- Ex X bought a car worth P13M X needed money so he sells his car to Y for only P1M This is not a transfer for insufficient consideration as this is a bona fide transfer at armrsquos length hence a valid transfer

6) Proceeds of life insurance

3

- Proceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary

A) Is the estate of the decedent his executor or administrator (regardless whether the designation is revocable or irrevocable) or

B) Third person other than the estate executor administrator but the designation of the beneficiary is revocable

- Presumption proceeds are revocable- include in the estate only if it is revocable as the decedent retained control over the proceeds

7) Prior Interest- Except as otherwise specifically provided

therein subsections (B) (C) (E) of Section 85 referring to transfer in contemplation of death revocable transfer and proceeds of life insurance respectively shall apply to the transfers trusts estates interests rights powers and relinquishment of powers as severally enumerated and described therein whether made created arising existing exercised or relinquished before or after the effectivity of the CTRP

NOTEIn most of these transfers the property

remains substantially that of the transferor during his lifetime notwithstanding the transfer since he still retains either the ldquobeneficial ownershiprdquo or ldquonaked titlerdquo to the property

EXCLUSIONS FROM THE GROSS ESTATE

1 Merger of usufruct in the owner of the naked title- ex X has a house and lot X gave the title to Z X also allows Y to use the same and that in case Y dies the use goes to Z What are the effectsa) If X dies ndash include the house and lot in Xrsquos estateb) If Y dies ndash exclude from the estate of Y as the will of X is being followed there is a merger of usufruct in Z (the owner of the naked title)

2 Fideicommisary and transmissions from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor- ex X has a house and lot In the will of X Y may have the title to the house and lot but in case Y dies the property will go to Z What are the effectsa) If X dies ndash include as part of Xrsquos estate as he actually owns it b) If Y dies ndash excluded from the estate of Y as he has no control over its disposition

- Ex X has a house and lot which he wants to give to Y but Y is a minor at the moment so that X institutes T to hold the property in trust for Y until Y reaches the age of majority X died The property passed to T T died Y reached the age of majority Effect if T dies Not part of estate of T

Note Common reasons for 1 and 2 ndash the will of the first decedent is followed the second decedent has no control over the disposition

3 Transfers to social welfare cultural and charitable institutions- Requisites a) Qualified organization

b) Not more than 30 will be used for administrative purposes-Reason to encourage such transfers

4 Proceeds of insurance not includible in the gross estate of the decedent a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insuredb) Proceeds of a group insurance policy taken out by a company for its employeesc) Proceeds of insurance policies issued by the GSIS to government officials and employeesd) Benefits accruing under the Social Security Acte) Proceeds of life insurance payable to the heirs of deceased members of the military personnel of the United States Army or Philippine Army under laws administered by the United States Veterans Administration f) Accident insurance proceeds

5 Separate property of the surviving spouse

NoteIn the determination of the gross estate the nature of the property whether common property of the spouses separate or exclusive property either of the deceased or of the surviving spouse becomes of vital importance

What regime of property relations shall govern the spouses

Under the Civil Code the husband and wife who got married before August 3 1988 are governed by the Conjugal Partnership of Gains while those who got married on or after August 3 1988 are governed by the Absolute Community of Property unless a different regime was agreed upon in the marriage settlement

EXEMPTION FROM ESTATE TAX

A The first P200 00000 value of the estate (sec 84 NIRC)

B The merger of the usufruct in the owner of the naked title

C The transmission from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor

D All bequest devises legacies or transfers to social welfare cultural and charitable institutions no part of the net income of which inured to the benefit of any individual and provided that not more than 30 of the said bequest etc shall be used by such institution for administration purposes

E Intangible personal property of non-resident aliens under the principle of reciprocity

F Retirement benefits of employees of private firms from private pension plans approved by the BIR

G Amount received for war damagesH Grants and donations to the Intramuros

administrationALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE- Granted by mere legislative grace- Construed strictly against the taxpayer- Requisites

a) Substantiate the claim for deduction

4

b) Identify the provision granting the deduction The provision must be clear and definite

RESIDENT DECEDENT

A Ordinary Deductions (ELIT)

1) Funeral Expenses- The amount deductible is equal to 5 of the gross estate or the amount of the actual funeral expenses whichever is lower but in no case to exceed P200000

- ldquoActual funeral expensesrdquo are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased

- Funeral expenses include a) Costs of coffin tombstone mausoleum

and burial lotb) Funeral parlor feesc) Mourning clothing of the surviving spouse

and the unmarried minor childrend) Costs of obituary notices ande) Expenses during the wake

- The following cannot be deducted under funeral expensesa) Cash advances of the surviving spouse and

the heirsb) Expenses paid by the relatives and friends

andc) Expenses after the burial

- Requisites a) The expenses must be due to the

interment wake and burial hence expenses on the death anniversary are not included

b) The expenses must have been shouldered by the estate and not by other people

2) Judicial expenses of the testamentary or

intestate proceedings- Requisite ldquoadministration expensesrdquo to those actually incurred in the administration of the estate

- Examplesa) fees of the executor or administratorb) attorneyrsquos feesc) accountantrsquos feesd) court feese) salaries of employees andf) All other expense related to the

administration of the estate

Note This includes ldquoall expenses necessary to

settle or preserve the estaterdquo hence extrajudicial expenses are included

Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees are not allowed as deductions- ex expenses to be declared as administrator vs an oppositor is a personal expense

3) Claims against the decedentrsquos estate

- Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met

a) They were contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

b) They must be existing against the estatec) They must be legally enforceable

obligations of the decedent and ought to be enforced by the claimants

d) They must be reasonably certain in amount and

e) At the time the indebtedness was incurred the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

4) Claims against the insolvent persons- Requisites for deductibility

a) The amount of said claims has been initially included as part of the gross estate and

b) The incapacity of the debtors to pay their obligations is proven and not merely alleged

5) Unpaid mortgages indebtedness

- Requisites for deductibility a) The fair market value of the property

mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate

b) The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

- ex X obtained a 3M loan from Y and executed a Real Estate Mortgage over his house and lot worth 5M X paid 1M X died Effect in the estate of X include the 5M in the gross estate of X and claim as deduction the unpaid 2M

Accommodated Loan- Ex X owns a house and lot worth 5M Y obtained a 3M loan from Z with Xrsquos house and lot as collateral Y paid 1M Z died X died Effect Include in the gross estate of X the 5M as receivable from Y (reason right of reimbursement) and claim as deduction the unpaid 2M 6) Casualty Losses (TRECUSO)- They include all losses incurred during the settlement of the estate arising from fires storms shipwreck or other casualties or from robbery theft or embezzlement

- Requisites for deductibilitya) Losses not compensated by an insurance or otherwiseb) Losses that were not claimed as a deduction for income tax purposes andc) Losses incurred not later than the last day for payment of the estate tax (6 months from death)

d) Include the worth of the property in the gross estate e) File a sworn declaration of the fact of loss within 45 days from its occurrence

5

7) Unpaid Taxes- Unpaid income tax on income due or received

before death of the decedent and real property taxes which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible

- Income taxes upon income received after the death of the decedent or property taxes not accrued before his death or any estate tax cannot be deducted because they are chargeable to the income of the estate

- except estate tax because estate tax liability is determined at the time of death

B Vanishing Alternating Deduction Or Property Previously Taxed- an amount allowed to reduce the taxable estate of a decedent where the property was

a received by him from prior decedent by gift bequest devise or inheritance or

b transferred to him by gift has been the object of previous transfer deduction

- VANISHING DEDUCTION because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers

- ALTERNATING DEDUCTION because the present decedentrsquos estate cannot claim it if the prior decedentrsquos estate claimed it

- Factors necessary in vanishing deduction these are

a There are two (2) deceased persons and the first is the donor and

b The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ndash donee dies within the same period after the date of the gift

- RationaleThe deduction operates to ease the

harshness of successive taxation of the same property within a relatively short period of time Requisites for deductibility 1 The present decedent must have acquired the property by inheritance or by donation 2 The property must have been acquired within five (5) years prior to the death of the present decedent 3 The property must have formed part of the gross estate of the prior decedent if acquired by inheritance or the taxable gift of the donor if acquired by donation 4 The estate tax or the donorrsquos tax as the case may be must have been paid on the previous transfer 5 The property must be identified as the one received from the prior decedent or from the donor as the case may be 6 The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property

Procedure in computing vanishing deductions1 Value taken of property previously taxed

LessMortgage paid by the present decedent on property previously mortgaged by prior decedent donor if any (Ist deduction)

= Initial basis

2 Initial basis divided by the value of the gross estate of present decedent X Expenses and transfer for public purpose =2nddeduction

3 Initial Basis Less 2 nd deduction Final Basis Multiplied by rate deduction (sec86 (A2) NIRC) Vanishing Deduction

C Transfers For Public Use- Requisites

1 The disposition must be testamentary in character

2 To take effect after death3 In favor of the government of the

Philippines or any political subdivision thereof4 Exclusively for public purpose5 Included in the gross estate

Query If in a will the property was bequeathed to a city and an NGO are the tax effects the same No a) City - included in the gross estate and claimed as deductionb) NGO ndash excluded from the gross estate and subject to the limitation that not more than 30 must be used for administrative purposes

D Family Home- Refers to the dwelling house including the

land on which it is situated where the husband and wife or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality

- For the purpose of availing of a family home deduction to the extent provided by law a person may constitute only one family home

- The amount deductible is equivalent to the current fair market value of the decedentrsquos family home if said current fair market value exceeds P1000000 the excess shall be subject to estate tax

- Requisites to be deductiblea The family home must be the actual residential

home of the decedent and his family at the time of his death (Decedent is married and has dependents or is a head of family with dependents)

b Such fact must be certified by the Barangay Captain of the locality where the family is situated

c The total value of the family home must be included in the gross estate of the decedent

d The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding

P1 000000 E Standard Deduction Of P1 00000000

6

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

a) with the condition that X will use it while X lives - Effect Still part of estate of X as he has control over it

b) with the condition that X will use it only for 10 years and then X dies before 10 years - Effect Not part of the estate of X as he is not the actual owner

3) Transfer with retention or reservation of certain rights- This contemplates the instances where the owner transfers his property during his lifetime but still retains economic benefits (the possession or enjoyment of the property or the power to designate the person who may exercise such rights)

- It includesA Transfer without retention of interest but intended to take effect at or after the decedents death- Example donations mortis causa

B Transfer with retention of interest in respect to- 1 The possession or enjoyment of or the right

to the income from the property or 2 The right either alone or in conjunction with

any person to designate the person who shall possess or enjoy the property or the income therefrom And such interest is retained by the decedent for his life or for any period which does not in fact end before his death

C Transfer with reversionary interest wherein there is a possibility that the transferred property may return to the decedent or his estate or that it may become subject to a power of disposition by the decedent

- Ex A transfers his property to B in naked ownership and to C in usufruct throughout Crsquos lifetime subject to the condition that if C predeceases A the property shall return to A If A dies during Crsquos lifetime the value of the reversionary interest of A at death is included in his gross estate

3) Revocable transfer- the decedent has full control of disposition of property- even if the control is not exercised it is enough that it is exists- A transfer wherea) The decedent or in conjunction with any other

person has reserved the right to alter amend revoke or terminate or

b) Any such power is relinquished in contemplation of the decedentrsquos death

The power to alter amend or revoke shall be considered to exist on the date of the decedentrsquos death even though

a) the exercise of the power is subject to a precedent giving of notice or

b) The alteration amendment or revocation takes effect only upon the expiration of a stated period after the exercise of the power

If the notice has not been given or the power has not been exercised on or before the decedentrsquos death such notice

or the power shall be considered to have been given or exercised on the date of the decedentrsquos death

4) Transfer of property under a general power of appointment

- A transfer where the donor of the power of appointment authorizes the donee of such power to designate any person he chooses to be given the right over the appointed property

- The transferee may choose freely any person who will own the property after he dies

- Rationale the will of the transferee is followed hence part of transfereersquos estate

Note the decedent is the transferee in this provision

General power of appointment vs special power of appointment

A) A power is general when it authorizes the donee of the power to appoint any person he pleases including himself thus having a full dominion over the property as if he owned it

B) It is special when the donee can appoint only among a restricted or designated class of persons other than himself

NoteIf the power of appointment is general it

makes the appointed property a part of the doneersquos property

Under a general power of appointment title to the property is legally transferred to the donee Therefore the property shall form part of the gross estate of the donee

5) Transfer for insufficient consideration- A transfer that is not a bona fide sale of

property for an adequate and full consideration in money or moneyrsquos worth The excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate

- However if the purported absolute sale inter vivos by the decedent is shown to be fictitious then the total value of the property transferred is subject to inclusion in the taxable estate

- Ex X owns a house and lot he wants to help Y so he sells his house worth P5M for only P1M At the time of Xrsquos death his house and lot is worth P10M

How much is included in the gross estatre of X 10-1 = 9M

- Ex X bought a car worth P13M X needed money so he sells his car to Y for only P1M This is not a transfer for insufficient consideration as this is a bona fide transfer at armrsquos length hence a valid transfer

6) Proceeds of life insurance

3

- Proceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary

A) Is the estate of the decedent his executor or administrator (regardless whether the designation is revocable or irrevocable) or

B) Third person other than the estate executor administrator but the designation of the beneficiary is revocable

- Presumption proceeds are revocable- include in the estate only if it is revocable as the decedent retained control over the proceeds

7) Prior Interest- Except as otherwise specifically provided

therein subsections (B) (C) (E) of Section 85 referring to transfer in contemplation of death revocable transfer and proceeds of life insurance respectively shall apply to the transfers trusts estates interests rights powers and relinquishment of powers as severally enumerated and described therein whether made created arising existing exercised or relinquished before or after the effectivity of the CTRP

NOTEIn most of these transfers the property

remains substantially that of the transferor during his lifetime notwithstanding the transfer since he still retains either the ldquobeneficial ownershiprdquo or ldquonaked titlerdquo to the property

EXCLUSIONS FROM THE GROSS ESTATE

1 Merger of usufruct in the owner of the naked title- ex X has a house and lot X gave the title to Z X also allows Y to use the same and that in case Y dies the use goes to Z What are the effectsa) If X dies ndash include the house and lot in Xrsquos estateb) If Y dies ndash exclude from the estate of Y as the will of X is being followed there is a merger of usufruct in Z (the owner of the naked title)

2 Fideicommisary and transmissions from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor- ex X has a house and lot In the will of X Y may have the title to the house and lot but in case Y dies the property will go to Z What are the effectsa) If X dies ndash include as part of Xrsquos estate as he actually owns it b) If Y dies ndash excluded from the estate of Y as he has no control over its disposition

- Ex X has a house and lot which he wants to give to Y but Y is a minor at the moment so that X institutes T to hold the property in trust for Y until Y reaches the age of majority X died The property passed to T T died Y reached the age of majority Effect if T dies Not part of estate of T

Note Common reasons for 1 and 2 ndash the will of the first decedent is followed the second decedent has no control over the disposition

3 Transfers to social welfare cultural and charitable institutions- Requisites a) Qualified organization

b) Not more than 30 will be used for administrative purposes-Reason to encourage such transfers

4 Proceeds of insurance not includible in the gross estate of the decedent a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insuredb) Proceeds of a group insurance policy taken out by a company for its employeesc) Proceeds of insurance policies issued by the GSIS to government officials and employeesd) Benefits accruing under the Social Security Acte) Proceeds of life insurance payable to the heirs of deceased members of the military personnel of the United States Army or Philippine Army under laws administered by the United States Veterans Administration f) Accident insurance proceeds

5 Separate property of the surviving spouse

NoteIn the determination of the gross estate the nature of the property whether common property of the spouses separate or exclusive property either of the deceased or of the surviving spouse becomes of vital importance

What regime of property relations shall govern the spouses

Under the Civil Code the husband and wife who got married before August 3 1988 are governed by the Conjugal Partnership of Gains while those who got married on or after August 3 1988 are governed by the Absolute Community of Property unless a different regime was agreed upon in the marriage settlement

EXEMPTION FROM ESTATE TAX

A The first P200 00000 value of the estate (sec 84 NIRC)

B The merger of the usufruct in the owner of the naked title

C The transmission from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor

D All bequest devises legacies or transfers to social welfare cultural and charitable institutions no part of the net income of which inured to the benefit of any individual and provided that not more than 30 of the said bequest etc shall be used by such institution for administration purposes

E Intangible personal property of non-resident aliens under the principle of reciprocity

F Retirement benefits of employees of private firms from private pension plans approved by the BIR

G Amount received for war damagesH Grants and donations to the Intramuros

administrationALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE- Granted by mere legislative grace- Construed strictly against the taxpayer- Requisites

a) Substantiate the claim for deduction

4

b) Identify the provision granting the deduction The provision must be clear and definite

RESIDENT DECEDENT

A Ordinary Deductions (ELIT)

1) Funeral Expenses- The amount deductible is equal to 5 of the gross estate or the amount of the actual funeral expenses whichever is lower but in no case to exceed P200000

- ldquoActual funeral expensesrdquo are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased

- Funeral expenses include a) Costs of coffin tombstone mausoleum

and burial lotb) Funeral parlor feesc) Mourning clothing of the surviving spouse

and the unmarried minor childrend) Costs of obituary notices ande) Expenses during the wake

- The following cannot be deducted under funeral expensesa) Cash advances of the surviving spouse and

the heirsb) Expenses paid by the relatives and friends

andc) Expenses after the burial

- Requisites a) The expenses must be due to the

interment wake and burial hence expenses on the death anniversary are not included

b) The expenses must have been shouldered by the estate and not by other people

2) Judicial expenses of the testamentary or

intestate proceedings- Requisite ldquoadministration expensesrdquo to those actually incurred in the administration of the estate

- Examplesa) fees of the executor or administratorb) attorneyrsquos feesc) accountantrsquos feesd) court feese) salaries of employees andf) All other expense related to the

administration of the estate

Note This includes ldquoall expenses necessary to

settle or preserve the estaterdquo hence extrajudicial expenses are included

Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees are not allowed as deductions- ex expenses to be declared as administrator vs an oppositor is a personal expense

3) Claims against the decedentrsquos estate

- Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met

a) They were contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

b) They must be existing against the estatec) They must be legally enforceable

obligations of the decedent and ought to be enforced by the claimants

d) They must be reasonably certain in amount and

e) At the time the indebtedness was incurred the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

4) Claims against the insolvent persons- Requisites for deductibility

a) The amount of said claims has been initially included as part of the gross estate and

b) The incapacity of the debtors to pay their obligations is proven and not merely alleged

5) Unpaid mortgages indebtedness

- Requisites for deductibility a) The fair market value of the property

mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate

b) The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

- ex X obtained a 3M loan from Y and executed a Real Estate Mortgage over his house and lot worth 5M X paid 1M X died Effect in the estate of X include the 5M in the gross estate of X and claim as deduction the unpaid 2M

Accommodated Loan- Ex X owns a house and lot worth 5M Y obtained a 3M loan from Z with Xrsquos house and lot as collateral Y paid 1M Z died X died Effect Include in the gross estate of X the 5M as receivable from Y (reason right of reimbursement) and claim as deduction the unpaid 2M 6) Casualty Losses (TRECUSO)- They include all losses incurred during the settlement of the estate arising from fires storms shipwreck or other casualties or from robbery theft or embezzlement

- Requisites for deductibilitya) Losses not compensated by an insurance or otherwiseb) Losses that were not claimed as a deduction for income tax purposes andc) Losses incurred not later than the last day for payment of the estate tax (6 months from death)

d) Include the worth of the property in the gross estate e) File a sworn declaration of the fact of loss within 45 days from its occurrence

5

7) Unpaid Taxes- Unpaid income tax on income due or received

before death of the decedent and real property taxes which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible

- Income taxes upon income received after the death of the decedent or property taxes not accrued before his death or any estate tax cannot be deducted because they are chargeable to the income of the estate

- except estate tax because estate tax liability is determined at the time of death

B Vanishing Alternating Deduction Or Property Previously Taxed- an amount allowed to reduce the taxable estate of a decedent where the property was

a received by him from prior decedent by gift bequest devise or inheritance or

b transferred to him by gift has been the object of previous transfer deduction

- VANISHING DEDUCTION because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers

- ALTERNATING DEDUCTION because the present decedentrsquos estate cannot claim it if the prior decedentrsquos estate claimed it

- Factors necessary in vanishing deduction these are

a There are two (2) deceased persons and the first is the donor and

b The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ndash donee dies within the same period after the date of the gift

- RationaleThe deduction operates to ease the

harshness of successive taxation of the same property within a relatively short period of time Requisites for deductibility 1 The present decedent must have acquired the property by inheritance or by donation 2 The property must have been acquired within five (5) years prior to the death of the present decedent 3 The property must have formed part of the gross estate of the prior decedent if acquired by inheritance or the taxable gift of the donor if acquired by donation 4 The estate tax or the donorrsquos tax as the case may be must have been paid on the previous transfer 5 The property must be identified as the one received from the prior decedent or from the donor as the case may be 6 The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property

Procedure in computing vanishing deductions1 Value taken of property previously taxed

LessMortgage paid by the present decedent on property previously mortgaged by prior decedent donor if any (Ist deduction)

= Initial basis

2 Initial basis divided by the value of the gross estate of present decedent X Expenses and transfer for public purpose =2nddeduction

3 Initial Basis Less 2 nd deduction Final Basis Multiplied by rate deduction (sec86 (A2) NIRC) Vanishing Deduction

C Transfers For Public Use- Requisites

1 The disposition must be testamentary in character

2 To take effect after death3 In favor of the government of the

Philippines or any political subdivision thereof4 Exclusively for public purpose5 Included in the gross estate

Query If in a will the property was bequeathed to a city and an NGO are the tax effects the same No a) City - included in the gross estate and claimed as deductionb) NGO ndash excluded from the gross estate and subject to the limitation that not more than 30 must be used for administrative purposes

D Family Home- Refers to the dwelling house including the

land on which it is situated where the husband and wife or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality

- For the purpose of availing of a family home deduction to the extent provided by law a person may constitute only one family home

- The amount deductible is equivalent to the current fair market value of the decedentrsquos family home if said current fair market value exceeds P1000000 the excess shall be subject to estate tax

- Requisites to be deductiblea The family home must be the actual residential

home of the decedent and his family at the time of his death (Decedent is married and has dependents or is a head of family with dependents)

b Such fact must be certified by the Barangay Captain of the locality where the family is situated

c The total value of the family home must be included in the gross estate of the decedent

d The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding

P1 000000 E Standard Deduction Of P1 00000000

6

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- Proceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary

A) Is the estate of the decedent his executor or administrator (regardless whether the designation is revocable or irrevocable) or

B) Third person other than the estate executor administrator but the designation of the beneficiary is revocable

- Presumption proceeds are revocable- include in the estate only if it is revocable as the decedent retained control over the proceeds

7) Prior Interest- Except as otherwise specifically provided

therein subsections (B) (C) (E) of Section 85 referring to transfer in contemplation of death revocable transfer and proceeds of life insurance respectively shall apply to the transfers trusts estates interests rights powers and relinquishment of powers as severally enumerated and described therein whether made created arising existing exercised or relinquished before or after the effectivity of the CTRP

NOTEIn most of these transfers the property

remains substantially that of the transferor during his lifetime notwithstanding the transfer since he still retains either the ldquobeneficial ownershiprdquo or ldquonaked titlerdquo to the property

EXCLUSIONS FROM THE GROSS ESTATE

1 Merger of usufruct in the owner of the naked title- ex X has a house and lot X gave the title to Z X also allows Y to use the same and that in case Y dies the use goes to Z What are the effectsa) If X dies ndash include the house and lot in Xrsquos estateb) If Y dies ndash exclude from the estate of Y as the will of X is being followed there is a merger of usufruct in Z (the owner of the naked title)

2 Fideicommisary and transmissions from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor- ex X has a house and lot In the will of X Y may have the title to the house and lot but in case Y dies the property will go to Z What are the effectsa) If X dies ndash include as part of Xrsquos estate as he actually owns it b) If Y dies ndash excluded from the estate of Y as he has no control over its disposition

- Ex X has a house and lot which he wants to give to Y but Y is a minor at the moment so that X institutes T to hold the property in trust for Y until Y reaches the age of majority X died The property passed to T T died Y reached the age of majority Effect if T dies Not part of estate of T

Note Common reasons for 1 and 2 ndash the will of the first decedent is followed the second decedent has no control over the disposition

3 Transfers to social welfare cultural and charitable institutions- Requisites a) Qualified organization

b) Not more than 30 will be used for administrative purposes-Reason to encourage such transfers

4 Proceeds of insurance not includible in the gross estate of the decedent a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insuredb) Proceeds of a group insurance policy taken out by a company for its employeesc) Proceeds of insurance policies issued by the GSIS to government officials and employeesd) Benefits accruing under the Social Security Acte) Proceeds of life insurance payable to the heirs of deceased members of the military personnel of the United States Army or Philippine Army under laws administered by the United States Veterans Administration f) Accident insurance proceeds

5 Separate property of the surviving spouse

NoteIn the determination of the gross estate the nature of the property whether common property of the spouses separate or exclusive property either of the deceased or of the surviving spouse becomes of vital importance

What regime of property relations shall govern the spouses

Under the Civil Code the husband and wife who got married before August 3 1988 are governed by the Conjugal Partnership of Gains while those who got married on or after August 3 1988 are governed by the Absolute Community of Property unless a different regime was agreed upon in the marriage settlement

EXEMPTION FROM ESTATE TAX

A The first P200 00000 value of the estate (sec 84 NIRC)

B The merger of the usufruct in the owner of the naked title

C The transmission from the first heir legatee or donee in favor of another beneficiary in accordance with the desire of the predecessor

D All bequest devises legacies or transfers to social welfare cultural and charitable institutions no part of the net income of which inured to the benefit of any individual and provided that not more than 30 of the said bequest etc shall be used by such institution for administration purposes

E Intangible personal property of non-resident aliens under the principle of reciprocity

F Retirement benefits of employees of private firms from private pension plans approved by the BIR

G Amount received for war damagesH Grants and donations to the Intramuros

administrationALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE- Granted by mere legislative grace- Construed strictly against the taxpayer- Requisites

a) Substantiate the claim for deduction

4

b) Identify the provision granting the deduction The provision must be clear and definite

RESIDENT DECEDENT

A Ordinary Deductions (ELIT)

1) Funeral Expenses- The amount deductible is equal to 5 of the gross estate or the amount of the actual funeral expenses whichever is lower but in no case to exceed P200000

- ldquoActual funeral expensesrdquo are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased

- Funeral expenses include a) Costs of coffin tombstone mausoleum

and burial lotb) Funeral parlor feesc) Mourning clothing of the surviving spouse

and the unmarried minor childrend) Costs of obituary notices ande) Expenses during the wake

- The following cannot be deducted under funeral expensesa) Cash advances of the surviving spouse and

the heirsb) Expenses paid by the relatives and friends

andc) Expenses after the burial

- Requisites a) The expenses must be due to the

interment wake and burial hence expenses on the death anniversary are not included

b) The expenses must have been shouldered by the estate and not by other people

2) Judicial expenses of the testamentary or

intestate proceedings- Requisite ldquoadministration expensesrdquo to those actually incurred in the administration of the estate

- Examplesa) fees of the executor or administratorb) attorneyrsquos feesc) accountantrsquos feesd) court feese) salaries of employees andf) All other expense related to the

administration of the estate

Note This includes ldquoall expenses necessary to

settle or preserve the estaterdquo hence extrajudicial expenses are included

Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees are not allowed as deductions- ex expenses to be declared as administrator vs an oppositor is a personal expense

3) Claims against the decedentrsquos estate

- Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met

a) They were contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

b) They must be existing against the estatec) They must be legally enforceable

obligations of the decedent and ought to be enforced by the claimants

d) They must be reasonably certain in amount and

e) At the time the indebtedness was incurred the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

4) Claims against the insolvent persons- Requisites for deductibility

a) The amount of said claims has been initially included as part of the gross estate and

b) The incapacity of the debtors to pay their obligations is proven and not merely alleged

5) Unpaid mortgages indebtedness

- Requisites for deductibility a) The fair market value of the property

mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate

b) The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

- ex X obtained a 3M loan from Y and executed a Real Estate Mortgage over his house and lot worth 5M X paid 1M X died Effect in the estate of X include the 5M in the gross estate of X and claim as deduction the unpaid 2M

Accommodated Loan- Ex X owns a house and lot worth 5M Y obtained a 3M loan from Z with Xrsquos house and lot as collateral Y paid 1M Z died X died Effect Include in the gross estate of X the 5M as receivable from Y (reason right of reimbursement) and claim as deduction the unpaid 2M 6) Casualty Losses (TRECUSO)- They include all losses incurred during the settlement of the estate arising from fires storms shipwreck or other casualties or from robbery theft or embezzlement

- Requisites for deductibilitya) Losses not compensated by an insurance or otherwiseb) Losses that were not claimed as a deduction for income tax purposes andc) Losses incurred not later than the last day for payment of the estate tax (6 months from death)

d) Include the worth of the property in the gross estate e) File a sworn declaration of the fact of loss within 45 days from its occurrence

5

7) Unpaid Taxes- Unpaid income tax on income due or received

before death of the decedent and real property taxes which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible

- Income taxes upon income received after the death of the decedent or property taxes not accrued before his death or any estate tax cannot be deducted because they are chargeable to the income of the estate

- except estate tax because estate tax liability is determined at the time of death

B Vanishing Alternating Deduction Or Property Previously Taxed- an amount allowed to reduce the taxable estate of a decedent where the property was

a received by him from prior decedent by gift bequest devise or inheritance or

b transferred to him by gift has been the object of previous transfer deduction

- VANISHING DEDUCTION because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers

- ALTERNATING DEDUCTION because the present decedentrsquos estate cannot claim it if the prior decedentrsquos estate claimed it

- Factors necessary in vanishing deduction these are

a There are two (2) deceased persons and the first is the donor and

b The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ndash donee dies within the same period after the date of the gift

- RationaleThe deduction operates to ease the

harshness of successive taxation of the same property within a relatively short period of time Requisites for deductibility 1 The present decedent must have acquired the property by inheritance or by donation 2 The property must have been acquired within five (5) years prior to the death of the present decedent 3 The property must have formed part of the gross estate of the prior decedent if acquired by inheritance or the taxable gift of the donor if acquired by donation 4 The estate tax or the donorrsquos tax as the case may be must have been paid on the previous transfer 5 The property must be identified as the one received from the prior decedent or from the donor as the case may be 6 The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property

Procedure in computing vanishing deductions1 Value taken of property previously taxed

LessMortgage paid by the present decedent on property previously mortgaged by prior decedent donor if any (Ist deduction)

= Initial basis

2 Initial basis divided by the value of the gross estate of present decedent X Expenses and transfer for public purpose =2nddeduction

3 Initial Basis Less 2 nd deduction Final Basis Multiplied by rate deduction (sec86 (A2) NIRC) Vanishing Deduction

C Transfers For Public Use- Requisites

1 The disposition must be testamentary in character

2 To take effect after death3 In favor of the government of the

Philippines or any political subdivision thereof4 Exclusively for public purpose5 Included in the gross estate

Query If in a will the property was bequeathed to a city and an NGO are the tax effects the same No a) City - included in the gross estate and claimed as deductionb) NGO ndash excluded from the gross estate and subject to the limitation that not more than 30 must be used for administrative purposes

D Family Home- Refers to the dwelling house including the

land on which it is situated where the husband and wife or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality

- For the purpose of availing of a family home deduction to the extent provided by law a person may constitute only one family home

- The amount deductible is equivalent to the current fair market value of the decedentrsquos family home if said current fair market value exceeds P1000000 the excess shall be subject to estate tax

- Requisites to be deductiblea The family home must be the actual residential

home of the decedent and his family at the time of his death (Decedent is married and has dependents or is a head of family with dependents)

b Such fact must be certified by the Barangay Captain of the locality where the family is situated

c The total value of the family home must be included in the gross estate of the decedent

d The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding

P1 000000 E Standard Deduction Of P1 00000000

6

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

b) Identify the provision granting the deduction The provision must be clear and definite

RESIDENT DECEDENT

A Ordinary Deductions (ELIT)

1) Funeral Expenses- The amount deductible is equal to 5 of the gross estate or the amount of the actual funeral expenses whichever is lower but in no case to exceed P200000

- ldquoActual funeral expensesrdquo are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased

- Funeral expenses include a) Costs of coffin tombstone mausoleum

and burial lotb) Funeral parlor feesc) Mourning clothing of the surviving spouse

and the unmarried minor childrend) Costs of obituary notices ande) Expenses during the wake

- The following cannot be deducted under funeral expensesa) Cash advances of the surviving spouse and

the heirsb) Expenses paid by the relatives and friends

andc) Expenses after the burial

- Requisites a) The expenses must be due to the

interment wake and burial hence expenses on the death anniversary are not included

b) The expenses must have been shouldered by the estate and not by other people

2) Judicial expenses of the testamentary or

intestate proceedings- Requisite ldquoadministration expensesrdquo to those actually incurred in the administration of the estate

- Examplesa) fees of the executor or administratorb) attorneyrsquos feesc) accountantrsquos feesd) court feese) salaries of employees andf) All other expense related to the

administration of the estate

Note This includes ldquoall expenses necessary to

settle or preserve the estaterdquo hence extrajudicial expenses are included

Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees are not allowed as deductions- ex expenses to be declared as administrator vs an oppositor is a personal expense

3) Claims against the decedentrsquos estate

- Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met

a) They were contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

b) They must be existing against the estatec) They must be legally enforceable

obligations of the decedent and ought to be enforced by the claimants

d) They must be reasonably certain in amount and

e) At the time the indebtedness was incurred the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

4) Claims against the insolvent persons- Requisites for deductibility

a) The amount of said claims has been initially included as part of the gross estate and

b) The incapacity of the debtors to pay their obligations is proven and not merely alleged

5) Unpaid mortgages indebtedness

- Requisites for deductibility a) The fair market value of the property

mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate

b) The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or moneyrsquos worth

- ex X obtained a 3M loan from Y and executed a Real Estate Mortgage over his house and lot worth 5M X paid 1M X died Effect in the estate of X include the 5M in the gross estate of X and claim as deduction the unpaid 2M

Accommodated Loan- Ex X owns a house and lot worth 5M Y obtained a 3M loan from Z with Xrsquos house and lot as collateral Y paid 1M Z died X died Effect Include in the gross estate of X the 5M as receivable from Y (reason right of reimbursement) and claim as deduction the unpaid 2M 6) Casualty Losses (TRECUSO)- They include all losses incurred during the settlement of the estate arising from fires storms shipwreck or other casualties or from robbery theft or embezzlement

- Requisites for deductibilitya) Losses not compensated by an insurance or otherwiseb) Losses that were not claimed as a deduction for income tax purposes andc) Losses incurred not later than the last day for payment of the estate tax (6 months from death)

d) Include the worth of the property in the gross estate e) File a sworn declaration of the fact of loss within 45 days from its occurrence

5

7) Unpaid Taxes- Unpaid income tax on income due or received

before death of the decedent and real property taxes which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible

- Income taxes upon income received after the death of the decedent or property taxes not accrued before his death or any estate tax cannot be deducted because they are chargeable to the income of the estate

- except estate tax because estate tax liability is determined at the time of death

B Vanishing Alternating Deduction Or Property Previously Taxed- an amount allowed to reduce the taxable estate of a decedent where the property was

a received by him from prior decedent by gift bequest devise or inheritance or

b transferred to him by gift has been the object of previous transfer deduction

- VANISHING DEDUCTION because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers

- ALTERNATING DEDUCTION because the present decedentrsquos estate cannot claim it if the prior decedentrsquos estate claimed it

- Factors necessary in vanishing deduction these are

a There are two (2) deceased persons and the first is the donor and

b The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ndash donee dies within the same period after the date of the gift

- RationaleThe deduction operates to ease the

harshness of successive taxation of the same property within a relatively short period of time Requisites for deductibility 1 The present decedent must have acquired the property by inheritance or by donation 2 The property must have been acquired within five (5) years prior to the death of the present decedent 3 The property must have formed part of the gross estate of the prior decedent if acquired by inheritance or the taxable gift of the donor if acquired by donation 4 The estate tax or the donorrsquos tax as the case may be must have been paid on the previous transfer 5 The property must be identified as the one received from the prior decedent or from the donor as the case may be 6 The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property

Procedure in computing vanishing deductions1 Value taken of property previously taxed

LessMortgage paid by the present decedent on property previously mortgaged by prior decedent donor if any (Ist deduction)

= Initial basis

2 Initial basis divided by the value of the gross estate of present decedent X Expenses and transfer for public purpose =2nddeduction

3 Initial Basis Less 2 nd deduction Final Basis Multiplied by rate deduction (sec86 (A2) NIRC) Vanishing Deduction

C Transfers For Public Use- Requisites

1 The disposition must be testamentary in character

2 To take effect after death3 In favor of the government of the

Philippines or any political subdivision thereof4 Exclusively for public purpose5 Included in the gross estate

Query If in a will the property was bequeathed to a city and an NGO are the tax effects the same No a) City - included in the gross estate and claimed as deductionb) NGO ndash excluded from the gross estate and subject to the limitation that not more than 30 must be used for administrative purposes

D Family Home- Refers to the dwelling house including the

land on which it is situated where the husband and wife or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality

- For the purpose of availing of a family home deduction to the extent provided by law a person may constitute only one family home

- The amount deductible is equivalent to the current fair market value of the decedentrsquos family home if said current fair market value exceeds P1000000 the excess shall be subject to estate tax

- Requisites to be deductiblea The family home must be the actual residential

home of the decedent and his family at the time of his death (Decedent is married and has dependents or is a head of family with dependents)

b Such fact must be certified by the Barangay Captain of the locality where the family is situated

c The total value of the family home must be included in the gross estate of the decedent

d The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding

P1 000000 E Standard Deduction Of P1 00000000

6

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

7) Unpaid Taxes- Unpaid income tax on income due or received

before death of the decedent and real property taxes which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible

- Income taxes upon income received after the death of the decedent or property taxes not accrued before his death or any estate tax cannot be deducted because they are chargeable to the income of the estate

- except estate tax because estate tax liability is determined at the time of death

B Vanishing Alternating Deduction Or Property Previously Taxed- an amount allowed to reduce the taxable estate of a decedent where the property was

a received by him from prior decedent by gift bequest devise or inheritance or

b transferred to him by gift has been the object of previous transfer deduction

- VANISHING DEDUCTION because the rate of deduction gradually diminishes and entirely vanishes depending upon the time interval between the two (2) successive transfers

- ALTERNATING DEDUCTION because the present decedentrsquos estate cannot claim it if the prior decedentrsquos estate claimed it

- Factors necessary in vanishing deduction these are

a There are two (2) deceased persons and the first is the donor and

b The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ndash donee dies within the same period after the date of the gift

- RationaleThe deduction operates to ease the

harshness of successive taxation of the same property within a relatively short period of time Requisites for deductibility 1 The present decedent must have acquired the property by inheritance or by donation 2 The property must have been acquired within five (5) years prior to the death of the present decedent 3 The property must have formed part of the gross estate of the prior decedent if acquired by inheritance or the taxable gift of the donor if acquired by donation 4 The estate tax or the donorrsquos tax as the case may be must have been paid on the previous transfer 5 The property must be identified as the one received from the prior decedent or from the donor as the case may be 6 The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property

Procedure in computing vanishing deductions1 Value taken of property previously taxed

LessMortgage paid by the present decedent on property previously mortgaged by prior decedent donor if any (Ist deduction)

= Initial basis

2 Initial basis divided by the value of the gross estate of present decedent X Expenses and transfer for public purpose =2nddeduction

3 Initial Basis Less 2 nd deduction Final Basis Multiplied by rate deduction (sec86 (A2) NIRC) Vanishing Deduction

C Transfers For Public Use- Requisites

1 The disposition must be testamentary in character

2 To take effect after death3 In favor of the government of the

Philippines or any political subdivision thereof4 Exclusively for public purpose5 Included in the gross estate

Query If in a will the property was bequeathed to a city and an NGO are the tax effects the same No a) City - included in the gross estate and claimed as deductionb) NGO ndash excluded from the gross estate and subject to the limitation that not more than 30 must be used for administrative purposes

D Family Home- Refers to the dwelling house including the

land on which it is situated where the husband and wife or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality

- For the purpose of availing of a family home deduction to the extent provided by law a person may constitute only one family home

- The amount deductible is equivalent to the current fair market value of the decedentrsquos family home if said current fair market value exceeds P1000000 the excess shall be subject to estate tax

- Requisites to be deductiblea The family home must be the actual residential

home of the decedent and his family at the time of his death (Decedent is married and has dependents or is a head of family with dependents)

b Such fact must be certified by the Barangay Captain of the locality where the family is situated

c The total value of the family home must be included in the gross estate of the decedent

d The allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate not exceeding

P1 000000 E Standard Deduction Of P1 00000000

6

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- on top of other deductions unlike the optional standard deduction which is in lieu of other deductions hence it does not include the P 200000 exemption

F Medical Expenses- Requisites

a Must be incurred by the decedent within one (1) year prior to his deathb Must be duly substantiated by receipts andc Must not exceed P500 000

Opinion of JB medical expense must be related to the cause of death as it is the estate that is being settled Otherwise if not related it is a personal expense

G Amounts Received By Heirs Under RA 4917 From The Decedentrsquos Employer As A Consequence Of The Death Of The DecedentndashEmployee Provided That Such Amount Is Included In The Gross Estate Of The Decedent- retirement benefits- Requisite include in gross estate

H NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL COMMUNITY PROPERTY- Requisite Include the entire amount in the gross estate then deduct the share of the surviving spouse- Ex H owns a car worth 1M and a house and lot

worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died

Gross estate of H Exclusive Conjugal5 M house and lot 20 M lot1M car _________ _______6M 20 M

Total gross estate = 26 M

Then claim as deduction the 10M which is the frac12 share of the surviving spouse in the conjugal lot

- Ex H and W died simultaneously In computing the gross estate of H and W their shares frac12 shares as to the conjugal lot may immediately be split as there is no surviving spouse left

I) Tax Credit For Estate Tax Paid To A Foreign Country- The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country- Concept if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines the foreign tax paid is allowed to reduce his Philippine estate tax

- Purpose minimize the effect of international double taxation

- applicable only to residents and citizens not to NRA since he is taxed only on his properties within the Philippines hence the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit (Sec 86 (E)(2))

- Requisites 1 Prove that the foreign estate tax has been paid2 Prove reciprocity that in the decedentrsquos foreign country a similar tax credit is given to Filipinos

Limitations on tax creditA)The tax credit limit for estate taxes paid to one foreign country is determined by the following

TAX CREDIT LIMIT=

Decedentrsquos Net Estate situated in a foreign country x Phil Estate tax of the Entire net estate

B) The tax credit limit for estate taxes paid to two or more countries is determined as follows

TAX CREDIT LIMIT =

Decedentrsquos net estate situated outside of the Phil X Phil Estate tax of Entire net Estate

Note1) Under limitation A the allowable tax credit is

the lower amount between the tax credit limit and the estate tax paid to the foreign country

2) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B)

B) IF DECEDENT IS A NON ndash RESIDENT ALIEN

The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident alien decedent with respect to his estates situated in the Philippines at the time of his death

In case of deductions for expenses losses indebtedness and taxes the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death is situated in the Philippines bears to the value of his entire gross estate wherever situated (Sec 86 (B))

FormulaAllowable deduction of non-resident estate = Philippine Gross Estate x

Deductions Claimed Entire Gross estate

As a prerequisite to the deduction it must

be included in the return required to be filed the value at the time of his death of that part of the gross estate of the non-resident not situated in the Philippines to determine the ratable portion of the deduction for expenses allowable

Valuation of PropertyThe estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec88 NIRC) This is regardless of any subsequent contingency affecting the estate (Lorenzo vs Posadas 64 Phil 353)

1 Real Property- higher amount of a) FMV as determined by the Commissioner

7

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- This is the zonal value (of the land) as fixed by the CIR and can be obtained from the BIR website or regional office

b) FMV fixed by the provincial or city assessor- This is the value as shown in the tax

declaration of the property- Use this amount for real properties with no

zonal values (ie real properties other than land such as buildings and improvements)

Note The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV

Note If there are no improvements in the property get a Certificate of No-improvement (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return

2 Personal Properties a) Shares of Stock- book or par value at the time of death and can be obtained by writing a letter of inquiry asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent

b) Inventories- value as stated in the invoices (ie price at purchase) or the prevailing market rate (ask for the value from those engaged in the same business) or if value cannot be definitely ascertained state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector)

c) Motor vehicles- these depreciate 20 per year from purchase - Hence motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor)

3 Right to Usufruct use or habitation or annuity - probable life of the beneficiary shall be taken into account in accordance with the latest basic mortality table to be approved by the Sec of Finance upon recommendation of the Insurance Commissioner

Filing of Notice of Death

Where the gross value of the estate exceeds P 20000 although exempt the executor administrator or any of the legal heirs shall give within 2 months after the decedentrsquos death or within like period after the executor or administrator qualifies as such a written notice thereof to the Commissioner of Internal Revenue (Sec 89 NIRC)

- Contents of the letter 1 The fact that the decedent died2 Residence of the decedent3 Date of death

- Effect of failure to file notice subject to penalty not lower than P1000

Note Filing with the nearest Revenue District Office is sufficient compliance

Filing of Return and Payment of Tax

1) By whom An estate tax return under oath is required

by law to be filed by the executor administrator or any of the legal heirs

a) Where the gross value of the estate exceeds P200000 though exempt from the estate tax or

b) Regardless of the gross value of the estate where the said estate consists of registered or registrable real property such as real property (land bank accounts others with definite records) motor vehicle shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee

2) When to file The return shall be filed within 6

months from the decedentrsquos death The Commissioner shall have the

authority to grant in meritorious cases a reasonable extension not exceeding 30 days for filing the return

3) Where to file Except in cases where the Commissioner otherwise permits the return shall be filed with

if the decedent is a resident a) an authorized agent bankb) Revenue District Officer c) Revenue Collection Officer d) duly authorized treasurer of the city or

municipality where the decedent was domiciled at the time of his death or

if the decedent is a non-resident

a) with the Revenue District Office where his executoradministrator is registered

b) with the Revenue District Office having jurisdiction over the residence of the executoradministrator

e) with the Office of the Commissioner if the decedent has no executor or administrator

4) CopiesThe return shall be filed in triplicate two (2) for the BIR and one (1) copy for the taxpayer

5) When to PayPay the estate tax at the time you will file your estate tax return (Pay as you file system)

6) Extension for Payment - allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir

At most 2 years ndash if estate extrajudicially settled

8

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

At most 5 years ndash if estate judicially settled

- NOTE The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations orc) fraud

- the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary

Note The filing of the estate tax return is not sufficient to obtain a tax clearance the administratorexecutorheir must submit additional documents to determine the correctness of the values stated by him in the estate tax return- such as the title of the land tax declaration of the land and its improvements or Certificate of No-improvement vicinity map to fix the exact location and zonal value etc (Read Revenue Memorandum Order 15-2003)

Note To avoid the imposition of penalties while there is no extrajudicial settlement yet any heir may file a sworn declaration to the BIR stating the fact of death that the estate has not yet been settled and the list of the properties included in the estate as basis for payment of estate tax

If Gross Estate gt2M additional requirement - must submit a certificate of an independent

CPA stating1 itemized assets of the decedent with

corresponding gross value at the time of his death or if NRA that part of his gross estate situated in the Philippines

2 itemized deductions from the gross estate3 amount of tax due whether paid or still

due and outstanding

Liability for Payment of Estate Tax

Primarily Liable Executor or administrator - before delivery to any beneficiary of his distributive shares After due payment the executor or administrator shall be discharged from personal liability

Subsidiarily Liable Beneficiary - to the extent of his distributive share liable for the portion of the estate tax as his distributive share bears to the value of the total net estate

NOTE There are two ways the government may enforce collection of estate taxes from the decedentrsquos heirs 1 It can collect from all the heirs the amount of

the estate tax proportionate to the inheritance they received

2 It can subject properties of the estate which are in the hands of the heirstransferees to the payment of the tax (CIR vs Pineda 21 SCRA 105)

NOTE The heirs have a solidary obligation to settle the estate Hence the BIR can collect from or sue any of the heirs but only up to the amount of that heirrsquos share in the hereditary estate This

is without prejudice to such heirrsquos right of reimbursement from his co-heirs of their share in the payment of the estate tax (CIR vs Pineda 21 SCRA 105)

Measures to Insure Payment of Estate Tax

a No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown (Sec94)- by the court requiring the executoradministrator to submit an inventory of properties of the estate these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative- NOTE The approval of the probate court is not required before estate taxes may be collected The enforcement and collection of taxes are executive in nature (Marcos II vs CA 273 SCRA 47)

b Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage by way of gift inter vivos or mortis causa legacy or inheritance unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner Regional Director Revenue District Officer or Revenue collection Officer or treasurer of the city or municipality where their officer are located of the non-payment of the tax discovered by them (Sec 95)- before the properties are transferred in the name of the heirs a Certificate Authorizing Registration (CAR) must be shown

c Any lawyer notary public or any Government Officer who by reason of his official duties intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa legacy or inheritance shall have the duty of furnishing the Commissioner etc with copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax (Sec 95)- ex deed of extrajudicial settlement deed of donation

d Neither shall a debtor of a deceased pay his debts to the heirs legatees executor or administrator of his creditor unless a certification of the Commissioner that the tax fixed has been paid is shown but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Sec 95)- else debtor may be personally liable for the payment of the lost tax like a withholding agent who fails to withhold taxes

e Corporations sociedad anonima partnerships business or industry organized in the Philippines shall not transfer in their books any shares obligations bonds or rights by way of gift inter vivos or mortis causa legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown (Sec 97)

9

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- obligation of corporate secretary

f If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid However the administrator of the estate or any of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 2000 without the said certification (Sec 97)

- For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath Otherwise the joint depositor will be liable for perjury (Sec 267)

- joint accounts covered by this rule include ldquoandrdquo and ldquoandorrdquo accounts but do not include an account subject to a Survivorship Agreement with a survivor-take-all feature (because there is an automatic transfer of right to the survivor hence not included in gross estate of the joint depositor who died ndash tax avoidance scheme)

g The estate tax together with interest penalties and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer The lien attaches when the taxpayer neglects or refuses to pay after demand (Sec 219)

h In judicial settlement of estates the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation (Sec 91(b))

i The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec 91 (c)) He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears (Sec 92)

NOTE Additional Readings1 Revenue Regulation 2-2003 2 Revenue Memorandum Order 15-2003

TAX TIPS Avoidance of Estate Tax Liability 1 Maximize your claims for deductions such as

the use of the transfers falling under the exclusions from gross estate

2 Donate properties to your relatives as the tax rates for donorrsquos taxes are lower than for estate taxes

3 Estate Planning (Section 40 (c) NIRC)- execute a Deed of Exchange the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51 ownership)- this exchange is not taxable for income tax purposes - more tax savings if real properties are exchanged

- the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation- the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange on the other hand if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition

4 Set up a living trust - Trust obligation imposed by a person regarding his property- Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die This is because the Irrevocable Trust is a new taxpayer created- Ex grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild Until he reaches the age of maturity the properties will be held in trust by X (trustee) for the grandchild (Beneficiary)

DISTINCTION BETWEEN DONORrsquoS AND ESTATE TAX

DONORrsquoS TAX ESTATE TAXTax on the privilege to transmit property during the lifetime of the donor

Tax on the privilege to transmit property upon onersquos death

Tax rates are lower (2 to 15)

Tax rates are higher (5 to20)

Exemption is only P 10000000

Tax exemption is P20000000

Notice of donation is generally not required

Notice of death is required

Extension of payment is not provided

Extension of payment may be granted by the Commissioner of Internal Revenue

Payable within 30 days from the date of gift

Payable within 6 months from the date of death

Imposed on the net gift

Imposed on the net estate

II DONORrsquoS TAX GIFT TAX

A NATURE- It is an excise (privilege) tax imposed on the privilege of the donor to give or on the privilege of the done to receive It is not a tax on the property as such because its imposition does not rest upon general ownership

- The tax is imposed without reference to the death of the donor unlike in the case of estate tax

Donation Gift - an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

10

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- For tax purposes the term has a much wider meaning it includes

a any transfer in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible (Sec 98)

b any transfer of property by gift except in forced sales and in the sale of real property which is a capital asset for less than and adequate and full consideration in money or moneyrsquos worth (Sec 100)

c Condonation or remission of debt where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt

Requisites Of A Taxable Gift1) CAPACITY of the donor to make the

donation2) DONATIVE INTENT or INTENT on the part

of the donor to make a gift3) DELIVERY whether actual or constructive

of the gift and 4) ACCEPTANCE of the gift by the donee

Note A The donee unlike the donor need not be

capacitatedB donorrsquos tax applies now to both natural and

juridical personsC donative intent must be present in direct gift

but with respect to indirect gift eg transfer of property for less than an adequate and full consideration donative intent is superfluous Thus donative intent is not always essential to constitute a gift

D In Abello vs CIR (Feb 25 2005) donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other

Purposes Of Gift Tax1) The gift tax was enacted originally to

supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos

2) The donorrsquos tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerousdifferent donees with the donor thereby escaping the effect of the progressive rates of income taxation

Kinds Of Gift Taxes1 Donorrsquos tax or tax levied on the act of giving

it supplements the estate tax and2 Doneersquos tax or tax levied on the act of

receiving it was formerly the counterpart of the inheritance tax which has been integrated into an estate tax

Both taxes have now been integrated into a donorrsquos tax

Parties To A Donation1 Donor - the Person who disposes of his property or right2 Donee - the Person who receives the property or right

Properties Included In The Term ldquoGiftrdquo

(A) In the case of resident citizens non-resident citizens and resident aliens

1 Real property within and without the Philippines

2 Tangible personal property within and without the Philippines and

3 Intangible personal property within and without the Philippines

(B) In the case of non-resident aliens1 Real property within the Philippines2 Tangible personal property within the

Philippines 3 Intangible personal property within the

Philippines unless there is reciprocity in which case it is not taxable

Note The specific items includible in the ldquogross estaterdquo are applicable to and are embraced by the term ldquogiftrdquo

B FACTORS AFFECTING LIABILITY FOR GIFT TAXES

1 Relationship of the donor and the doneea) when the donee is considered a stranger to

the donor the donorrsquos tax shall be 30 of the net gifts b) when the donee is a relative of the donor the tax shall be based on the 2-15 table under Sec 99(A)

Stranger 1) one who is not a

(a) brothersister (whole or half blood) spouse ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2) donations made between individuals and business organizations are considered donations to strangers 3) donations made between business organizations are considered donations made to strangers (RR 2-2003)

Note Donees who have no blood relation to the donor are considered strangers to the donor such as those made to onersquos in-laws or to juridical persons

2 Value of the Gift- the higher the value of the gift the higher the gift taxes

C DEDUCTIONS EXEMPTIONS FROM GIFT TAX

1 Gifts Made by a Resident

a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate illegitimate or adopted children to the extent of the first P1000000

Requisites11

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

1 The donation must be given on account of marriage

2 The parent must give it to his child3 The child must be either the legitimate

recognized natural or legally adopted child of the donor and

4 It must be given before or one year after the celebration of the marriage

b) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit or to any political subdivision of the said government

c) Gifts in favor of educational charitable religious cultural or social welfare corporation institutions foundations trust or philanthropic organization research institution or organization or accredited non-government organization Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note For purposes of exemption a non-profit

educational andor charitable corporation institution accredited non-government organization trust or philanthropic organization is defined as school trust or university and or

charitable corporation foundation trust or philanthropic organization and or research institution or organization incorporated as a non-stock entity

paying no dividends governed by trustees who receive no

compensation and devoting all its income to the

accomplishment and promotion of the purposes enumerated in its articles of incorporation

Note Only donations made to non-stock non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline as a guideline the NIRC does not provide for such exemption to them

2 Gifts made by a Non-Resident Aliena) Gifts made to or for the use of the National

Government or any entity created by of its agencies which is not conducted for profit or to any political subdivision of the said government

b) Gifts in favor of educational charitable religious cultural or social welfare corporation institution foundations trust or philanthropic organization research organization or institution Provided that no more than 30 of said gifts shall be used by such donee for administration purposes

Note doesnrsquot include accredited NGONote 1 Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines if the PRINCIPLE OF RECIPROCITY is not cognizable

2 Intangible personal properties considered situated in the Philippines

Franchise which must be exercised in the Philippines

Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws

Shares of stocks issued by any foreign corporation 85 of the business of which is situated in the Philippines

Shares of stock issued by a foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines and

Shares or rights in any partnership business or industry established in the Philippines

D TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL ADEQUATE CONSIDERATION

General Rule The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift

Exception real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax

E TAX TREATMENT OF POLITICAL CONTRIBUTIONS- any contribution in cash or in kind to any candidate political party or coalition of parties for campaign purposes shall be governed by the Election Code hence this is not subject to gift tax (report to COMELEC)

F TAX CREDIT FOR DONORrsquoS TAXES PAID TO A FOREIGN COUNTRY1 Donor was a Filipino citizen or resident alien at

the time of foreign donation2 Donorrsquos taxes of any character and description

are imposed and paid by the authority of a foreign country

LimitationsA) For donorrsquos tax paid to one foreign country

The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift and

B) For donorrsquos tax paid to two or more foreign countries

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken which the donorrsquos net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift

12

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

Formula

1 Donorrsquos Tax Paid to 1 Foreign Country

Tax Credit Limit =

Net gift situated in a foreign country X Phil Donorrsquos Tax

Entire net gifts

2 Donorrsquos Taxes paid to 2 or more Foreign Countries

Tax Credit Limit =

Net gifts outside the Philippines X Phil Donorrsquos Tax

Entire net gifts

Note Under limitation A the allowable tax credit

limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country

Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits limit computed under A and that computed Under B

Note Void Donations Are Not Subject To Donorrsquos TaxSuch as Between husband and wife even if the

relationship has not been solemnized Between persons guilty of adultery or

concubinage Between those found guilty of the same

criminal offenses Between those made to a public officer or his

wife descendants ascendants by reason of his office

Note Effects Of General And Specific Renunciation- An heirrsquos general renunciation of inheritance in favor of a co-heir is not subject to donorrsquos tax but if it is specifically renounced in favor of a co-heir to the exclusion of others it shall be subject to donorrsquos tax

Note Renunciation of a surviving spouse of hisher share in the conjugal partnership or absolute community after dissolution of marriage- whether made in favor of the heirs of the deceased spouse or in favor of a third person the same is subject to donorrsquos tax

G NET GIFT- the total amount of gifts less the allowable deductions and specific exemptions

- the total net gifts made during the SAME calendar year is used as basis for computing the donorrsquos tax

H VALUATION

- the gift tax is based on the fair market value of the gift at the time it was given

I LAW APPLICABLE

- the law in force at the time of the perfection completion of the donation shall govern the imposition of donorrsquos tax A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift

J ADMINISTRATIVE PROVISIONS

1 Filing of notice of donation

General Rule Filing of notice of donation is not requiredException if the donor wishes to claim exemption from tax and the donee is an organization under Sec101(A3) and Sec 101 (B2)

Requisites to be exempt from gift tax 1 Donor is engaged in business

2 Donee is any of the organizations mentioned under Sec 101(A3) and Sec 101 (B2) 3 Donor must give notice to the RDO on every donation worth at least P50000 4 The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation 5 The certificate of Donation must be attached to the notice

2 Filing of Donorrsquos Tax Return- within 30 days after the completion of the gift- donation is completed FOR TAX PURPOSES at the time the donee accepts the gift- Contents 1 Gifts made during the calendar year 2 Deductions claimed and allowed 3 Previous net gifts made during the year 4 Name of the done 5 Relationship of the donor and the done 6 Other information as may be required

3 Payment of Donorrsquos Tax - pay as you file the tax return- Note if the donorrsquos tax was paid for the transfer there is no more need to subject the transfer again to estate tax Applying the Back Tax Theory there is no tax that remained unpaid regarding this transfer

4 Extensions For Payment Of Donorrsquos Tax- the NIRC does not provide for any extension for payment of gift tax as it is presumed that if you can donate you still have sufficient properties to pay for the tax Unlike in estate tax where extension is granted because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax

TAX TIPS Avoidance of Gift TaxesExecute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law the renounced inheritance will go to the co-heirs anyway)

PROBLEMS ON DOWRY DEDUCTION1 A is the child of H and W January ndash A got married H and W gave him P2000

13

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

March ndash H and W gave A P2000 April ndash H and W gave A another P2000Can the parents claim dowry deduction even if these were made on a staggered basis

- Yes provided these were made on account of marriage before the marriage or 1 year thereafter

2 January - A married B and was given dowry February ndash B died December ndash A married C and was given dowryCan the parents of A still claim dowry deduction even if it was claimed already for the January dowry

- There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages the deduction for the December dowry may be made

3 A and C are the children of H and W January - A married B given dowry February ndash C married D given dowry Can H and W claim dowry deduction for both-Yes as the dowries were given to different children

4 H and W jointly donated to their child A 1M on account of his marriage to B Show computation

For each of H and W the computation is500000 ndash to A 250000 - to B 250000

A B250000 250000 -10000 _______240000 250000

2 to 15 30 3 600 75000

Note Do not deduct the first 100000 in case of donee-relatives as this is incorporated already in the table under Section 99

General Rule H and W are considered separate and distinct taxpayers for purposes of donorrsquos taxException What was donated is a conjugal

property and only H signed There is only one donor without prejudice to the right of W to question the validity of the donation without her consent

PROBLEMS 1 Donations made by X

January ndash 300000 to his brotherApril ndash 400000 to his sisterAugust ndash 500000 to his mother

Compute donorrsquos tax a) For January donation

= 300000 (percentage in the 2 to 15 table) = taxb) For April Donation

= (300000 + 400000) (2 to 15 table) = taxc) For August Donation

= (300000 + 400000 + 700000) (2 to 15 table) = tax less tax paid for January and April2 X wants to give Y 200000 will there be tax savings to X if he will donate one time the amount of 200000 or should he split by donating

100000 on December 2007 and 100000 on January 2008

- It depends if X and Y are relative or not

a) relatives ndash yes there will be savings as under the table in Section 99 the first 100000 is exempt from Donorrsquos tax No donorrsquos tax will then be paid for both donations

b) strangers ndash nom there will be no tax savings A flat rate if 30 is imposed on donations made between strangers hence the same amount of P60000 donorrsquos tax will be paid whether made one time or split

3 X died and left 1M each to his heirs A B C The heirs agreed to settle extrajudicially

a) A renounced his inheritance in favor of B Is there liability for donorrsquos tax

- Yes this is a case of waiver A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own A specific renunciation is taxable

b) A renounced his share without specifying a co-heir who will receive the same Is there liability for donorrsquos tax

- No donorrsquos tax because as if A never inherited anything from X and the transfer was made directly from X to B and C

VALUE ADDED TAX

A Value Added Tax- Indirect Tax- It is not the tax itself which is shifted or passed

but it is the burden to pay the tax Why Tax is Personal Seller is still liable

only that the economic burden is shouldered by the buyer

B Transactions Subject to VAT (ISBEL)a Importation ndash whether or not in the regular

course of businessb Sale

conducted in the c Barter

regular coursed Exchange of businesse Lease

The phrase ldquoin the course of businessrdquo means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a non-stock non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity

VAT becomes due when the following conditioned concur

a There is sale barter exchange transfer or similar transactions either for nominal or valuable consideration intended to transfer ownership of or title to articles imported milled produced or manufactured and

14

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

b The sale is consummated not merely perfected in the Philippines The place where the title to the thing passes determines the place of delivery or tax situs

C Specific Characteristics of VAT

a Consumption Based Tax- the person who last consumes the

product absorbs the effect of VAT

1 Destination Principle- Goods are destined to be consumed in

the Philippines

2 Cross-border principle- Goods going out of the Philippines shall

not be subjected to tax since these goods are not destined to be consumed in the Phils

VAT is imposed only on whatever value was added

D Exempt Transactions (Sec 109 NIRC as amended by RA 9337)

E Zero rating vs Exemption

a A zero-rated scale is taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax

b The input VAT on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt and

c Persons engaged in transactions which are zero-rated being subject to VAT are required to register while registration is option for VAT-exempt persons

F Tax Creditsa Transitional Input Tax Credits (Sec

111(A) NIRC as amended by RA 9337)b Presumptive Input Tax Credits (Sec

111(B) NIRC as amended by RA 9337)

TAX ADMINISTRATION AND ENFORCEMENT

A Tax Administration Its general concepts

- is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes

B Government agencies involved in tax administration

- the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be

C The Bureau of Internal Revenue

a Composition Functions - The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as

Deputy Commissioners (Sec 3 NIRC)

b Powers and Dutiesi In general

- The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes fees and charges and the enforcement of all forfeitures penalties and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (Sec 2 NIRC)

ii Specific1 Interpret tax laws and decide cases (Sec4 NIRC)

- The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

The power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

a BIR Issuances and rules relevant thereto

The power to issue regulations is expressly conferred in the Tax Code Thus the Secretary of Finance upon the recommendation of the Commissioner shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code (see Sec244 NIRC) The rules and regulations of the Bureau shall contain among others provisions specifying prescribing or defining the time and manner of canvassing revenue regions form of labels conditions to be observed by revenue officers respecting the

15

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

institutions and conduct of legal actions (see Sec245 NIRC)

- the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule

SEC 246 Non-Retroactivity of Rulings - Any revocation modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayers except in the following cases

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based or

(c) Where the taxpayer acted in bad faith

2 Examination of Books of Accounts (Sec 5 NIRC)

- the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business

a however before a tax official could inquire into said books of accounts a letter of authority is required

b What is ldquothird-party verification rulerdquo

- In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation or from any office or officer of the national and local governments government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations any information such as but not limited to costs and volume of production receipts or sales and gross incomes of taxpayers and the names addresses and financial statements of corporations mutual fund companies insurance companies regional operating headquarters of multinational companies joint

accounts associations joint ventures of consortia and registered partnerships and their members

c Inquiry into bank deposits (Sec 6 f) NIRC)

General Rule

The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer

Exceptions

Notwithstanding any contrary provision of Republic Act No 1405 and other general or special laws the Commissioner is hereby authorized to inquire into the bank deposits of

1) a decedent to determine his gross estate and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed his application shall not be considered unless and until he waives in writing his privilege under Republic Act No 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer

Such limited power of the Commissioner does not conflict with RA 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation

If the bank has knowledge of the death of a person who maintained a bank deposit account either alone or jointly with another it shall not allow any withdrawal from the said deposit account unless the Commissioner has certified that the transfer taxes imposed thereon have been paid However the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner withdraw an amount not exceeding twenty thousand pesos (P20 00000) without the certification For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors

d Summons persons take testimony

In ascertaining the correctness of any return or in making a return when none has been made or in determining the liability of any person for any internal revenue tax or in collecting any such liability or in evaluating tax compliance the Commissioner is authorized

16

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

1 To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony (Sec5 c NIRC)

2 To take such testimony of the person concerned under oath as may be relevant or material to such inquiry (Sec5 d NIRC)

- To summon the person liable for tax or required to file a return or any officer or employee of such person or any person having possession custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax or any other person to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books papers records or other data and to give testimony

3 Power to assess and prescribe requirements for tax administration

a Power to examine returns (Sec 6 a NIRC)

- After a return has been filed as required under the provisions of this Code the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax Provided however That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer

Any return statement of declaration filed in any office authorized to receive the same shall not be withdrawn Provided That within three (3) years from the date of such filing the same may be modified changed or amended Provided further That no notice for audit or investigation of such return statement or declaration has in the meantime been actually served upon the taxpayer

i Amendment of Returns

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false incomplete or erroneous the Commissioner shall assess the proper tax on the best evidence obtainable

In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise

files a false or fraudulent return or other document the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes (Sec 6 b NIRC)

ii Rule on confidentiality of tax returns and exceptions thereto (Sec71 and 270 NIRC)

- After the assessment shall have been made as provided in this Title the returns together with any corrections thereof which may have been made by the Commissioner shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed by the Secretary of Finance upon recommendation of the Commissioner

The Commissioner may in each year cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns (see Sec71 NIRC)

Any internal revenue officer who is or shall become interested directly or indirectly in the manufacture sale or importation of any article subject to excise tax under Title VI of this Code or in the manufacture or repair or sale of any die for printing or making of stamps or labels shall upon conviction for each act or omission be punished by a fine of not less than Five thousand pesos (P5000) but not more than Ten thousand pesos (P10000) or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years or both (see Sec270 NIRC)

b Power to make a returns (Sec6 b NIRC)

What is ldquoBest Evidence Obtainable Rulerdquo

- In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise files a false or fraudulent return or other document the Commissioner shall make or amend the return

17

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

from his own knowledge and from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes

c Power to conduct inventory taking surveillance and to issue presumptive gross salesreceipts (see Sec6 c NIRC)

- The Commissioner may at any time during the taxable year order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities or may place the business operations of any person natural or juridical under observation or surveillance if there is reason to believe that such person is not declaring his correct income sales or receipts for internal revenue tax purposes The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code the Commissioner after taking into account the sales receipts income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts sales and taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person

d Power to terminate tax period (see Sec 6 d) NIRC)

- When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision together with a request for the immediate

payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the Commissioner

- the BIR has the power to terminate tax period under the following instances

when the taxpayer conceals his properties with the intention to evade taxes

when the taxpayer is leaving the Philippines with the intention to evade taxes

when the taxpayer is obstructing proceedings for the collection of taxes

when the taxpayer is removing properties with the intention of evading taxes

when the taxpayer is retiring form business

e Power to fix real property values (see Sec6 e NIRC)

- The Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers both from the private and public sectors determine the fair market value of real properties located in each zone or area For purposes of computing any internal revenue tax the value of the property shall be whichever the higher is of

(1) The fair market value as determined by the Commissioner or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors

f Power to accredit tax agents (see Sec6 g NIRC)

- The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the Bureau for taxpayers Within one hundred twenty (120) days from January 1 1998 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three (3) years and shall

18

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

designate from among the senior officials of the Bureau one (1) chairman and two (2) members for each board subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner

Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner andor the national and regional accreditation boards may appeal such denial to the Secretary of Finance who shall rule on the appeal within sixty (60) days from receipt of such appeal Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant

g Power to prescribe proceduraldocumentary requirements

- the BIR has the power to prescribe the manner of filing of a returns

h Power to delegate (see Sec7 NIRC)

- The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner Provided however That the following powers of the Commissioner shall not be delegated

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance

(b) The power to issue rulings of first impression or to reverse revoke or modify any existing ruling of the Bureau

(c) The power to compromise or abate under Sec 204 (A) and (B) of this Code any tax liability Provided however That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500000) or less and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of finance upon recommendation of the Commissioner discovered by regional and district officials may be compromised by a regional

evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director the heads of the Legal Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer as members

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

i Non-delegable powers in relation to Section 16 of NIRC

- the following are the powers which the Bureau of Internal Revenue cannot delegate

a the power to compromise

- as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds

1 a reasonable doubt as to the validity of the claim against the taxpayer exists

2 financial inability to pay

The compromise settlement of any tax liability shall be subject to the following minimum accounts

a For cases of financial inability to pay a minimum compromise rate equivalent to ten per cent (10) of the basic tax assessed

b For other cases a minimum compromise rate equivalent to forty percent (40) of the basic tax assessed

Where the basic tax involved exceeds One million pesos (P 100000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners

All criminal violations may be compromised except those

a those already filed in court

b those involving fraud (see Sec 204 a NIRC)

The taxpayerrsquos offer to compromise shall not be considered unless and until he waives in writing his privilege under RA 1405 or under other general or special laws and such waiver shall constitute the authority of the Commissioner to

19

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

inquire into his bank deposits (see Sec 6 f NIRC)

b power to abate

The BIR may abate or cancel tax liability when

a the tax or any portion thereof appears to be unjustly or excessively assessed

b the administration and collection costs involved do not justify the collection of the amount due

The power to compromise or abate shall not be delegated by the Commissioner except in the following cases

a assessments issued by the regional offices involving basic taxes of

P 50000000 or less

b Minor criminal violations These cases may be compromised by the regional evaluation board (see Sec7 NIRC)

i Enforcement of police power (see Sec15 NIRC)

The Commissioner the Deputy Commissioners the Revenue Regional Directors the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law rule or regulation administered by the Bureau of Internal Revenue Any person so arrested shall be forthwith brought before a court there to be dealt with according to law

j Authority to Abate and Compromise Tax Liabilities (see Sec6 f2 204 in relation to Rev Regs30-2002 as amended by RR No8-2004)

SEC 204 Authority of the Commissioner to Compromise Abate and Refund or Credit Taxes - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax when

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

The compromise settlement of any tax liability shall be subject to the following minimum amounts

For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10) of the basic assessed tax and

For other cases a minimum compromise rate equivalent to forty percent (40) of the basic assessed tax

Where the basic tax involved exceeds One million pesos (P1000000) or where the settlement offered is less than the prescribed minimum rates the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners

(B) Abate or Cancel a Tax Liability when

(1) The tax or any portion thereof appears to be unjustly or excessively assessed or (2) The administration and collection costs involved do not justify the collection of the amount due

All criminal violations may be compromised except (a) those already filed in court or (b) those involving fraud

D The rule on estoppel in relation to tax administration

a Against the government

The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents However like other principles the principle of estoppel also admits exceptions in the interest of justice and fair play The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation

Any mistakes committed by the agents of the sovereign namely government officials and employees are their own and cannot bind the government which cannot be placed on estoppel on account of the mistakes of its agents

b Against the taxpayer

E Assessments and its governing principles

a DefinitionThe notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property

b What constitutes an assessment

i CIR v Pascor Realty 29 June 1999

20

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment however the NIRC defines the specific function and effects of an assessment

An assessment must be sent to and received by a tax payer and must demand payment of the taxes described therein within a specific period

Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest

An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer

An assessment is not necessary before acriminal charge can be filed

Before an assessment is issued there is by practice a pre-assessment notice sent to the tax payerThe tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted If the commissioner is unsatisfied an assessment signed by himher is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against himher In contrast the criminal charge need not go through all this

ii CIR v Reyes GR No 159694 January 27 2006

Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made otherwise the assessment shall be void (2nd paragraph of section 228 is clear and mandatory)

c Kinds of Assessment

d Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203 222 NIRC)

General rule (sec203)Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period

Exceptions (sec222)In the case of a false of fraudulent return with intent to evade tax or of failure to file a return the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity fraud or omission

If before the expiration of the time prescribed in the tax codes for the assessment of the tax both the commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon

i RMO 20-90 Philippine Journalist Inc v CIR GR No 162852 16 December 2004

Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds The second part of the provision covers other cases that arise out of the NIRC or related laws and administered by the BIR The wording of the provision is clear and simple It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected

A waiver of the statute of limitations under the NIRC to a certain extent is a derogation of the taxpayerrsquos right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain

The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal For the purpose of safeguarding taxpayers from any unreasonable examination investigation or assessment out tax law provides a statute of limitation in collection of taxes Thus the law on prescription being a remedial measure should be liberally construed in order to afford such protection

ii CIR v CA and Carnation G R No 115712 25 February 1999

Finality of findings of facts as a matter of principle this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority By the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject

e Instances where the running of the prescriptive period is suspended (section 223)

i Republic v Hizon 13 December 1999

Sec 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payerrsquos receipt of tax deficiency assessment otherwise the assessment becomes final unappealable and therefore demandable The notice of assessment for respondentrsquos tax deficiency was issued by petitioner on July 18 1986 On the other hand respondent made her request for reconsideration

21

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

thereof only on November 3 1992 without stating when she received the notice of tax assessment She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors In all likelihood she must have been referring to the distraint and levy of her properties by petitionerrsquos agents which took place of January 12 1989 Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter Hence her request for reconsideration did not suspend the running for the prescriptive period provided under section 223 Although the commissioner acted on her request by eventually denying it on August 11 1994 this is of no moment and does not distract from the fact that the assessment had become demandable

ii BPI v CIR GR No 139736 17 October 2005

The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax as required by the tax code and implementing rules will not suspend the running thereof (Exception section 224)

Wherein the statute of limitations on assessment and collection of taxes is considered suspended when the tax payer request for a reinvestigation which is granted by the commissioner

f Procedure in the process of assessment (Section 228)

i Estate of the Late Juliana Diez Vda De Gabriel v CIR GR No 155541 January 27 2004

The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer and not merely to a disinterested party Although there is no specific requirement that the taxpayer should receive that notice within the said period due process requires at the very least that such notice actually be received

When an estate is under administration notice must be sent to the administrator of the estate

ii CIR v Reyes GR No 159694 January 27 2006

The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void

iii CIR v BPI GR No 134062 17 April 2007

The inevitable conclusion is that BPIrsquos failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable Thus the CTA correctly dismissed BPIrsquos appeal for lack of jurisdiction BPI was from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits Not only that There arose a presumption of correctness when BPI failed to protest the assessments Tax assessments by tax examiners are presumed correct and made in good faith The taxpayer has the duty to prove otherwise In the absence of proof of any irregularities in the performance of duties an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed All presumptions are in favor of the correctness of tax assessments

iv PNOC v Court of Appeals GR No 109976 April 26 2005

The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ndash prescription being a matter of defense imposes the burden on the taxpayer to prove that the full period of the limitation has expired and this requires him to positively establish the date when the period started running and when the same was fully accomplished

g Instances when pre-assessment is not required (Section 228)

A preassessment notice shall not be required in the following cases

When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When the excise tax due on exciseable articles has not been paid

When the article locally purchased or imported by an exempt person has been sold traded or transferred to non-exempt persons

h Governing principles concerning assessment

22

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

Injunction is not available to restrain the collection of internal revenue taxes

Exception the Court of Appeals may issue injunctions against administrative collection when collection could jeopardize the interest of the Government or taxpayer

i When do we reckon the period when the assessment was made

Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return

In case where a return is filed beyond the three year period shall be counted form the day the return was filed

j Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC

i Ungab v Cusi May 30 1980

What is involved here is not collection of taxes where the assessment of the commissioner of internal revenue may be reviewed by the court of tax appeals but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code

ii CIR v CA GR No 119322 4 June 1996

Reading Ungab carefully the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v U S ldquothe crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the taxrdquo In plain words for criminal prosecution to proceed before assessment there must be a prima facie showing of willful attempt to evade taxes There was willful attempt to evade tax in Ungab because of the taxpayerrsquos failure to declare in his income tax return ldquohis income derived from banana saplingsrdquo In the mind of the trial court and the Court of Appeals Fortunersquos situation is quite apart factually since the registered wholesale price of the goods Approved by the BIR is presumed to be the actual wholesale price therefore not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes the taxpayer should not be placed in the crucible of criminal prosecution Herein lies a whale of difference between Ungab and the case at bar

iii CIR v Pascor Realty 29 June 1999

The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return Section 222 on the other hand specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return Also Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof Necessarily the taxpayer must be certain that a specific document constitutes an assessment Otherwise confusion would arise regarding the period within which t make an assessment or to protest the same or whether interest and penalty may accrue thereon

k Are the procedures outlined in Section 228 of the NIRC retroactive

i CIR v Reyes GR No 159694 January 27 2006

The general rule is that statutes are prospective However statutes that are remedial or that do not create new or take away vested rights do not fall under the general rule against the retroactive operation of statutes Clearly Section 228 provides for the procedure in case an assessment is protested The provision does not create new or take away vested rights In both instances it can surely be applied retroactively Moreover RA 8424 does not state either expressly or by necessary implication that pending actions are excepted from the operation of section 228 or that applying it to pending proceedings would impair vested rights

INTERNAL REVENUE TAX REMEDIES

Tax Remedies Its general concepts

Importance They exist to enhance the Governmentrsquos tax collection efforts they too come in as safeguards against arbitrary action While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself

Classification

1 Remedies in favor of the taxpayerA Administrative(1) Before Payment

a Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest)

b Entering into compromise(2) After Payment

a Filing of claim for tax refund andb Filing of claim for tax credit

B Judicial(1) Civil action

23

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

a Appeal to the Court of Tax Appealsb Action to contest forfeiture of

chattel andc Action for Damages

(2) Criminal ActionFiling of complaint against erring Bureau of Internal Revenue officials and employees

2 Remedies available to the government

Applicability of the Doctrine Exhaustion of Administrative Remedies

- No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner (Sec 220 NIRC)

Remedies Available to Taxpayers

A Before Payment

1 Protest (Section 228 NIRC)Protest is a vital document which is

a formal declaration of resistance of the taxpayer It is a repository of all arguments It can be used in court in case administrative remedies have been exhausted It is also the formal act of the taxpayer questioning the official actuation of the CIR This is equivalent to a pleading It may be a

Request for reconsideration- a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence It may involve a question of fact or law or both

Request for reinvestigation- a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation It may also involve question of fact or law or both

Requirements of a valid protest1 In writing2 Addressed to the CIR3 Must be accompanied by a waiver of the

Statute of Limitations in favor of the government

4 States the Facts applicable law rules and regulations and jurisprudence on which his protest is based otherwise his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted

5 Contains the following1 Name of the taxpayer and address

for the immediate past three taxable years

2 Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation

3 Taxable periods covered by the assessment

4 Amounts and kinds of tax involved and Assessment Notice Number

5 Date of receipt of assessment notice or letter of demand

6 Itemized statement of the findings to which the taxpayer agrees if any as a basis for computing the tax due which amount should be paid immediately upon the filing of the protest For this purpose the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first

7 Itemized schedule of the adjustments with which the taxpayer does not agree

8 Statement of facts andor law in support of the protest and

9 Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest If the taxpayer fails to comply with this requirement the assessment shall become final (Revenue Regulation No 12-85 dated Nov 27 1985)

Effect of a protest on the period to collect deficiency taxes

The prescriptive period is arrested by the taxpayers request for re-examination or reinvestigation even if he has not previously waived it (CIR vs Wyeth GR No 76281Sep 30 1991)

Failure of the BIR to act within the 180-day period

If the Commissioner or his duly authorized representative fails to act on the taxpayerrsquos protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period

Administrative actions taken during the 180-day period

1 Grant of the Protest2 Denial of Protest

A Direct DenialThe decision of the Commissioner or his duly rep shall (a) state the facts applicable law rules and regulations or jurisprudence on which his protest is based otherwise the protest shall be considered void and without force and effect in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision (sec 315 RR 12-99)

BIndirect Deniala Commissioner did not rule on the taxpayerrsquos MR of the assessment ndash it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (CIR vs Union Shippingb Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vsLim Tian Teng Sons)c Reiterating the demand for immediate payment of the deficiency tax due to taxpayerrsquos

24

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

continued refusal to execute waiver (CIR vs Ayala Securities Corp)d Preliminary collection letter may serve as assessment notice (United Intrsquol Pictures vs CIR)

Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA

1 Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v Union Shipping Corp 185 SCRA 547)

2 Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial (CIR v Union Shipping Corp)

3 BIR demand letter reiterating his previous demand to pay sent to taxpayer after his protest of the assessment (Surigao Electric Co Inc v CTA 57 SCRA 523)

4 The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v Union Shipping Corp)

b Effect of protest filed out of time

The pendency of the taxpayers appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same Under the circumstances the running of the prescriptive period was suspended Deficiency Percentage Taxes must be imposed(PROTECTORS SERVICES INC petitioner vs CA GR No 118176 2000 Apr 12)

Remedies from a denial of protest1 Motion for reconsideration2 Appeal to the Court of Tax Appeals(RA 1125 as amended by RA 9282)

2 Compromise

B After Payment

1 Refund (Section 229 NIRC)The Legal Principle of quasi-contracts or

solutio indebiti (see Art 2142 amp 2154 of the Civil Code) The Government is within the scope of the principle of solutio indebiti (CIR vs Firemanrsquos Fund Insurance Co)

a Must be strictly construed against taxpayer

Grounds for filing a claim for refundErroneously or illegally assessed or collected internal revenue taxes

Taxpayer pays under the mistake of fact as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were madeA tax is illegally collected if payments are made under duress

1 Penalties imposed without authority and2 Any sum alleged to have been excessive

or in any manner wrongfully collected

The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed

b Period within which to file a claim for refund

1 General Rule is two years from the date of payment

The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax(CIR vs TMX SALES GR No 83736 1992 Jan 15)

The rationale in computing the two-year prescriptive period with respect to the petitioner corporations claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations The date of payment therefore in ACCRAINs case was when its tax liability if any fell due upon its filing of its final adjustment return (ACCRA vs CA GR No 96322 1991 Dec 20)

The two-year period for prescription should be counted from the date of payment of the tax which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return This is so because at that point it can already be determined whether there has been an overpayment by the taxpayer Moreover under Sec 49 (a) by the NIRC (now Sec 56(a) 1997 NIRC) payment is made at the time the return is filed (CIR V CA CTA BPI GR No 117254 January 21 1999)There is some likelihood that the above rule could apply also to individuals who are self employed (ie in business and professional practice) as well as estates and trusts which are likewise required to file quarterly returns

The prescriptive period of two years should commence to run only from the time that the refund is ascertained which can only be determined after a final adjustment return is accomplished(CIR V PHILAMLIFE 244 SCRA 446 May 29 1995)

2 In case of Amended Returns

3 In case of taxpayers contemplating dissolution

c Who has the personality to file a claim for refund

The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual The withholding agentcorporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax an assessment for said deficiency withholding tax would therefore be legal and proper (FILIPINAS SYNTHETIC FIBER CORP V CA GR No113347 June 14 1996)

25

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

d Is setting-off of taxes against a pending claim for refund allowed

e Is automatic application of excess tax credits allowed

f Effect of existing tax liability on a pending claim for refund

g Period of validity of a tax refundcredit1 Returns are not actionable documents for

purposes of the rules on civil procedure and evidence

h Refund and Protest are mutually exclusive remedies

i Is the taxpayer entitled to claim interest on the refunded tax

General Rule The Government cannot be required to pay interest on taxes refunded to the taxpayer unless

1 The Commissioner acted with patent arbitrarinessArbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs Victorias Milling Corp Inc L-19607 Nov 29 1966)

2 In case of Income Tax withheld on the wages of employeesAny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April Refund or credit after such time earn interest at the rate of 6 per annum starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC

b Other Remedies

1 Action to Contest Forfeiture of Chattel (Sec 231)

In case of seizure of personal property under claim for forfeiture the owner desiring to contest the validity of the forfeiture may bring an actiona Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the saleb After the sale and within 6 months to recover the net proceeds realized at the sale (see Sec 231 1997 NIRC)

Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the CTA

2 Redemption of Property Sold (Sec 214)

Remedies available to the Government

A No Injunction to restrain collection of taxes ( Sec 218 NIRC)GR No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax fee or charge imposed by the NIRC EXC CTA may enjoin the collection of Internal Revenue taxes

REQUISITES

1 there is a pending case before the CTA (ancillary remedy not a main cause of action) 2 identify that the collection of tax is prejudicial to the interest of either the TP or government

B Period within which the government could collect ( Secs 203 222 NIRC)Assessment of Tax Liability

Three (3)years from the following whichever comes later1 The last day prescribed by law

for filing the return2 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of1 False or fraudulent return with

intent to evade tax or2 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

CASES

REPUBLIC V HIZON DEC 13 1999 Revenue Adm Order No 10-95

specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

PNOC V CA APRIL 26 2005

C OVERVIEW OF REMEDIES (SECTION 205)

1 Tax Lien (Sec 219 NIRC)

When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand the amount so demanded shall be a lien in favor of the government from the time the assessment was

26

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

made by the Commissioner until paid with interest penalties and costs that may secure in addition thereto upon all property and rights to property belonging to the taxpayer

Lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located

A tax lien created in favor of the government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment

Extinguishment of Tax Lien1 Payment or remission of the tax2 Prescription of the right of the government

to assess or collect3 Failure to file notice of such lien in the

office of register of Deeds purchases or judgment creditor

4 Destruction of the property subject to the lien

NOTE In Nos 1 and 2 there is no more tax liability while under nos 3 and 4 the taxpayer is still liable

CASE CIR V NLRC NOV 09 1994 A tax lien created in favor of the

government is superior to all other claims and preferences even to that of a private litigant predicated on a court judgment The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable

2 Compromise CIR may compromise both civil

and criminal liability of the taxpayer

REQUISITES1 The taxpayer have a tax liability2 There must be an offer by the

taxpayer of an amount to be paid by the taxpayer

3 There must be an acceptance by the Commissioner or the taxpayer as the case may be of the offer in the settlement of the original claim

Grounds for compromise1 A reasonable doubt as to the

validity of the claim against the taxpayer exists or

2 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Cases that may be compromised

1 Delinquent accounts2 Cases under administrative protest

3 Cases disputed before the courts4 Cases for collection already filed in courts5 Criminal violations except those already

filed and those involving fraud

Cases that cannot be compromised

1 Withholding tax cases2 Criminal tax fraud cases3 Criminal cases already filed in court4 Delinquent accounts with duly approved

schedule of installment payments5 Cases where reduction of payments had

already been granted6 cases already decided and are final and

executory

Compromise of criminal violation

In criminal violations the compromise must be made prior to the filing of the

information in court All criminal violations may be

compromised except

1 those already filed in court and2 those involved in fraud

Limitations1 Minimum compromise rate

a 10 of the basic tax assessed ndash in case of financial incapacity

b 40 of basic tax assessed ndash other cases

2 Subject to approval of the Evaluation Board

a When basic tax involved exceeds P100000000 or

b Where settlement offered is less than the prescribed minimum rates

Delegation of Power to CompromiseGeneral Rule The power to compromise or abate shall not be delegated by the commissionerException The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 50000000 or lessRemedy in case of failure to complyThe CIR may eithera Enforce the compromise orb Regard it as rescinded and insists upon the original demand

3 Distraint andor Levy4 Civil Action5 Criminal Action6 Forfeiture

Implies a divestiture of property without compensation in consequence of a default or offense

It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer

Effect Transfer the title to the specific thing from the owner to the government

27

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

When availablea No bidder for the real property

exposed for saleb If highest bid is for an amount

insufficient to pay the taxes penalties and costs

With in two days thereafter a return of the proceeding is duly made

How enforced

a In case of personal property ndash by seizure and sale or destruction of the specific forfeited property

b In case of real property ndash by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require

When forfeited property to be destroyed or sold

a To be destroyed ndash by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law (at least 20 days after seizure)

1 distilled spirits2 liquors3 cigars4 cigarettes and other

manufactured products of tobacco

5 playing cards6 All apparatus used in or

about the illicit production of such articles

b To be sold or destroyed ndash depends upon the discretion of CIR

1 All other articles subject to exercise tax (wine automobile mineral products manufactured oils miscellaneous products non-essential items a petroleum products) manufactured or removed in violation of the Tax Code

2 Dies for printing or making IR stamps labels and tags in imitation of or purport to be lawful stamps labels or tags

Where to be solda Public sale provided there is

notice given not less than 20 daysb Private sale provided it is with

the approval of the Secretary of Finance

Right of Redemptiona Personal entitled ndash taxpayer or

anyone for himb Time to redeem ndash within one (1)

year from forfeiturec Amount to be paid ndash full amount of

the taxes and penalties plus interest and cost of the sale

d To whom paid ndash Commissioner or the Revenue Collection Officer

e Effect of failure to redeem ndash forfeiture shall become absolute

NOTE

The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court

7 Suspension of Business Operations8 Enforcement of Administrative Fines

D ADMINISTRATIVE REMEDIES IN DETAIL (SECS 206-217 NIRC)

A DISTRAINT - Seizure by the government of personal property tangible or intangible to enforce the payment of faces to be followed by its public sale if the taxes are not voluntarily paidKINDSa Actual ndash There is taking of possession of personal property out of the taxpayer into that of the government In case of intangible property taxpayer is also diverted of the power of control over the propertyb Constructive ndash The owner is merely prohibited from disposing of his personal property

Difference between Actual and Constructive DistraintActual Constructive Made on the property only of a delinquent taxpayer

May be made on the property of any taxpayer whether delinquent or not

There is actual taking or possession of the property

Taxpayer is merely prohibited from disposing of his property

Effected by having a list of the distraint property or by service or warrant of distraint or garnishment

Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same

An immediate step for collection of taxes where amount due is definite

Such immediate step is not necessary tax due may not be definite or it is being questioned

Requisites1 Taxpayer is delinquent in the payment of

tax2 Subsequent demand for its payment3 Taxpayer must fail to pay delinquent tax

at time required4 Period with in to assess or collect has not

yet prescribed

When remedy not availableWhere amount involved does not exceed

P100In keeping with the provision on the

abatement of the collection of tax as the cost of same might even be more than P100Procedure

1 Service of warrant of distraint upon taxpayer or upon person in possession of taxpayerrsquos personal property

2 Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained

3 Sale at public auction to highest bidder4 Disposition of proceeds of the sale

28

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

Who may effect distraint Amount Involved

1 Commissioner or his duly authorized representative

2 Revenue District Officer (RDO)

In excess of P100000000P100000000 or less

How Actual Distraint Effected1 In case of Tangible Property

a Copy of an account of the property distrained signed by the officer left either with the owner or person from whom property was taken at the dwelling or place of business and with someone of suitable age and discretion

b Statement of the sum demandedc Time and place of sale

2 In case of intangible propertya Stocks and other securities

Serving a copy of the warrant upon taxpayer and upon president manager treasurer or other responsible officer of the issuing corporation company or association

b Debts and credits1 Leaving a copy of the warrant

with the person owing the debts or having in his possession such credits or his agent

2 Warrant shall be sufficient authority for such person to pay CIR his credits or debts

c Bank Accounts ndash garnishment1 Serve warrant upon taxpayer

and president manager treasurer or responsible officer of the bank

2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

How constructive Distraint Effected1 Require taxpayer or person in possession

to- Sign a receipt covering property

distrained- Obligate him to preserve the same

properties- Prohibit him from disposing the

property from disposing the property in any manner with out the authority of the CIR

2 Where Taxpayer or person in possession refuses to sign

- Officer shall prepare list of the property distrained

- In the presence of two witnesses of sufficient age and discretion leave a copy in the premises where property is located

Grounds of Constructive Distraint1 Taxpayer is retiring from any business

subject to tax2 Taxpayer is intending to leave the

Philippines or3 To remove his property there from

4 Taxpayer hides or conceals his property5 Taxpayer acts tending to obstruct

collection proceedings

NOTE1 Bank accounts may be distrained without

violating the confidential nature of bank accounts for no inquiry is made BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from

2 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the same the goods distrained shall be restored to the owner

3 When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles the CIR or his deputy may purchase the distrained property on behalf of the national government

B LEVY OF REAL PROPERTY - an act of seizure of real property in order to enforce the payment of taxes The property may be sold at public sale if after seizure the taxes are not voluntarily paid

NOTE The requisites are the same as that of distraint

Procedure1 International Revenue officer shall prepare

a duly authenticated certificate showinga Name of taxpayerb Amount of tax andc Penalty due

- enforceable throughout the Philippines2 Officer shall write upon the certificate a

description of the property upon which levy is made

3 Service of written notice toa The taxpayer andb RD where property is located

4 Advertisement of the time and place of sale

5 Sale at public auction to the highest bidder

6 Disposition of proceeds of saleNOTE The excess shall be turned over to ownerRedemption of property sold or forfeited

a Person entitled Taxpayer or anyone for him

b Time to redeem one year from date of sale or forfeiture- Begins from registration of the deed of

sale or declaration of forfeiture- Cannot be extended by the courts

c Possession pending redemption owner not deprived of possession

d Price Amount of taxes penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15 per annum from date of purchase to date of redemption

Difference between Distraint and LevyDistraint Levypersonal property real propertyforfeiture by government not provided

forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to

29

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

pay the taxes penalties and costs

Taxpayer no given the right of redemption

Taxpayer can redeem properties levied upon and soldforfeited to the government

1 Both are summary remedies for collection of taxes

2 Both cannot be availed of where amount involved is not more than P100

NOTE1 It is the duty of the Register of Deeds

concerned upon registration of the declaration of forfeiture to transfer the title to the property with out of an order from a competent court

2 The remedy of distraint or levy may be repeated if necessary until the full amount including all expenses is collected

C GARNISHMENTBank Accounts ndash garnishment1 Serve warrant upon taxpayer and president manager treasurer or responsible officer of the bank2 Bank shall turn over to CIR so much of the bank accounts as may be sufficient

E JUDICIAL REMEDIES IN DETAIL (SEC 220 NIRC)1 Period within which the action may be filed

Civil and Criminal Actions1 Brought in the name of the

Government of the Philippines2 Conducted by Legal Officer of BIR3 Must be with the approval of the

CIR in case of action for recovery of taxes or enforcement of a fine penalty or forfeiture

A CIVIL CASES (SECS 203222NIRC) Three (3)years from the following

whichever comes later3 The last day prescribed by law

for filing the return4 The day when the return was

actually filed Ten (10) years after the discovery

of the falsity fraud or omission in case of3 False or fraudulent return with

intent to evade tax or4 Failure to file a return

Within the period agreed upon when both the TP and the Commissioner have agreed in writing before the expiration of the period in Sec 203 for the assessment of the tax

Where to File1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above2) RTC Mun TC Metro TC- where the principal amount of taxes and fees exclusive of charges and penalties claimed is less thanP100000000 (Sec 7[c] RA 9282)

The approval of the CIR is essential in civil cases (Sec 220) However under Sec 7 of

NIRC the Commissioner may delegate suchpower to a Regional Director

Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs depending on the amount involved) It includes filing by the government with the probate court claims against the deceased taxpayer

Resorted to when the tax liability becomes final and unappealable or when the decision of theCommissioner becomes final or executory

When

A tax is assessed and the assessment becomes final and unappealable because the taxpayerfails to file an administrative protest with

the BIR within 30 days from the receipt of the assessment

When an administrative protest filed by the taxpayer against the assessment is denied in whole and in part or Is not acted upon within 180 days from submission of the documents and

The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the180 day period

B CRIMINAL CASES ( TITLE X NIRC SEC 281 NIRC)

All violations of any provision of the tax code shall prescribe after five (5) years

NOTE When should it commence The five (5)

year prescriptive period shall begin to run from the a If known day of the commission of the

violationb If not known from the time of

discovery and the institution of judicial proceeding for its investigation and punishment

When is it interrupteda When a proceeding is instituted

against the guilty personb When the offender is absent from the

Philippines When should it run again When the

proceeding is dismissed for reason not constituting jeopardy

Where to file1) Court of Tax Appeals- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is P100000000 and above2) RTC Mun TC Metro TC- on criminal offenses arising from violations of the NIRC or TCC andother laws administered by the BIR and the BOC where the principal amount of taxes and fessexclusive of charges and penalties claimed is less than P100000000 or where there is no specified amount claimed (Sec 7[b] RA 9282)

CASESREPUBLIC V HIZON DEC 13 1999 (re approval of filing of civil and criminal actions)

30

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

Revenue Adm Order No 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection As the complaint filed in this case was signed by the BIRrsquos Chief of Legal Division for Region 4 and verified by the Regional Director there was therefore compliance with the law

Sec 7 of NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher

CIR V LA SUERTE CIGAR JULY 04 1992 (re participation of the Office of the Solicitor General)

The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted by legal officers of the Bureau of Internal Revenue is not in dispute An appeal from such court however is not a matter of right Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings

PNOC V CA APRIL 26 2005

LIM V CA OCT 18 1990 ( re prescription of criminal actions Sec 281 NIRC)

should be filed 5 years from the (1) day of the commission of the violation of the law and if the same shall be not known from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment

MARCOS II V CA JUNE 5 1997 (re enforcement of tax liability during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because the collection of estate tax is executive in character As such the estate tax is exempted from the application of the statute of the non ndash claims and this is justified by the necessity of the government finding immortalized in the maxim that taxes are the lifeblood of the government

E EFFECTS OF FAILURE TO PAY THE TAX ON TIME ADDITIONS TO THE TAX (CHAPTER I TITLE X NIRC)

1 SURCHARGES- a civil penalty imposed by law as an addition to the main tax required to be paid It is not a criminal penalty but a civil administrative sanction provided primarily as

safeguard for the protection of the State

revenue and to reimburse the government for the expenses of investigation and the loss

resulting from the taxpayerrsquos fraud A surcharge added to the main tax is subject to

interest

a ORDINARY (SEC 248A NIRC)

Penalty 25 of the amount due in addition to the tax required to be paid

a Failure to file any return and to pay the tax due thereon as required by the NIRC or rules

b Filing a return with an internal revenue officer other than those with whom the return is required to be fired Not authorized officer

c Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment

d Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due for which no return is required to be filed on or before the date prescribed for its payment

b FRAUD PENALTY (SEC 248B NIRC)

Penalty 50 of the amount due in addition to the tax required to be paid

a In case of willful neglect to file the return within the period prescribed by the NIRC or rule

b In case a false or fraudulent return is willfully made

CASE CIR V JAVIER JULY 31 1991 There was no actual intentional

fraud in filing the return Private respondentrsquos notation on the tax return was at most an error or mistake of fact or law not constituting fraud an invitation for investigation and private respondent had literallyrdquo laid his cards on the table

2 INTEREST- This is an increment on any unpaid amount of tax assessed at the rate of 20 per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid

Classes of interest

1 Deficiency interest2 Delinquency interest3 Interest on extended payment

Deficiency interest

Any deficiency in the tax due shall be subject to the interest of 20 per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof

When delinquency interest imposed

Delinquency interest is imposed in case of failure to pay

31

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

1 The amount of the tax due on any return required to be filed or

2 The amount of tax due for which no return is required or

3 A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner

Rate is 20 per annum until the amount is fully paid which interest shall form part of the tax

Interest on Extended Payment1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment or any part on or before the date prescribed or2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof3) from the date of notice and demand until it is paid

Compromise Penalty1 It is a certain amount of money which the

taxpayer pays to compromise a tax violation

2 It is pain in lieu of a criminal prosecution3 Since it is voluntary in character the same

may be collected only if the taxpayer is willing to pay them

Failure to File Certain Information Returns (Sec 250 NIRC)A) Penalty P 1000 for each failureB) The aggregate amount for all such failure shall not exceed P 25000 during a calendar yearC) Upon notice and demand by the CommissionerD) Unless it is shown that such failure is due to reasonable cause and not to willful neglectIn the case of each failure to file1) information return2) statement or list3) keep any record4) supply any informationE) required by this Code or by the Commissioner on the date prescribed thereof

LOCAL TAXATION

A Local Taxation General Concepts1 Nature of Local Taxing Power

a Constitutional Provision (Section 5 Article X)

ldquoEach local government unit shall have the power to create its own sources of revenues and to levy taxes fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy Such taxes fees and charges shall accrue exclusively to the local governmentsrdquo

b Delegated Poweri City of San Pablo Laguna vs Reyes

March 25 1999

ldquoThe power to tax is primarily vested in Congress However in our jurisdiction it may be exercised by local legislative bodies no

longer merely by virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution The important legal effect of Section 5 is that henceforth in interpreting statutory provisions on municipal fiscal powers doubts will have to resolved in favor of municipal corporationsrdquo

ii Meralco vs Province of Laguna May 5 1999

ldquoPrefatorily it might be well to recall that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute Presently under Article X of the 1987 Constitution a general delegation of that power has been given in favor of local government units The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar delegation of revenue making powers to local governments Under the regime of the 1935 Constitution no similar delegation of tax powers was provided and local government units instead derived their tax powers under a limited statutory authority Whereas then the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld) the present constitutional rule (starting with the 1973 Constitution) however would broadly confer such tax powers subject only to specific exceptions that the law might prescribe Under the now prevailing Constitution where there is neither a grant nor a prohibition by statute the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers Nevertheless the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that while the local government units are being strengthened and made more autonomous the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions (b) each local government unit will have its fair share of available resources (c) the resources of the national government will not be unduly disturbed and (d) local

32

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

taxation will be fair uniform and justrdquo

iii Mactan Cebu International Airport Authority vs Marcos September 11 1996

ldquoThe taxing powers of local government units cannot extend to the levy of inter alia ldquotaxes fees and charges of any kind on the National Government its agencies and instrumentalities and local government unitsrdquo however pursuant to Section 232 provinces cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on inter alia ldquoreal property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable personrdquo as provided in item (a) of the first paragraph of Section 234rdquo

iv NAPOCOR vs City of Cabanatuan April 9 2003

ldquoIn recent years the increasing social challenges of the times expanded the scope of state activity and taxation has become a tool to realize social justice and the equitable distribution of wealth economic progress and the protection of local industries as well as public welfare and similar objectives Taxation assumes even greater significance with the ratification of the 1987 Constitution Thenceforth the power to tax is no longer vested exclusively on Congress local legislative bodies are now given direct authority to levy taxes fees and other charges pursuant to Article X section 5 of the 1987 Constitution

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance For a long time the countryrsquos highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership It has also ldquodampened the spirit of initiative innovation and imaginative resilience in matters of local development on the part of local government leadersrdquo The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services and confer them sufficient powers to generate their own sources for the purpose To achieve this goal section 3 of Article X of the 1987 Constitution mandates

Congress to enact a local government code that will consistent with the basic policy of local autonomy set the guidelines and limitations to this grant of taxing powersrdquo

- Extent of the Power of Congress in Local Taxation

- City Govt of Quezon City vs Bayantel March 6 2006

ldquoThe power to tax is primarily vested in the Congress however in our jurisdiction it may be exercised by local legislative bodies no longer merely be virtue of a valid delegation as before but pursuant to direct authority conferred by Section 5 Article X of the Constitution Under the latter the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which however must be consistent with the basic policy of local autonomy

Clearly then while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X Section 5 of the 1987 Constitution now in place the basic doctrine on local taxation remains essentially the same For as the Court stressed in Mactan the power to tax is [still] primarily vested in the Congress

In net effect the controversy presently before the Court involves at bottom a clash between the inherent taxing power of the legislature which necessarily includes the power to exempt and the local governmentrsquos delegated power to tax under the aegis of the 1987 Constitutionrdquo

2 Fundamental Principles in the exercise of Local Taxing Power (Sec 130 LGC)

3 Exercise of Local Taxing Power

B Common Limitations on the Exercise of Local Taxing Power

1 The Principle of Preemption Exclusionary Rule (Sec 133 LGC)- If the national government elects to

tax a particular subject within a Local Government Unit it is impliedly withholding the power of LGU to tax the same

- Adopted in the Philippines despite non-prohibition of double taxation unless expressly allowed by Congress

2 Casesa Province of Bulacan vs CA November

27 1998A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code It is clearly apparent from Section 151 of

33

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

the National Internal Revenue Code levies a tax on all quarry resources regardless of origin whether extracted from public or private land Thus a province may not ordinarily impose taxes on stones sand gravel earth and other quarry resources as the same are already taxed under the National Internal Revenue Code The province can however impose a tax on stones sand gravel earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code As to stones sand gravel earth and other quarry resources extracted from private land however it may not do so because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code

b First Philippine Industrial Corp vs CA December 9 1998 (Section 133j Local Tax on Common Carriers)

There is no doubt that petitioner is a common carrier and therefore exempt from the business tax as provided for in Section 133 (j) of the Local Government Code to wit

Section 133 Common Limitations on the Taxing Powers of Local Government Units ndash Unless otherwise provided herein the exercise of the taxing powers of provinces cities municipalities and barangays shall not extend to the levy of the following

x x x x x xx x x

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air land or water except as provided in this Code

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax

Petitioner is already paying three (3) percent common carriers tax on its gross salesearnings under the National Internal Revenue Code[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code

c Palma Development Corp vs Municipality of Malangas October 16 2003 (Sec 133e)

By express language of Sections 153 and 155 of RA No 7160 local government units through their Sanggunian may prescribe the terms

and conditions for the imposition of toll fees or charges for the use of any public road pier or wharf funded and constructed by them A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid However Section 133(e) of RA No 7160 prohibits the imposition in the guise of wharfage of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)

d Batangas Power Corp vs Batangas City April 28 2004 (Section 133g)

Sec 133 (g) of the LGC which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration applies specifically to taxes imposed by the local government like the business tax imposed by Batangas City on BPC in the case at bar Reliance of BPC on the provision of Executive Order No 226[18] specifically Section 1 Article 39 Title III is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms Clearly it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC The 6-year tax exemption of BPC should thus commence from the date of BPCrsquos registration with the BOI on July 16 1993 and end on July 15 1999

3 Local Taxing Power cannot extend to

- Those already covered by the National Internal Revenue Code ie Income tax Transfer tax VAT percentage tax Excise Tax Documentary Stamp Tax

- Those already covered by the Tariff and Customs Code

- Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs

- Taxation of the National Government including its agencies and instrumentalities as we as local government units

- Those subjects not within the ambit of real taxation by reason of public policy ie Cooperatives registered under RA 6938 (CDA)

34

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan)

- Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code

- Taxes on agricultural or aquatic products sold by marginal enterprises

- Taxes fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof except tricycles

- LTO vs Butuan ndash Congress has no intention to delegate issuance of permits to LGUs The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs The permit to drive is issued by LTO

4 Time of Payment (Section 167 LGC)

Unless otherwise provided in LGC all local taxes fees and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter as the case may be The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges without surcharges or penalties but only for a period not exceeding six (6) months

5 Surcharges Interests and Penalties

C Residual Power to Tax (Sec 186)- The power of LGU to tax even of not

expressly granted by the LGC provided that there is no express prohibition

D Specific Taxing Units1 Provinces may tax

i Transfer of Real Property ownership- Onerous or gratuitous- Preemption rule is not applicable- frac12 of 1

ii Printing and Publication

iii Franchise Tax- Government franchise whether

primary or secondary ie public utility companies

- If the franchise grants tax exemption and the same was executed prior to 1991 LGC it is deemed revoked by reason of the lawrsquos blanket revocation

- At a rate not exceeding frac12 of 1 of the Gross Amount receipt of the preceding calendar year

iv Professional Tax- Those who have passed government

licensure examinations are the ones liable

- Amount ndash not exceeding Php 30000- Imposed by the city or province

where the taxpayerrsquos principal office is located

- With employer-employee relationship ndash liability to PTR depends on the extent of services provided If services provided is exclusive to the employer PTR is not necessary otherwise the employee is liable

v Sand and Gravel Tax- Imposed on extraction of sand

gravel and other quarry resources- Not more than 10 of the FMV of

what was extracted- Case Province of Bulacan vs CA

vi Amusement Tax- As high as 30- Applies to theaters cinemas concert

halls boxing stadiums circuses and other places of amusements

vii Taxes on Delivery trucks

2 Cities may tax those that may be taxed by a province and a municipality They may impose a tax rate which is 50 higher than the rates being imposed by provinces and municipalities

3 Municipalitiesi Business permitii Community Taxesiii May levy taxes fees and charges not

otherwise levied by provinces (Sec 142)

REMEDIES IN LOCAL TAXATION

A REMEDIES OF THE GOVERNMENT

a ADMINISTRATIVE

1) Local Governmentrsquos Lien (Sec 173 LGC)

2) Assessment by the Local Treasurer

3) Distraint of goods chattels or effect and other personal properties of whatever character (Sec 174 and 175 LGC)

a Seizure

b Accounting of distrained goods

c Publication

d Release of distrained property upon payment prior to sale

e Procedure of sale

f Disposition of proceeds

35

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

4) Levy (Sec 174 and 176 LGC)

Contents of assessment

1 Meralco vs Barlis (Feb 1 2002) - A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made the notices may be disregarded is an indication that it is in fact a notice of collection It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes

Who is entitled to the notice of assessment

1 Talusan vs Tayag (April 04 2001) - Cases involving an auction sale of land for the collection of delinquent taxes are in personam Thus notice by publication though sufficient in proceedings in rem does not as a rule satisfy the requirement of proceedings in personam As such mere publication of the notice of delinquency would not suffice considering that the procedure in tax sales is in personam It was therefore still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter

In the present case the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila In that notice the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property Under the circumstances we hold that the notice sent by registered mail adequately protected the rights of the taxpayer who was the registered owner of the condominium unit

For purposes of the real property tax the registered owner of the property is deemed the taxpayer Hence only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale Not being registered owners of the property petitioners cannot claim to have been deprived of such notice In fact they were not entitled to it

b JUDICIAL (Sec 174 LGC)

1) Civil Action in the court

2) Filed by Local Treasurer

3) Within 5 years from the date the taxes fees or charges became due

Period within which to collect ndash within 5 years from the date of assessment by administrative or judicial action

c OTHER PROVISIONS

Accrual of the tax ndash (Sec 166 LGC)

- General rule All local taxes fees and charges shall accrue on the 1st day of January of each year

- Except

i Unless otherwise provided in the LGC

ii New taxes fees or charges or changes in the rates thereof shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates

Time of payment ndash (Sec 167 LGC)

- General Rule All local taxes fees and charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be

- Except

i Unless otherwise provided by the LGC

ii The Sanggunian concerned may for a justifiable reason or cause extend the time for payment of such taxes fees or charges or penalties but only for a period not exceeding 6 months

Surcharges Interests and Penalties ndash (Sec 168 LGC)

- Sanggunian may impose

i Surcharge ndash not exceeding 25 of the amount of taxes fees or charges not paid on time and

ii Interest ndash not exceeding 2 per month of the unpaid taxes fees or charges including surcharges until such amount is fully paid BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months

B REMEDIES OF THE TAXPAYER

a ADMINISTRATIVE

Appeal to the Secretary of Justice Re newly enacted tax ordinance (Sec 187 LGC) ndash Any question on the

36

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

constitutionality or legality of tax ordinances or revenue measures Within 30 days from its effectivity

1 Drilon vs Lim (August 4 1994) - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and if warranted to revoke it on either or both of these grounds When he alters or modifies or sets aside a tax ordinance he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure Secretary Drilon did set aside the Manila Revenue Code but he did not replace it with his own version of what the Code should be He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment He did not say that in his judgment it was a bad law What he found only was that it was illegal All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law that is with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code As we see it that was an act not of control but of mere supervision

2 Hagonoy Market Vednors Assn vs Municipality of Hagonoy Bulacan (February 6 2002) - Sec 187 LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency the effectivity of the assailed ordinance shall not be suspended In the case at bar Municipal Ordinance No 28 took effect in October 1996 Petitioner filed its appeal only in December 1997 more than a year after the effectivity of the ordinance in 1996 Clearly the Secretary of Justice correctly dismissed it for being time-barred At this point it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent court is not a mere technicality that can be easily brushed aside The periods stated in the section are mandatory Ordinance No 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals Being its lifeblood collection of revenues by the government is of paramount importance The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived

from its revenues and collections Thus it is essential that the validity of revenue measures is not left uncertain for a considerable length of time Hence the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances

3 Ty vs Trampe (December 1 1995) ndash Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment and if it is true that petitioner as alleged in their pleadings was not afforded the opportunity to appeal to the board of assessment appeal then they could have availed of the provisions of Section 252 of the same RA 7160 by paying the real estate tax under protest Because of petitionerrsquos failure to avail of either Sections 226 or 252 of RA 7160 they failed to exhaust administrative remedies provided for by law before bringing the case to Court Therefore the filing of this case before this Court is premature the same not falling under the exception because the issue involved is not a question of law but of fact

Appeal to the Board of Assessment Appeals (Secs 226 and 252 LGC) ndash

- Sec 226 LGC ndash Any owner or person who is not satisfied with the action of the provincial city or municipal assessor in the assessment of his property Within 60 days from receipt of the written notice of assessment Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal

- Sec 252 (d) LGC ndash In the event that the protest is denied or upon the lapse of the 60-day period to decide the taxpayer may appeal to the BAA

Protest of the assessment (Sec 226 and 252 LGC)

- Pay under protest and such shall be annotated in the tax receipt

- Protest in writing must be filed within 30 days from payment of the tax to the provincial city or municipal treasurer who shall decide the protest within 60 days from receipt

- The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned

37

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

- Protest decided in favor of taxpayer ndash the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability

- Protest denied or upon lapse of the period to decide - appeal to the BAA

Claim for refund (Sec 253 LGC)

- When an assessment of basic real property tax or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted

- The taxpayer may file a written claim for refund or credit of taxes and interests

- With the provincial or city treasurer

- Within 2 years from the date the taxpayer is entitled to such reduction or adjustment

- The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt

- In case the claim is denied the taxpayer may appeal to the BAA

Remedies from a denial of the protest and refund

- It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period

- There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund

b JUDICIAL

Questioning Tax Sale

REAL PROPERTY TAXATION

Real Property Tax definedA direct tax on ownership of lands and

buildings or other improvements thereon Payable regardless of whether the

property is used or not although the value may

vary in accordance with such factor

A Governing LawHistorical Background1 Commonwealth Act No 470 ndash Old

Assessment Law- since 1920

2 Real Property Tax Code (Presidential Decree No 464 as amended)

- June 1 19743 Local Government Code (Republic Act No 7160)

- January 1 1992- The changes however were only

on the tax rate ceilings and assessment levels

The Local Government Code covers the administration appraisal assessment

levy and collection of Real Property Tax ie tax on land and building and other

structures and improvements on it including machineries (Subject to the definition

given by Art 415 of the New Civil Code)

B Nature of Real Property Tax ndash National or Local

Hybrid of national and local tax Provisions of LGC are applied

nationwide but rates imposed are different per LGU ordinance

The real property tax has been considered and held to be national despite the fact that in practice it is local in its imposition and utilization

Justice Vitug points out that ldquoThe real property tax has been considered and held to be a national not a local tax in Meralco Securities Industrial Corp v CBAA 114 SCRA 260 The Court said that realty tax has always been imposed by the national law-making body The real estate tax is enforced throughout the Philippines and not in a particular political subdivision although the bulk of the tax proceeds accrue to the various local government units where the property is located Under the Local Government Code local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities the proceeds of which exclusively accrue to them (See Secs 233 and 271 LGC)rdquo [Page 479 Tax Law and Jurisprudence 2000 Edition by Justice Vitug and Judge Acosta]

CHARACTERISTIC OF REAL PROPERTY TAX1 Direct tax on the ownership of real

property2 Ad Valorem tax The value is based on

the tax base3 Proportion - the tax is calculated on the

basis of a certain percentage of the value assessed

4 Indivisible single obligation5 Local Tax

C Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198 LGC)1 Real property shall be appraised at

its current and fair market value 2 Real property shall be classified for

assessment purposes on the basis of its actual use

3 Real property shall be assessed on the basis of a uniform standard within each local government unit

4 The appraisal assessment and collection of real property tax shall not be let to any private person and

5 The appraisal and assessment of real property shall be equitable

D Properties Covered (Sec 232 LGC)38

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

1 Land2 Buildings3 Machinery and4 Other improvements not otherwise

exempted under said code (Sec 232 LGC)

Machinery ndash embraces machines equipment mechanical contrivances instruments appliances or apparatus which may or may not be attached permanently or temporarily to the real property It includes the physical facilities for production the installations and appurtenant service facilities those which are mobile selfpowered or self-propelled and those not permanently attached to the real property which are actually directly and exclusively used to meet the needs of the particular industry business or activity and which by their very nature and purpose are designed for or necessary to its manufacturing mining logging commercial industrial or agricultural purposes (Sec 199 [o] LGC)

Machinery which are of general purpose use including but not limited to office equipment typewriters telephone equipment breakable or easily damaged containers (glass or cartons) microcomputers facsimile machines telex machine cash dispensers furnitures and fixtures freezers refrigerators display cases or racks fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry business or activity shall not be considered within the definition of machinery (Sec 290 [o] IRR of RA 7160)

Improvements include valuable additions made to a property or an amelioration in its condition amounting to more than a mere repair or replacement of parts involving capital expenditures and labor which is intended to enhance its value beauty or utility or to adopt it for new or further purposes

Note Although the term real property has not been expressly defined in the LGC early

decisions of the Supreme Court in Mindanao Bus Co v City Assessor of Cagayan de

Oro 6 SCRA `97 Board of Assessment Appeals v Meralco 119 PHIL 328 Manila

Electric Co v Board of Assessment Appeals10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling to wit

ldquoArt 415 The following are immovable property

(1) Land buildings roads and constructions of all kinds adhered to the soil

(2) Trees plants and growing fruits while they are attached to the land or form an integral part of an immovable

(3) Everything attached to an immovable in a fixed manner in such a way that it

cannot be separated therefrom without breaking the material or deterioration of the object

(4) Statues reliefs paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements

(5) Machinery receptacles instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works

(6) Animal houses pigeon-houses beehives fish ponds or breeding places of similar nature in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it the animals in these places are included

(7) Fertilizer actually used on a piece of land

(8) Mines quarries and slag dumps while the matter thereof forms part of the bed and waters either running or stagnant

(9) Docks and structures which though floating are intended by their nature and object to remain at a fixed place on a river lake or coast

(10) Contracts for public works and servitudes and other real rights over immovable property ldquo

In Caltex vs CBAA May 31 1982

Machinery and equipment consisting of underground tanks elevated tanks water tanks gasoline pumps computing pumps water pumps car washer car and truck hoists air compressors and similar articles installed by Caltex (Philippines) Inc in its gasoline stations located on leased land have been held to be real property subject to the tax (real properties which have characteristics of permanency the lease is for a long period of time)

2001 BAR QUESTION Under Article 415 of the Civil Code in order for machinery and equipment to be considered real property they must be placed by the owner of the land and in addition must tend to directly meet the needs of the industry or works carried on by the owner Oil companies such as Caltex and Shell install underground tanks in the gasoline stations located in land leased by the oil companies from others Are those underground tanks which were not placed there by the owner of the

39

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

land but by the lessee considered real property for purposes of real property taxation under the LGC SUGGESTED ANSWER FROM UP LAW CENTER Yes The underground tanks although installed by the lessee Shell and Caltex are considered as real property for purposes of the imposition of real property taxes It is only for purposes of executing a final judgment that these machinery and equipment installed by the lessee on a leased land would not be considered as real property But in the imposition of real property tax the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational (Caltex v CBAA 114 SCRA 296)

SPECIAL CLASSES OF REAL PROPERTY (Sec 216 LGC)

1 HOSPITALS2 CULTURAL and SCIENTIFIC

purposes3 owned and used by LOCAL WATER

DISTRICTS 4 GOCCs rendering essential public

services in the supply and distribution ofwater andor generation or transmission of

electric power

E Properties Exempt1 Section 234 LGC

a Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been

granted for consideration or otherwise to a taxable person

- except when beneficial use thereof is granted to a taxable person

- cases of MIAA and MCAA GOCCs are not automatically exempt from real property tax depending on its charter giving it exemption

- charter enacted after LGC so that the exemption is not revoked

b Charitable institutions churches parsonages or convents appurtenant thereto mosques non profit or religious cemeteries and all lands buildings and improvements actually directly and exclusively used for religious charitable or educational purposes

- traditional exemptees

c All pieces of machinery and equipment that are actually directly and exclusively used by local water districts and government ndash owned or controlled corporations engaged in the supply and distribution of water andor

generation and transmission of electric power

d All real property owned by duly registered cooperatives as provided for under RA 6938 and e Machinery and equipment used for pollution control and environmental protection

2 Section 238 LGCIdle Lands Exempt From Tax

By reason ofa force majeureb civil disturbancec natural calamityd any cause which

legallyphysically prevents the owner of the

property or person having legal interest therein from

improving utilizing or cultivating the same

What Are Considered as Idle Lands (Sec 237 LGC)

1 Agricultural lands ndash More than 1 hectare if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Not Idle Lands1048766 Agricultural lands planted to permanent

or perennial crops with at least 50 trees to a hectare

1048766 Lands actually used for grazing purposes

2 Non-Agricultural Lands ndash More than 1000 sq m in area if more than frac12 of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein

Proof of Tax ExemptionEvery person by or for whom real property

is declared who shall claim the exemption shall file with the provincial city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (ie corporate charters title of ownershiparticles of incorporation contracts affidavits etc)

3 Constitutional Exemptions- actually directly exclusively used for religious educational and charitable purposes are exempt from real property tax

Query To where does the exemption attach To the property or to the entity

Case X owns a parcel of land leased by church May X claim exemption from Real Property Taxation Yes exemption attaches on property as long as exclusively used for religious purchases

Case School - not subject to Real Property Tax if directly used for educational purposes

A Has a mansion near the school where the president of the school

40

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

resides and where guests may be accommodated - incidental president has to live near school

B Near the school is a hospital where medical students are trained - incidental to operation of the school (Herrera vs CBAA ndash use as trainee students)

C Near the school is a menrsquos dorm a student center ndash exempt incidental to operation of the school

D Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores- incidental to operation of school (Bishop of Neva Segovia Case ndash vegetable garden near convent is incidental to convent operation)- that part not used for educational purpose is subject to real property tax- As to the land pro-rate according to use one-half taxed pursuant to Abra Valley College Case

NoteIncidental exemptions

promulgated prior to 1987 Constitution ndash meant primarily used for the purposes even if not solely

CASES1 In MIAA v Paranaque July 20 2006 the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parantildeaque The Court declared void all the real estate tax assessments issued by the City of Parantildeaque on the Airport Lands and Buildings of the MIAA except for the portions that the MIAA has leased to private parties The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code which governs the legal relation and status of government units agencies and offices within the entire government machinery under which MIAA is a government instrumentality and not a government-owned or controlled corporation Under Section 133(o) of the Local Government Code MIAA as a government instrumentality is not a taxable person because it is not subject to [t]axes fees or charges of any kind by local governments The only exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the Local Government Code in which case the specific

real property leased becomes subject to real estate tax Thus only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parantildeaque

Under Article 420 of the Civil Code the Airport Lands and Buildings of MIAA being devoted to public use are properties of public dominion and thus owned by the State or the Republic of the Philippines Article 420 specifically mentions ports x x x constructed by the State which includes public airports and seaports as properties of public dominion and owned by the Republic As properties of public dominion owned by the Republic there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code

Furthermore the Court made a distinction between a GOCC and an instrumentality Thus

Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature and owned by the Government directly or through its instrumentalities either wholly or where applicable as in the case of stock corporations to the extent of at least fifty-one (51) percent of its capital stock x x x

A government-owned or controlled corporation must be organized as a stock or non-stock corporation MIAA is not organized as a stock or non-stock corporation MIAA is not a stock corporation because it has no capital stock divided into shares MIAA has no stockholders or voting shares

MIAA is also not a non-stock corporation because it has no members

Since MIAA is neither a stock nor a non-stock corporation MIAA does not qualify as a government-owned or controlled corporation

Thus for an entity to be considered as a GOCC it must either be organized as a stock or non-stock corporation Two requisites must concur before one may be classified as a stock corporation namely (1) that it has capital stock divided into shares and (2) that it is authorized to distribute dividends and allotments of surplus

41

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

and profits to its stockholders If only one requisite is present it cannot be properly classified as a stock corporation As for non-stock corporations they must have members and must not distribute any part of their income to said members

2 In Lung Center of the Philippines vs Quezon City June 29 2004 the Court held that Lung Center of the Philipines a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients whether out-patient or confined in the hospital or receives subsidies from the government so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution However those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually directly and exclusively used for charitable purposes

ldquoUnder the 1973 and 1987 Constitutions and Rep Act No 7160 in order to be entitled to the exemption the petitioner is burdened to prove by clear and unequivocal proof that (a) it is a charitable institution and (b) its real properties are ACTUALLY DIRECTLY and EXCLUSIVELY used for charitable purposes Exclusive is defined as possessed and enjoyed to the exclusion of others debarred from participation or enjoyment and exclusively is defined in a manner to exclude as enjoying a privilege exclusively If real property is used for one or more commercial purposes it is not exclusively used for the exempted purposes but is subject to taxation The words dominant use or principal use cannot be substituted for the words used exclusively without doing violence to the Constitutions and the law Solely is synonymous with exclusively

What is meant by actual direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually directly and exclusively used for charitable purposes While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them whether paying or non-paying other portions thereof are being leased to private individuals for their clinics and a canteen Further a portion of the land is being leased to a private individual for her business enterprise under the business name Elliptical Orchids and Garden Center

Accordingly the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes On the other hand the portions of the land occupied by the hospital and portions of the hospital used for its patients whether paying or non-paying are exempt from real property taxesrdquo

AnalysisIs Lung Center liable for Real Property Tax

Yesa exclusively used means

solely used for charitable purposes

b exemption in its charter revoked by new LGC

c incidental exemption no longer recognized

d taxed on orchidarium canteen private clinics

Query are the older cases now not applicable so that they are

now taxable- not clear as to the

extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental

- If city decides to tax SLU on its hospital parking lot etc use as ground that they should be exempt due to necessity do not use the word ldquoincidentalrdquo

3 In LRTA vs CBAA October 12 2000 though the creation of the LRTA was impelled by public service ndash to provide mass transportation in MM- its operations undeniably partakes of ordinary business Given that it is engage in a service-oriented commercial endeavour its carriage ways and terminal stations are patrimonial

42

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

property subject to tax notwithstanding its claim of being a GOCC

Under its charter LRT is not exempt from real property tax Taxation is the rule and exemption is the exception

4 In DIGITEL vs Province of Pangasinan February 23 2007 the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification Said exemption however merely applies from the time of the effectivity of petitioner DIGITELrsquos legislative franchise and not a moment sooner

5 In Philippine Fisheries Development Authority vs Court of Appeals July 31 2007 the Court reversed the Court of Appealrsquos decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority

The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax However said exemption does not apply to the portions of the IFPC which the Authority leased to private entities With respect to these properties the Authority is liable to pay real property tax

The Authority should be classified as an instrumentality of the national government As such it is generally exempt from payment of real property tax except those portions which have been leased to private entities

F May LGUs grant exemption Yes

Power to Grant Local Exemptions (Sec 192 LGC)- LGUs may through ordinances duly approved grant tax exemptions incentives or reliefs under such terms and conditions as they may deem necessary

- Although powerless to grant RPT exemption LGU in MM can exempt the 5 ad valorem

tax on idle lands

- LGUs (within and outside MM) may also grant condonation which actually partake ofexemption

G Who are liable for the Real Property Taxes

1 Ownership vs Use

Doctrine of Ownership- owner is liable

Doctrine of Use-property is exempt due to Use (REC-religious educational charitable)

Actual Use of Property as Basis for Assessment (Sec 217 LGC)

Real property shall be classified valued and assessed on the basis of actual use

regardless of where located whoever owns it and whoever uses it

Beneficial User May Be Liable if he leased property from the government he leased property from an exempt owner use is not exempt from real property tax

2 In Testate Estate of Concordia Lim vs Manila February 21 1990 GSIS foreclosed the property mortgaged by Lim and for failure to redeem owned by GSIS for the years 1977 to 1978 In 1979 heirs of Lim repurchased the property Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978

Who is lible for the back taxesa not the heirs because they were not the

owners nor beneficial owners at the timeb not GSIS because at the time it was

exemptc beneficial users or those using the

property for commercial use must pay however not made liable since not

impleaded

H Procedure in Real Property Taxation

In Lopez vs City of Manila February 19 1999 the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments pursuant to the provision of Sec 219 of RA No 7160 which are as follows

1 The preparation of Schedule of Fair Market Values

2 The enactment of Ordinancesa) levying an annual ad valorem

tax on real property and an additional tax accruing to the SEF

b) fixing the assessment levels to be applied to the market values of real

propertiesc) providing necessary

appropriation to defray expenses incident to general revision of real property assessments and

43

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

d) adopting the Schedule of Fair Market Values prepared by the assessors

The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of RA 7160 to wit (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province city or municipality concerned or the posting in the provincial capitol or other places as required by law

The Court also laid down the procedure in computing the real property tax With the introduction of assessment levels tax rates could be maintained although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax Moreover classes and values of real properties can be given proper consideration like assigning lower assessment levels to residential properties and higher levels to properties used in business The procedural steps in computing the real property tax are as follows

1) Ascertain the assessment level of the property

2) Multiply the market value by the applicable assessment level of the property

3) Find the tax rate which corresponds to the class (use) of the property and multiply the

assessed value by the applicable tax rates

The computation of real property tax is cited below

Market Value P x x x

Multiplied by Assessment Level (x )

Assessed Value P x x x

Multiplied by Rate of Tax (x )

Real Property Tax P x x

1 Declaration of Real Properties ndash whose duty

DECLARATION OF REAL PROPERTY

It shall be the responsibility of the owner administrator or their representatives to declare under oath the true value of real property taxable or exempt within 60 days after the acquisition The sworn

declaration shall be filed once every 3 years before June 30th of the year commencing 1992 The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner if known or against an unknown owner as the case may be and to assess the property for taxation (Secs 201-204 LGC)

In the case of Testate Estate of Concordia Lim V City of Manila February 21 1990 it was held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or

not he is the owner To impose the real property tax on the subsequent owner who was

neither the owner nor the beneficial user of the property during the designated periods

would not only be contrary to law but also unjust

a Owner or Administrator (Secs 202-203 LGC)

When once every 3 years during the period from January 1 to June 30

What file a sworn declaration with the assessor with description of the

property1048766 IF newly acquired property -

a files with assessor within 60 DAYS from date of transfer a

b SWORN statement containing FMV and description of property

1048766 IF improvement on real propertya file win 60 DAYS upon

completion or occupation (whichever is earlier)b SWORN statement containing

FMV and description of property

b Provincial City Municipal Assessor (Sec 204)

WHEN only when the person under Sec 202 refuses or fails to make the

declaration within the prescribed time No oath by assessor is required

bull NOTE IF FILING FOR EXEMPTION (Sec 206)

WHAT person claiming exemptions must file with assessor sufficient

documentary evidence to support claimWHEN within 30 days from the date of

DECLARATION of property bull IF required evidence is not submittedwithin 30 days the property will be listed as taxable in the roll

bull IF proven to be tax-exempt property will be dropped from the roll

bull NOTE IF PROPERTY DECLARED FOR THE FIRST TIME (Sec 222)

If declared for 1st time real property shall be assessed for back taxes

a) for not more than ten (10) years prior to the date of initial assessment

44

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods

Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office

c building officialsPrior to construction of building as

required in procuring building permitPermit transmitted by building officials to

Registry of Deeds

d Geodetic engineers - For lands surveyed

e Notaries Public - For document notarization must furnish the assessors a copy

2 Valuation by Assessors

Assessment- the act or process of determining the value of a property or proportion thereof subject to tax including the discovery listing classification and appraisal of properties

Appraisal- the act or process of determining the value of property as of a specific date for a specific purpose

LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS

(Secs 205 207)

1048766 Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment rollo Undivided real property ndash in the name of the estate or heirs or deviseeso Corporation partnership and association ndash same as individualso Owned by the Republic of the Philippines its instrumentalities political subdivisions beneficial use is transferred to a taxable person ndash in the name of the possessor

1048766 All declarations shall be kept and filed under a uniform classification system to be established by the provincial city or municipal assessor

Steps in assessment of Real Property 1 Listing of all properties subject to the

tax and 2 The valuation of such properties

In Callanta vs Ombudsman January 30 1998 where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon requests of property owners the law gives no such authority to the city assessor or his subalterns Thus petitioners unauthorized reduction of the assessed values ineluctably resulted in the local governments deprivation of the corresponding revenues Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law The city government of Cebu therefore had every

legal right to feel aggrieved and to institute the proceeding against petitioners

3 Preparation of Schedule of Fair Market Values

APPRAISAL AND VALUATION OF REAL PROPERTY

(Sec 212-214 224-225)

How to determine Fair Market Value

For Land1 Assessor of the provincecity or municipality may summon the owners of the properties to be affected and may take depositions concerning the property its ownership amount nature and value (sec 213LGC)2 Assessor prepares a schedule of FMV for different classes of properties3 Sanggunian enacts an ordinance4 The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (Sec 212 LGC)

Classification of Land for purposes of assessment - Sec 218 LGC 1 Commercial ndash land devoted principally for the object of profit and is not classified as

agricultural industrial mineral timber or residential land2 Agricultural ndash land devoted principally to the planting of trees raising of crops livestock and poultry dairying salt making inland fishing and similar aquacultural activities and other agricultural activities3 Residential ndash land principally devoted to habitation4Mineral- lands which minerals metallic or non-metallic exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials5 Industrial-land devoted principally to industrial activity as capital investment and is not

classified as agricultural commercial timber mineral or residential land6 Timberland7 Special- Classification of lands made by respective sanggunian in accordance with zoning

ordinances-It is based on actual use Actual use refers to

the purpose for which the property is principally or predominantly utilized by the person in possession thereof

For Machinery1 For Brand New machinery FMV is acquisition cost2 In all other cases

FMV = Remaining economic life x Replacement cost

DETERMINE ASSESSED VALUE (Sec 218)

Procedure1 take the schedule of FMV (Fair Market Value)2 Assessed value = FMV x Assessment level3 Real Property Tax = Assessed value x Allowable Real Property Tax rate

4Enactment of a Real Property Tax Ordinance

45

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

Barangays cannot impose realty taxesMunicipalities cannot fix real estate tax rates

Procedureahearing and modification of prepared

schedulebpublicationcadoption of the scheduledadoption of real property ordinance with

assessment levels

Coverage Types of Real Property Tax1 Basic real property tax Annual Ad Valorem TaxFor real property not specifically exempted

aProvinces ndash not more than 1 of assessed value

bCities Municipalities in MM ndash not more than 2 of assessed value

2 Special leviesa Special Education Fund (SEF)- 1 additional real estate tax to finance

the SEF (Sec236) ndash within MM area only

b Additional Ad Valorem on the Landsndash not exceeding 5 of the assessed value

of the property (Sec 236 LGC)

c Special Assessments For Public Works - on lands specially benefited by public

works projects or improvements funded by the LGU

- May be imposed even by municipalities outside MM provided

- Special levy shall not exceed 60 of the actual cost of such projects and improvements including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects (Sec 240 LGC)

Special LevyRequirements for validity1 infrastructure project financed by

government whereby real property owners benefit from it

2 not more than 60 of actual cost of project

3 not less than five but not more than ten years

4 thru an ordinancea nature of projectb extent of projectc cost spentd metes and bounds

What may be donei levy ad valorem taxes (see above)ii Fix Assessment levels

Assessment level ndash is the percentage applied to the fair market value to determine the

taxable or taxation value of the property

In City Assessor of Cebu City vs Association of Benevola de Cebu June 8 2007 applying Secs 215-216 of LGC in line with City Tax Ordinance LXX of Cebu City the 10 special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC)

building which should be classified as ldquospecialrdquo Sec 216 LGC states that

SEC 216 Special Classes of Real PropertyndashndashAll lands buildings and other improvements thereon actually directly and exclusively used for hospitals cultural or scientific purposes and those owned and used by local water districts and government-owned or controlled corporations rendering essential public services in the supply and distribution of water andor generation and transmission of electric power shall be classified as special

iii Provide for appropriationsiv Adopt Schedule of Fair Market Values

Fair Market Value and Assessed Value ndash Whatrsquos the difference

Fair Market Value (FMV) - price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy

Assessed Value or Assessment Value (AV) - fair market value of the real property multiplied by the assessment level It is synonymous with taxable value

Payment of Tax

When January 1 of every year (Sec 246)The tax shall constitute as superior lien (Sec 246)

Howa basic real prop tax in 4 equal installments (Mar 31Jun 30Sep 30 Dec 31)b special levy - governed by ordinance

Interest for Late Payment- two percent (2) each month on unpaid amount until the delinquent amt is paid- provided in no case shall the total interest exceed thirty-six (36) months

Advance and Prompt Paymenta) advance payment - discount not exceeding 20 of annual tax (Sec 251 LGC)b) prompt payment - discount not exceeding 10 of annual tax due(Art 342 IRR)

Collection of Tax (Sec247 LGC)The collection of the real property tax with

interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned

The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded

Who Collects

46

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial

The provincial city municipal or barangay treasurer

Period Within Which To Collect (Sec 270)Within five (5) yrs from the date they become due within ten (10) yrs from discovery of fraud in case there is fraud or intent to evade

Period of prescription shall be SUSPENDED when (Sec 270 LGC)1 local treasurer is legally prevented to collect tax2 the owner of prop requests for reinvestigation and writes a waiver before

expiration of period to collect3 the owner of the property is out of the country or cannot be located

47

• Transfer Taxation
• • Kinds of Transfer Taxes
  • • I DEATH ESTATE TAX
    • Estate tax
    • Nature of Estate Tax
    • It is not a direct tax on property nor is it a capitation tax that is the tax is laid neither on the property nor on the transferee or transferor but on the right of the decedent to transmit his estate
    • • Philippine Gross Estate x Deductions Claimed
      • Entire Gross estate
      • • If Gross Estate gt2M additional requirement
        • • Purposes Of Gift Tax
          • • B Judicial