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05-31-2019, 10:19 PM

2018 GOLDEN BEACON
T A X A T I O N

By: Dean MANUEL R. BUSTAMANTE

1. GENERAL PRINCIPLES

TAXES are the enforced contribution from persons and property levied by the law-making body of the state by virtue of its sovereignty for the support of the government and all public needs.

Essential characteristics of taxes

1. It is an enforced contribution

2. It is proportionate in character

3. It is levied by the law-making body of the state

4. It is levied for public purpose

5. It is generally payable in money

6. It is levied on persons and property by the State which has jurisdiction over the person or property.

NATURE OF THE TAXING POWER

It is inherent in sovereignty - The power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the existence of every government. It exists apart from the Constitution and without being expressly conferred by the people.

Constitutional provisions concerning the power of taxation do not operate as grants of the power to the government. They merely constitute limitations upon a power which would otherwise be practically without limit.

It is legislative in character - The power of taxation is pecuniary and exclusively legislative and cannot be exercised by the executive or judicial branch of government. Hence, only Congress can impose taxes.

THE POWER TO TAX INCLUDES THE POWER TO DESTROY in the sense that a lawful tax cannot be defeated just because its exercise would be destructive of his business for otherwise every lawful tax would become unlawful and no taxation whatever could be levied. The tax if in accordance with the limitations, constitutional or otherwise, cannot be judicially restraint merely because of its prejudicial results to the taxpayer.

THE POWER TO TAX IS NOT THE POWER TO DESTROY
WHILE THIS COURT SITS

This should be understood as referring to a situation where the tax imposed violates its limits and injustice, not sanctioned by the fundamental law is done to the taxpayer.

Taxes cannot be subject of set-off or compensation

Taxes are not in the nature of contracts between the parties but grow out of duty to and are the positive acts of the government to the making and enforcement of which, the personal consent of the individual taxpayers is not required. A taxpayer cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of the lawsuit against the government.

Exceptions:

1. the government and the taxpayer are creditors and debtors of each other;

2. it is due and demandable;

3. it is fully liquidated.

*** A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filled with the government. (Philex Mining Corp. vs. CIR, G.R. No. 125704, August 28, 1998).

*** A corporation’s outstanding claims for reimbursement against the Oil Price Stabilization Fund (OPSF) cannot be offset against its contributions to said fund. PD 1956, as amended, explicitly provides that the source of the OPSF is taxation. A taxpayer may not offset taxes due from claims that he may have against the Government.

Taxes and debts cannot be the subject of compensation because the Government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not a debt, demand, contract or judgment as is allowable to be set off. (Caltex Philippines vs. Commission on Audit, G.R. No. 92585, May 8, 1992).

*** No compensation is legally authorized where it appears that the parties involved are not creditors and debtors of each other (Art. 1279, Civil Code). In the case at bar, what was sought to be set off against the taxpayer’s real estate tax liability to the City of Pasay was the amount of money that the taxpayer was supposed to receive as payment for his property that was expropriated by the National Government. (Francia vs. Intermediate Appellate Court, G.R. No. L-67649, June 28, 1988).

*** In this case, what appeared to be due and demandable debt of the Government to the estate of the late Walter Scott Price, as payment for the latter’s services, was allowed as a set-off against the transfer taxes due from the decedent’s estate. The Court opined, citing Arts. 1279 and 1290 of the Civil Code, that when two obligations are both due and demandable of the two obligations takes effect by operations of law. (Domingo vs. Garlitos, G.R. No. L-18994, June 29, 1963).

STAGES IN IMPOSITION OF TAXES

1. LEVY - enactment of tax laws

2. ASSESSMENT - ascertaining the amount of tax due

3. COLLECTION - getting of tax imposed

BASIC PRINCIPLES OF SOUND TAX SYSTEM

1. FISCAL AUTONOMY - sources of revenue must be sufficient to meet the demands of public expenditures.

2. THEORETICAL JUSTICE - tax burden should be in proportion to taxpayer’s ability to pay.

3. ADMINISTRATIVE FEASIBILITY - tax must be clear and concise; capable of proper enforcement; not burdensome; convenient to time and manner of payment.

**** Violation of theoretical justice doctrine would be fatal because the Constitution mandates that taxation is equitable. An unequitable tax measure, however, may be declared void because of the constitutional provision requiring taxation to be equitable.

TAXATION MUST BE UNIFORM AND EQUITABLE

To be Uniform - persons and properties of the same class should be taxed at the same rate.

To be Equitable - tax should be imposed in proportion to taxpayer’s ability to pay.

*** Uniformity in taxation means that all taxable articles or kinds of property of the same classes shall be taxed at the same rate. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. (Churchill vs. Concepcion, G.R. No. 11572, September 22, 1916).

*** Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated are to be treated alike both in privileges and liabilities. (Tan vs. Del Rosario, G.R. No. 109289, October 3, 1994).

*** Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. (Reyes vs. Almanzor, G.R. 49839-46, April 26, 1991).

DIRECT TAXES vs. INDIRECT TAXES

DIRECT TAXES are demanded from the very person who should pay the tax and which he cannot shift to another. e.g. - income tax, estate tax & donor’s tax.

INDIRECT TAXES are demanded from one person with the expectation that he can shift the burden to someone else, not as a tax but as part of the purchase price. e.g. value added tax, excise and percentage tax.

*** The sales tax that is passed on to the purchaser as part of the purchase price of the commodity is tax on the seller, and not the buyer. Hence, if the buyer happens to be tax-exempt, the seller is nonetheless liable for the payment of the tax as the same is a tax not on the buyer but actually a tax on the seller.

When the consumer or end-user of a manufactured product is tax-exempt, such exemption covers only those taxes for which such consumer or end-user is directly liable. Indirect taxes are not included. Hence, the manufacturer cannot claim exemption from the payment of sales tax; neither can the consumer nor buyer of the product demand the refund of the tax that the manufacturer might have passed. (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967).

*** Where the exemption from indirect tax is given to the contractee, but the evident intention is to exempt the contractor so that the contractor may no longer shift or pass on any tax to the contractee. (Commissioner of Internal Revenue vs. John Gotamco & Sons, G.R. L-31092, February 27, 1987).

DIFFERENCE BETWEEN PHIL. ACETYLENE AND GOTAMCO CASE

In the Phil. Acetylene case, the Napocor is exempt from “direct taxes” while in Gotamco case, the WHO is exempt from both “direct and indirect taxes.” Hence, if the buyer is exempt from indirect taxes, the seller cannot shift the tax to the former and as such he can avail of such benefit, but if the buyer is only exempted from “taxes,” the seller cannot allege the exemption for his benefit because the exemption on the part of the buyer is only with respect to direct taxes and not indirect taxes.

COMMISSIONER vs. CENTRAL LUZON DRUG CORPORATION
456 SCRA 414, G.R. No. 159647, April 15, 2005

The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax deduction from the gross income or gross sale of the establishment concerned.

A tax credit is used by the private establishment only after the tax has been computed;

A tax deduction before the tax is computed.

Q: If in a taxable year a drug store has no tax due on which to apply the tax credits, can the drug store claim from BIR a tax refund in lieu of tax credit? Explain.

A: NO, the drugstore cannot claim from the BIR a tax refund in lieu of tax credit. There is nothing in the law that grants a refund when the drugstore has no tax liability against which the tax credit can be used. A tax credit is in the nature of a tax exemption and in case of doubt, the doubt should be resolved in strictissimi juris against the claimant.

Q: Can the BIR require the drugstore to deduct the amount of the discount from their gross income?

A: NO. Tax credit which reduces the tax liability is different from a tax deduction which merely reduces the tax base. Since the law allowed the drugstores to claim in full the discount as a tax credit, the BIR is not allowed to expand or contract the legislative mandate.

Q: If a drugstore closes its business due to losses without being able to recoup the discount, can it claim reimbursement of the discount from the government on the ground that without such reimbursement, the law constitutes taking of private property for public use without just compensation? Explain.

A: A drugstore, closing its business due to losses, cannot claim reimbursement of the discount from the government. If the business continues to operate at a loss and no other taxes, thus compelling it to close shop, the credit can never be applied and will be lost altogether.

MANILA MEMORIAL PARK, INC. vs. DSWD & DOF SECRETARY
G.R. No. 175356, December 3, 2013, 711 SCRA 302

FACTS: Upon the enactment of RA 9257 amending Sec. 4 of RA 7432 otherwise known as Expanded Senior Citizen Act, the DSWD and DOF issued IRRs allowing business establishment to claim 20% discount given to senior citizens as a tax deduction. Petitioner questions said tax treatment as it contravenes to the former Sec. 4 (a) of RA 7432 which allows 20% discount given to senior citizens as a tax credit. It further claims that allowing the 20% tax deduction scheme would violate Sec. 9 (1) Art. III of the Constitution which provides that “private property shall not be taken for public use without just compensation.

ISSUE: Whether or not the 20% discount to senior citizens that may be claimed as a tax deduction by private establishments, valid and constitutional.

HELD: YES. The 20% senior citizen discount is an exercise of public power where just compensation is not warranted contrary to the claim that it is an exercise of eminent domain which would render it unconstitutional because it is not a peso to peso reimbursement of the 20% discount given to senior citizens.

The 20% discount is a regulation affecting the ability of private establishments to price their products and services relative to a special class of individuals, senior citizens, for which the Constitution affords preferential concern.

TAX EXEMPTION vs. TAX AMNESTY

Tax Exemption is an immunity from the civil liability only. It is an immunity or privilege, a freedom from a charge or burden to which others are subjected.

Tax Amnesty is an immunity from all criminal, civil and administrative liabilities arising from non-payment of taxes. It is a general pardon given to all taxpayers. It applies only to past tax periods, hence, of retroactive application.

*** The salaries of justices and judges in the judiciary are taxable. The clear intent of the Constitutional Commission was to delete the proposed express grant of exemption from payment of income tax to members of the judiciary, so as to give substance to equality among the three branches of Government. (Nitafan vs. Commissioner of Internal Revenue, G.R. No. L-78780, July 23, 1987).

*** The exemption from income tax on base-connected income of non-resident American base personnel under the U.S. Bases Treaty does not extend to the income realized from the sale by an American civilian base employee of his car inside the base to another American national. (Reagan vs. CIR, G.R. No. L-26379, December 27, 1969).

MANILA   INTERNATIONAL   AIRPORT    AUTHORITY   vs.
COURT    OF     APPEALS
495   SCRA   591,   G.R. No.   155650,   July    20,    2006

FACTS: Upon the enactment of the 1991 Local Government Code, the tax exemption on real property tax enjoyed by the government-owned and controlled corporations like MIAA has been withdrawn. The City of Parañaque filed notice of assessment to MIAA to settle its tax obligations.

ISSUE: Whether or not the land and buildings of MIAA are exempt from real property tax.

HELD: YES. MIAA is not a government-owned and controlled corporation but an instrumentality of the national government and thus exempt from local taxation. The real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. Only the portions of the Manila International Airport Authority leased to private parties are subject to tax.

LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY
433 SCRA 119, G.R. No. 144104, June 29, 2004

FACTS: The Lung Center of the Philippines was established by virtue of PD 1823 as charitable institution. It is the registered owner of a parcel of land with a hospital in the middle, located at Quezon City. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics. A big portion of the land is being leased for commercial purposes to a private enterprise.

The Lung Center accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. It also receives annual subsidies from the government. Both the land the hospital building were assessed for real property taxation.

ISSUE: Whether Lung Center of the Philippines is a charitable institution within the context of the Constitution and thus its real properties are exempt from real property taxes.

HELD: YES. To be exempt from real property tax, the land and buildings of Lung Center of the Philippines should be used actually, directly and exclusively for charitable purposes. Lung Center of the Philippines as a charitable institution does not lose its character as such and its exemptions from taxes simply because it derives income from paying patients, rentals of private persons and 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.

TAX AVOIDANCE vs. TAX EVASION

A Tax Avoidance is the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability. Tax avoidance is also called TAX MINIMIZATION.

A Tax Evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. Tax evasion is punishable by law.

DISTINCTION:

Evasion should be applied to the escape from taxation accomplished by breaking the letter of the tax law; deliberate omission to report a taxable item, for example.

Avoidance covers escape accompanied by legal procedures which may be contrary to the intent of the sponsors of the tax laws but nevertheless do not violate the letter of the law.

Whereas the tax evader breaks the law, the tax avoider sidesteps it.

*** A tax return which does not correctly reflect income may only be false but not necessarily fraudulent where it appears that the return was not prepared by the taxpayer himself but by his accountant and that after the original deficiency tax assessment was made, the same was subsequently reduced by the BIR by a substantial amount. Hence, the 50% surcharge for fraud may be dispensed with but the tax may still be assessed within the prescriptive period of ten years from discovery thereof. (Aznar vs. CTA, G.R. No. L-20569, August 23, 1974).

EQUAL PROTECTION CLAUSE

**** The remission or condonation of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself and the law would be open to attack as a class legislation only if all taxpayers belonging to one class were not treated alike. (Juan Luna Subdivision, Inc. vs. Sarmiento, G.R. No. L-3538, May 28, 1952).

**** A law (RA 3843) which imposes a preferential franchise tax rate of 2% on a particular franchise grantee while other franchise grantees are subject to 5% is not violative of the equal protection or equality of taxation rule in the Constitution. The legislature has the inherent power not only to select the subjects of taxation but also to grant tax exemptions. (Commissioner of Internal Revenue vs. Lingayen Gulf, G.R. No. L-23771, August 4, 1988).

**** A local tax which levies an ad valorem tax on motor vehicles registered in Manila without also taxing those which are registered outside the city but which enter the city and use its streets occasionally violates the rule on the equality of taxation. (Association of Customs Brokers vs. Municipality Board, G.R. No. L-4376, May 22, 1953).

NON-IMPAIRMENT OF CONTRACTS

**** Where a mining concession was granted under a Royal Decree and where it appears that under said decree, no other taxes except mentioned therein shall be imposed on mining and metallurgical industries, the levy of a tax on said mining claim plus an ad valorem tax on mineral output under a subsequent law (Act 1189) constitute an impairment of contract because a mining concession is a contract. (Casanovas vs. Hord, G.R. No. L-3473, March 22, 1907).

DOUBLE TAXATION

DOUBLE TAXATION means taxing twice by the same taxing authority with the same jurisdiction or taxing district for the same purpose in the same year or taxing period.

Where double taxation occurs, the taxpayer may seek relief under the uniformity rule or the equal protection guarantee.

**** Double taxation is not prohibited by the Constitution and there is double taxation when the same person is taxed by the same jurisdiction for the same purpose. This is not the case at bar, the ordinance in question imposes a tax on the sale or disposals of every “bottle or container” of liquor or intoxicating beverages, and as such is a typical tax or revenue measure, whereas the fee it pays annually is for a “second-class wholesale liquor license,” which is a license to engage in the business of wholesale liquor in Cebu City, and accordingly constitutes a regulatory measure, in the exercise of police power. (San Miguel Brewery vs. City of Cebu, G.R. No. L-20312, February 26, 1972).

SITUS OF TAXATION

Situs of taxation is the state or country which has jurisdiction to tax a person, property or interest. In short, situs of taxation is the place of taxation.

The situs of taxation of the following:

1. Real Property tax - the place where it is located.

2. Tangible Personal Property tax - where it is physically located.

3. Intangible Personal Property tax - taxable in the domicile of the owner under the maxim of “Mobilia Seguuntur Personam”

4. Income Tax - source of income

5. Poll or Residence Tax - residents or domiciled of the state whether citizen or not

6. Transfer Tax - where the transferor is a citizen or resident or where the property is located

7. Business, Occupation and Transaction - place where the act is done or occupation is pursued.

**** The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the “source” and the source of an income is that activity which produced the income. Income from the sale of tickets was derived from the Philippines. The word “source” conveys one essential idea, and that of origin, and the origin of the income herein is the Philippines. (CIR vs. British Overseas Airways Corp, G.R. No. L-657773-74, April 30, 1987).

NON-RETROACTIVITY OF RULINGS

Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section, 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 taxpayer except in the following cases:

a) where the taxpayer deliberately misstates or omits material facts from his return or in 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.

c) where the taxpayer acted in bad faith.

CIR vs. BENGUET CORPORATION
G.R. No. 145559, July 14, 2006, 495 SCRA 59

ISSUE: Whether or not Revenue Regulations should have retroactive application when they are prejudicial to the taxpayer.

HELD: NO. The Tax Code explicitly states that “Any revocation, modification, or reversal of any rules and regulations promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayer. Clearly, the prejudice to respondent by the retroactive application of VAT Ruling No. 008-92 is patently evident.

TAX   TREATY    vs.     RMO

DEUTSHE    BANK    vs.   COMMISSIONER   OF   INTERNAL   REVENUE
G.R.    No.   188550,    August   19,   2013,   704   SCRA   216

FACTS: Deutshe Bank filed an administrative claim for refund with the BIR TAID on its 15% BPRP upon RBU profits and at the same time requested the International Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under the RP-Germany Tax Treaty.

The claim for a refund was denied by the BIR on the ground that the application for a tax treaty relief was not filed with ITAD prior to the payment of Deutshe Bank of its BRPT and actual remittance of its branch profits to DB Germany or prior to its availment of the preferential rate of 10% under the RP-Germany Tax Treaty provisions.

The tax court ruled that Deutshe Bank violated the 15 day period mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-2000.

ISSUE: Whether the failure to strictly comply with RMO No. 1-2000 will deprive Deutshe Bank of the benefits of the RP-Germany Tax Treaty.

HELD: NO. Tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as double tax treaty or double tax agreement.

The BIR must not impose additional requirements that should negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement.

Logically, non-compliance with tax treaties has negative implications on international relations and unduly discourages foreign investors.

INQUIRE INTO BANK DEPOSITS

As a general rule, the Commissioner of Internal Revenue has no authority to inquire into the bank deposits of any person as provided in RA 1405. However, there are some exceptions:

1) inquire into the bank deposits of a decedent for the purpose of determining the gross estate of such decedent;

2) in case a taxpayer offers to compromise the payment of his tax liabilities on the ground that his financial position demonstrates a clear inability to pay assessed, his offer shall not be considered unless he waives his privilege under the said law and such waiver shall serve as authority of the Commissioner to inquire into the bank deposits of said taxpayer.

COMMISSIONER AUTHORITY TO COMPROMISE

Q: Under what conditions may the Commissioner of Internal Revenue be authorized to compromise the payment of internal revenue tax?

A: The Commissioner of Internal Revenue may be authorized to compromise the payment of any internal revenue tax where:

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.

Q: Under what conditions may the Commissioner of Internal Revenue be authorized to abate or cancel a tax liability?

A: The Commissioner of Internal Revenue may 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.

2. T A X R E M E D I E S

Q: When will the 3-year prescriptive period to assess begin to run?

A: Payment made ON or BEFORE last day of payment fixed by law.

[img=27x12]file:///C:/Users/Rey/AppData/Local/Temp/msohtmlclip1/01/clip_image002.gif[/img] period starts to run ON THE LAST DAY FOR PAYMENT OF TAX.

Payment made AFTER the last day fixed by law

[img=27x12]file:///C:/Users/Rey/AppData/Local/Temp/msohtmlclip1/01/clip_image003.gif[/img] period starts to run from actual date of payment.

RULES ON PRESCRIPTIVE PERIODS
OF ASSESSMENT & COLLECTION

1. The prescriptive period of assessment of internal revenue taxes is three years. Exceptions:

a) Where false or fraudulent returns are filed or omission to file return, in which case the tax may be assessed within ten (10) years after discovery of the falsity, fraud or omission.

b) When there is a waiver of the statute of limitations, signed by the taxpayer and accepted by the commissioner before the lapse of three (3) year period.

2. The three (3) year period for assessment commences to run “on the date of filing or when the return is due whichever comes later.”

3. The prescriptive period for collection is five (5) years, counted from the date of assessment either by summary proceedings or judicial proceedings.

Where no return filed, or the return filed was false or fraudulent, collection should be made within ten (10) years from the date of discovery of the failure to file returns or of the falsity or fraud in the return, if there is no prior assessment. Collection should be by judicial proceedings.

ABSENCE OF LETTER OF AUTHORITY (LOA)

MEDICARD    PHILIPPINES,    INC.    vs.
COMMISSIONER    OF    INTERNAL    REVENUE
G.R. No. 222743,   April   5,   2017,   822   SCRA   444

FACTS: Medicard filed its Quarterly VAT Returns through Electronic Filing and Payment System.

Upon finding some discrepancies between Medicard’s Income Tax Return and VAT returns, the CIR issued on September 20, 2007 a Preliminary Assessment Notice (PAN) and Letter Notice (LN) against Medicard for deficiency VAT.

On January 4, 2008, Medicard received the Final Assessment Notice (FAN). The CIR argued that since Medicard does not actually provide medical and/or hospital service, but merely arranges for the same, its services are not VAT exempt.

Medicare filed its protest against the FAN arguing that its services include actual and direct rendition of medical and laboratory services.

On February 14, 2008, the CIR issued a Tax Verification Notice (TVN) to verify the supporting documents of Medicard’s protest. Medicard submitted additional supporting documentary evidence in aid of its protest on March 18, 2008.

On June 19, 2009, Medicard received CIR’s final decision on disputed assessment denying Medicard’s protest.

On July 20, 2009, Medicard filed a petition for review before CTA contending that the absence of a Letter of Authority (LOA) violated its right to due process.

ISSUE

Whether the absence of the Letter of Authority (LOA) violates Medicard’s right to due process.

RULING

YES, the absence of the Letter of Authority (LOA) disregards Medicard’s right to due process which warrants the reversal of the assailed decision and resolution.

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. It is clear that under Section 6 of the NIRC that unless authorized by the Commissioner of Internal Revenue or by his duly authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be taken.

In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN against Medicard. The LN that was issued earlier was also not converted into an LOA contrary to Section 6 of the NIRC.

The Court cannot convert the LN into an LOA as required under the law even if the same was issued by the CIR himself. In the absence of such authority, the assessment or examination is a nullity.

PRESCRIPTION    OF    ASSESSMENT    AND    COLLECTION

CHINA   BANKING   CORPORATION   vs.   COMMISSIONER   (CIR)
G.R.   No.   172509,    February   4,   2015,   749   SCRA   525

FACTS: CBC was engaged in transactions involving sales of foreign exchange to the Central Bank under the SWAP transactions.

On April 19, 1989, CBC received an assessment from the BIR finding CBC liable for deficiency DST on sales of foreign exchange to the Central Bank for the years 1982 to 1985.

On May 8, 1989, CBC filed a letter of protest and a reinvestigation.

On December 6, 2001, more than 12 years after the filing of the protest, the Commissioner rendered a decision reiterating the deficiency DST assessment and ordered the payment within 30 days.

On appeal to the Supreme Court, CBC invoked for the first time the argument of prescription that the government has three years from April 19, 1989, the date CBC received the assessment of the BIR to collect the tax and within that frame, however, neither a warrant of distraint of levy was issued nor a collection case was filed in court.

ISSUES:

(1) Whether the right of the BIR to collect the assessed DST is barred by the statute of limitation.

(2) Whether the request for reinvestigation suspends the running of the prescriptive period.

(3) Whether the issue of prescription cannot be raised for the first time on appeal.

HELD: (1) YES. The assessment of the tax is deemed made and the three – year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer. Thus, failure of the BIR to file a warrant of distraint or serve a levy on taxpayer’s properties nor file collection case in court within the three – year period is fatal.

In this case, assuming that April 19, 1989 is the reckoning date, the BIR had three years to collect the assessed DST, however, the records show that there was neither a warrant of distraint or levy served on CBC’s properties nor a collection case filed in court by the BIR within the three-year period.

The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay the assessed DST in the CTA on March 11, 2002 is not deemed compliance with Tax Code.

The demand was made almost thirteen years from the date from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made beyond the three-year prescriptive period.

(2) NO, the running of the statute of limitations was not suspended by the request for reinvestigation.

The fact that the taxpayer in this case may have requested a reinvestigation did not toll the running of the three-year prescriptive period.

Under Section 320 of the NIRC, the act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension.

In the present case, there is no showing from the records that the Commissioner ever granted the request for reinvestigation filed by the CBC. That being the case, it cannot be said that the running of the three-year prescriptive period was effectively suspended.

(3) NO. If the pleading or the evidence on record show that the claim is barred by prescription, the court is mandated to claim even if prescription is not raised as a defense.

To determine prescription, what is essential only is that the facts demonstrating the lapse of the prescriptive period were sufficiently and satisfactorily apparent on the record either in the allegation of the plaintiff, or otherwise established by the evidence.

Estoppel or waiver prevents the government from invoking the rule against raising the issue of prescription for the first time on appeal.

Under the rule on taxation, estoppel does not prevent the government from collecting taxes, it is not bound by the mistake or negligence of its agent.

The rule is based on the political law concept “the king can do wrong” which liken to a king: it does not commit mistakes, and it does not sleep on its rights. Thus, the mistake or negligence of government officials should not bind the state, lest it bring harm to the government and ultimately the people, in whom sovereignty resides.

4. In case of a false or fraudulent return with intent to evade tax or failure to file a return, a proceeding in court for the collection of such tax may be filed without assessment within ten (10) years after discovery.

When return filed was not false or fraudulent, and there is no prior assessment, collection should be made within three (3) years from the date of filing the return (or from the last day required by law for filing, if return was filed before such last date). Collection should be by judicial proceeding.

COMMISSIONER    OF    INTERNAL    REVENUE   vs.
ASALUS    CORPORATION
G.R. No. 221590,   February   22,   2017,   818   SCRA   543

FACTS: On January 10, 2011, CIR issued Preliminary Assessment Notice (PAN) finding respondent Asalus liable for deficiency VAT for 2007. Asalus filed its protest against the PAN but it was denied by the CIR.

On August 26, 2014, Asalus received the Final Assessment Notice (FAN) stating that it was liable for deficiency VAT for 2007. Thereafter, Asalus filed a supplemental protest stating that the deficiency VAT assessment had prescribed pursuant to Section 203 of the NIRC.

The CIR claims that Asalus was informed in the PAN of the ten-year prescriptive period and that the FAN made specific reference that there was substantial understatement in Asalus’ income which exceeded 30% of what was declared in its VAT returns, according to an audit investigation.

ISSUE

Whether the ten-year prescriptive period under Sec. 222 of NIRC applies when there is an understatement of income in the return.

RULING

YES, the ten-year prescriptive period under Sec. 222 of the NIRC applies in this case.

Generally, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, or where the return is filed beyond the period, from the day the return was actually filed.

Under Section 222 of the NIRC, however, states that in case of a false or fraudulent return with intent to evade tax or failure to file a return, the assessment may be made within ten years from the discovery of the falsity, fraud, or omission.

Under Section 248 (B) of the NIRC, there is a prima facie of a false return if there is a substantial under declarations of taxable sales, receipt, or income. The failure to report sales, receipts, or income in an amount exceeding 30% of what is declared in the returns constitute substantial underdeclaration.

In this case, there was undeclared VATable sales more than 30% of that declared in Asalus’ VAT return. Hence, failure to overcome the presumption of falsify of the returns warranted the application of the ten-year prescription period for assessment under Section 222 of NIRC.

Q: Can the taxpayer and the Commissioner agree on the suspension of the prescriptive period to assess?

A: YES. If before the expiration of the time prescribed (3 years) for assessment, 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. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

Q: Can a taxpayer waive his right to claim that the period to assess for any deficiency tax has prescribed? When can this waiver be made?

A: YES, a taxpayer may waive the said right. He may renounce his right to invoke the defense of prescription even after the prescribed period. There is nothing unlawful or immoral about this kind of waiver. Just like any other right, the right to avail of the defense of prescription is waivable.

Q: Is the filing of a wrong return equivalent to a non-return scenario wherein the prescriptive period would be ten (10) years and not three (3) years?

A: YES. In the case of Butuan Sawmill, the ruling was to the effect that since no percentage tax return was actually filed by the taxpayer to effect the sales of its log, the 10 year prescriptive period for cases where no returns are filed applies.

Q: The BIR levied and sold the properties of the decedent without the prior approval of the probate court. The estate questions its legality on the ground that the probate or settlement court’s approval is necessary before the government can collect estate taxes. Decide.

A: In the case of Marcos vs. Court of Appeals, the SC stated that the approval of the court sitting in probate is not mandatory in the collection of estate taxes. There is nothing in the Tax Code and in the pertinent remedial laws that implies the necessity of the probate court’s approval of the State’s claim for estate taxes before the same can be enforced and collected.

LACK OF   TERMINATION LETTER   BY   BIR

ASIATRUST    DEVELOPMENT    BANK,   INC.   vs.
COMMISSIONER    OF    INTERNAL   REVENUE
G.R. Nos. 201530 & 201680, April 19,   2017,   823   SCRA   648

FACTS: Asiatrust manifested that it availed of the Tax Abatement Program (TAP) for its deficiency final withholding tax-trust assessments for fiscal years ending June 30, 1996, 1997 and 1998, and that on June 29, 2007, it paid the basic taxes for the fiscal years 1996, 1997 and 1998, respectively. Asiatrust also claimed that on March 6, 2008, it availed of the provision of RA 9480, otherwise known as the Tax Amnesty Law of 2007.

The CTA En Banc ruled that in the absence of a termination letter, it cannot be established that Asiatrust validly availed of the Tax Abatement Program.

ISSUE

Whether Asiatrust considered to have availed of Tax Abatement Program (TAP) without a termination letter from CIR.

RULING

NO, Asiatrust had not given a substantial proof that it had availed the Tax Abatement Program (TAP).

Based on the guidelines by RR No. 15-06 on the implementation of the one-time administrative abatement of all penalties/surcharges and interest on delinquent accounts and assessments, the last step in the tax abatement process is the issuance of the termination letter.

The presentation of the termination letter is essential as it proves that the taxpayer’s application for tax abatement has been approved. Thus, without a termination letter, a tax assessment cannot be considered closed and terminated.

In this case, Asiatrust failed to present a termination letter from the BIR. Instead, it presented a Certification issued by the BIR to prove that it availed of the Tax Abatement Program (TAP) and paid the basic tax. These documents, however, do not prove that Asiatrust’s application for tax abatement has been approved. If at all, these documents only prove Asiatrust’s payments of basic taxes, which is not a ground to consider its deficiency tax assessment closed and terminated.

INDIVIDUALS NOT REQUIRED TO FILE INCOME TAX RETURN

1) an individual whose gross income does not exceed his total personal and additional exemptions for dependents, UNLESS, that a citizen of the Philippines, who has more than one employer and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax returns regardless of the amount of gross income.

2) an individual whose pure compensation derived from sources within the Philippines does not exceed Php60,000.00 otherwise he shall also file income tax return.

3) an individual whose sole income has been subjected to final withholding tax.

4) an individual who is exempt from income tax pursuant to the provisions of the Code and other laws, general or special.

Q: Can criminal prosecution for tax evasion be enjoined?

A: As a general rule, criminal prosecution cannot be enjoined.

EXCEPTIONS: as summarized in Brocka vs. Enrile:

1. to afford adequate protection to the constitutional rights of the accused.

2. when necessary for the orderly administration of justice or to avoid oppression or multiplicity of action.

3. when there is a prejudicial question which is subjudice.

4. when the acts of the officer are without or in excess of authority.

5. when the prosecution is under an invalid law, ordinance or regulation.

6. where the court had no jurisdiction over the offense.

7. when double jeopardy is clearly apparent.

8. where it’s a case of persecution rather than prosecution.

9. where the charges are manifestly false and motivated by the lust for vengeance.

10. where there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied.

Q: Should the fact that the deficiency taxes be first established before a taxpayer can be prosecuted for tax evasion?

A: The SC in the case of CIR vs. CA held that before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must first be proved.

The SC did not subscribe to the ruling in Ungab vs. Cusi that the lack of a final determination of FORTUNE’s correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution.

For criminal prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade taxes.

Unless the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should be placed in the crucible of criminal prosecution.

PROBABLE   CAUSE   FOR    TAX   EVASION

BUREAU   OF   INTERNAL   REVENUE    vs.    CA    &   SPOUSE   MANLY
G.R.   No.   197590,   November   24,   2014,   741   SCRA   536

FACTS: Manly is a stockholder & executive vice president of family-owned realty corporation and also engaged in rental business.

On April 27, 2005, BIR issued Letter of Authority (LA) authorizing its revenue officers to investigate Spouses Manly’s internal revenue tax liabilities for taxable year 2003 and prior years.

On June 6, 2005, BIR issued a letter to Manly spouses requiring them to submit documentary evidence to substantiate the source of their cash purchase of a 256-square meter log cabin in Tagaytay City, a Toyota Rav 4 and a Toyota Prado.

Since Spouses Manly failed to comply with the letter, the revenue officers concluded that Manly’s Income Tax Return (ITR) for taxable years 2000, 2001 and 2003 were underdeclared. And since the underdeclaration exceeded 30% of the reported or declared income, it was considered a prima facie evidence of fraud with intent to evade the payment of proper tax due to the government.

The BIR, thus, recommended the filing of criminal cases against Spouses Manly for failing to supply correct and accurate information in their ITRs.

The Spouses Manly opposed the said complaint due to lack deficiency tax assessment.

ISSUE: Whether a deficiency assessment is necessary before one can be prosecuted for tax evasion.

HELD: NO. A deficiency assessment is not necessary before one can be prosecuted for tax evasion.

In this case, tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax.

Corollarily, an assessment of the tax deficiency is not required in a criminal prosecution for tax evasion.

However, it is necessary to prove the fact that a tax is due before one can be prosecuted for tax evasion.

*** A warrant of distraint and levy (wdl) is proof of the finality of the assessment and renders hopeless a request for reconsideration, being tantamount to an outright denial of the same and makes it deemed rejected.

The remedy is to file an appeal to the Court of Tax Appeals within fifteen (15) days from the issuance of a warrant of distraint and levy.

*** The Court of Tax Appeals (CTA) is empowered to suspend the collection of internal revenue taxes and custom duties in cases pending appeal only when:

1) in the opinion of the court the collection by the BIR will jeopardize the interest of the government and/or the taxpayer;

2) the taxpayer is willing to deposit the amount being collected or to file a surety bond for not more than double the amount of the tax to be fixed by the court.

PRESCRIPTIVE PERIOD FOR CLAIM OF REFUND

The taxpayer has within thirty (30) days from receipt of the commissioner’s decision to file the appeal to the Court of Tax Appeals and within two (2) years from the date of payment.

PREMATURE   FILING     AT     CTA     BEFORE
THE   120-DAY   PERIOD

SAN   ROQUE   POWER   CORPORATION   vs.   COMMISSIONER   (CIR)
G.R.   No. 205543,    June   30,   2014,   727   SCRA   565

FACTS: San Roque is a domestic corporation principally engaged in the power generation business.

The corporation filed a claim for refund allegedly that in 2006, it incurred creditable input taxes from its purchase of imported capital goods.

San Roque subsequently filed with the BIR separate claim for refund or tax credit of its creditable input taxes for all four quarters of 2006.

Meanwhile, San Roque filed its amended administrative claims for the third and fourth quarters of 2006 on September 21, 2007, however, the CTA denied the petition for having no jurisdiction thereof being a premature invocation of the judicial relief.

ISSUE: Whether the premature judicial claim would render CTA to acquire jurisdiction over the judicial relief.

HELD: NO. There is no dispute that the 120 – day period is mandatory and jurisdictional and that the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120 – day period.

The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claims on the last day of the two-year prescriptive period, his claim is still filed on time.

The Commissioner will have 120 day from such filing of the claim. If the Commissioner decides on the 120th day or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA.

There are, however, two exceptions to the premature filing of judicial claim with the CTA.

The first exception is if the Commissioner, through a specific ruling, misleads a particular taxpayer to premature file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer.

The second exception is where the Commissioner through a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing premature judicial claims with the CTA.

In these cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claims since equitable estoppel has set in as expressly authorized under Section 248 of the Tax Code.

INACTION     OF    COMMISSIONER      EQUIVALENT
TO     DENIAL    OF     CLAIM

COMMISSIONER   (CIR)   vs.   TEAM   SUAL   CORPORATION (TSC)
G.R.   No.   205055,   July   18,   2014,   730   SCRA   242

FACTS: On December 21, 2005, TSC filed an administrative claim for refund of its input VAT, which it incurred for the four quarters of 2004.

On April 24, 2006, due to the BIR’s inaction, TSC filed a petition with CTA and prayed for the refund or issuance of tax credit certification for its alleged unutilized input VAT for the year 2004.

On March 4, 2010, CTA granted the claim for a refund or issuance of tax credit of TSC.

On appeal to the CTA en banc, the Commissioner of internal revenue (CIR) claimed that TSC is not entitled for refund or tax credit for its failure to submit the complete documents in RMO 53-98 within the 120-day period to act on the claim.

ISSUES

(1) Whether the failure of the Commissioner to act within the 120-day period is deemed a denial of its application for tax refund or credit.

(2) Whether the failure to submit the complete documents would not warrant the grant of tax refund or credit.

HELD: (1) YES. Under Section 112 (C) of the NIRC, in case of failure on the part of the Commissioner to act on the application, the taxpayer affected may, within 30 days after the expiration of the 120-day period, appeal the inacted claim with the CTA.

If the Commissioner fails to decide within “a specific period” required by law, such “inaction shall be deemed a denial” of the application for tax refund.

In this case, when TSC filed its administrative claim on 21 December 2005, the Commissioner had a period of 120 days or until 20 April 2006, to act on the claim.

Thus, TSC filed its petition for review with the CTA on 24 April 2006, or within 30 days after the expiration of the 120-day period. Hence, the judicial claim was not prematurely filed.

(2) NO. There is nothing in Section 112 of the NIRC or relevant revenue regulations that require submission of the complete documents

enumerated in RMO 53-98 for a grant of a refund or credit of input VAT.

The subject of RMO 53-98 states that it is a “checklist of documents to be submitted by a taxpayer upon audit of his Tax Liabilities x x.”

In this case, TSC was applying for a grant of refund or credit of the input tax. There was no allegation of an audit being conducted by the Commissioner.

Moreover, if TSC indeed failed to submit the complete documents in support of its application, the Commissioner could have informed TSC of its failure. Hence, TSC is entitled to the refund or tax credit.

COMMISSIONER   OF   INTERNAL   REVENUE   vs.
GOODYEAR     PHILIPPINES,   INC.
G.R. No. 216130,   August   3, 2016,   799   SCRA   489

FACTS: Goodyear Tire and Rubber Company (GTRC), a U.S. foreign company, was the sole and exclusive subscriber of all preferred shares of stock of the respondent Goodyear. The Board of Directors of respondent authorized the redemption of GTRC preferred shares.

Respondent filed an application for relief from double taxation with the BIR to confirm that the redemption was not subject to Philippine Income Tax.

As a conservative approach, respondent withheld and remitted an amount representing 15% FWT on November 3, 2008.

On October 21, 2010, respondent filed a claim for refund before the BIR. Thereafter, or on November 3, 2010, it filed a judicial claim before the CTA.

ISSUES

1) Whether the filing of administrative and judicial claims only 13 days apart satisfy the requirement of exhaustion of administrative remedy.

2) Whether the net capital gain by GRTC from the redemption of its preferred shares should be subject to 15% Final Withholding Tax (FWT).

RULINGS

1) YES. Section 229 of the Tax Code states that judicial claims for refund must be filed within two (2) years from the date of payment of the tax or penalty, providing further that the same may not be maintained until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue.

Verily, the primary purpose of filing an administrative claim was to serve as notice to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code, however, does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be tantamount to the taxpayer’s forfeiture of its right to seek judicial recourse should the two (2) year prescriptive period expire without the appropriate judicial claim being filed.

In the case at bar, records show that both administrative and judicial claims for refund of respondent for its erroneous withholding and remittance of FWT were indubitably filed within the two (2) year prescriptive period.

Notably, Section 229 of the Tax Code, as worded, only required that an administrative claim should first be filled. It bears stressing that respondent could not be faulted for resorting to court action, considering that the prescriptive period stated therein was about to expire.

Had respondent awaited the action of petitioner knowing fully well that the prescriptive period was about to lapse, it would have resultantly forfeited its right to seek a judicial review of its claim, thereby suffering irreparable damage. Thus, respondent correctly and timely sought judicial redress, notwithstanding that its administrative and judicial claims were filed only 13 days apart.

2) NO, the redemption price representing the amount of its preferred shares received by GFRC could not be treated as accumulated dividends in arrear that could be subjected to 15% Final Withholding Tax (FWT).

Verily, respondent’s annual financial statements (AFS) covering the years 2003 to 2009 show that it did not have unrestricted retained earnings, and in fact, operated from a position of deficit. Thus, absent the availability of unrestricted retained earnings, the board of directors of respondent had no power to issue dividends.

It is also worth mentioning that one of the primary features of an ordinary dividend is that the distribution should be in the nature of a recurring return on stock, which, however, does not obtain in this case.

3. LOCAL TAXATION

The Local Taxing Power is directly conferred by the 1987 Constitution in Section 5 Article X, to wit:

“Each local government unit shall have the power to create it own sources of revenue 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 governments.”

***** Congress cannot abolish local taxing power which is expressly granted by the Fundamental Law. The only authority conferred to Congress is to provide the guidelines and limitations on the local government’s exercise of the power to tax through the enactment of the 1991 Local Government Code.

***** The imposition of a tax, fee or charges or the generation of revenue under the Local Government Code, shall be exercised by the Sanggunian of the local government unit concerned through an appropriate ordinance.

--- the city or municipal mayor nor governor alone could not order the collection of any tax as the same is exercised by the Sanggunian of the local government concerned through an appropriate ordinance.

**** Any question on the constitutionality or legality of a tax ordinance may be raised on appeal to the Secretary of Justice within 30 days form the effectivity thereof.

**** Remedies available to the local government units to enforce the collection of taxes, fees and charges are:

(a) Administrative remedies of distraint of personal property of whatever kind whether tangible or intangible and levy of real property and interest therein; and

(b) Judicial remedy by institution of an ordinary civil action for collection with the regular courts of proper jurisdiction.

**** Professional Tax Receipt (PTR) is collected by the city government or the provincial government from the professionals who practice their professions payable either in the place they maintain their principal office or the place of their residence.

CITY OF MANILA vs. HON. ANGEL VALERA COLET
G.R. No. 120051, December 10, 2014, 744 SCRA 265

FACTS: The City Council of Manila enacted Ordinance No. 7794 otherwise known as Manila Revenue Code and approved by then Mayor Alfredo S. Lim on June 29, 1993.

Under Section 21 (B) of the Manila Revenue Code, as amended, imposes business tax on transportation business.

Ten (10) petitions were filed against City of Manila challenging the unconstitutionality of Section 21 (B) of the Manila Revenue Code being in violation of the guidelines and limitations on the taxing power of the Local Government Unit.

ISSUE: Whether the City of Manila has an inherent power to tax.

HELD: NO. The power of taxation is inherent in the state, the same is not true for the LGUs whose power must be exercised within the guidelines and limitations that Congress may provide.

In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance imposing business tax on the gross receipts of transportation business as they are prohibited from doing so under Section 133 (j) of the LGC.

The power to tax is an attribute of sovereignty and such, it is inherent in the State. Such, however, is not true for provinces, cities, municipalities and barangays as they are not the sovereign, rather, they are mere “territorial and political subdivision of the Republic of the Philippines.

Section 5, Article X of the 1987 Constitution, the power to tax is no longer vested exclusively on Congress. The Constitution has given direct authority to each local government unit to levy taxes, fees and other charges subject to such guidelines and limitations by Congress in the enactment of RA 7160 otherwise known as the Local Government Code of 1991.

4. REAL PROPERTY TAXATION

*** Fundamental Principles of real property taxation:

1) The appraisal must be at the current and fair market value;

2) Classification for assessment must be on the basis of actual use;

3) Assessment must be on the basis of uniform classification;

4) Appraisal, assessment, levy and collection shall not let to private persons; and

5) Appraisal and assessment must be equitable.

CALTEX PHIL. vs. CBAA
G.R. No. L-50466, May 31, 1982

The machines and equipment in question consist of underground tanks, elevated tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoist, truck hoist, air compressors and tireflaters. We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex as to which it is subject to realty tax and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code.

Gasoline station equipment and machineries are permanent fixtures for purposes of realty taxation. Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty. It is a familiar phenomenon to see things classed as real

property for purposes of taxation which on general principle might be considered personal property.

**** Properties exempt from real property taxes:

1) Real property owned by the Republic of the Philippines or any of its political subdivision except when the beneficial use thereof has been granted for consideration or otherwise to a taxable person;

2) 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;

3) All machineries and equipment that are actually, directly and exclusively used by local water utilities and government-owned and controlled corporation engaged in the supply and distribution of water and/or generation and transmission of electric power;

4) All real property owned by duly registered cooperatives as provided for under RA 6938; and

5) Machinery and equipment used for pollution control and environmental protection.

**** Public hearings must be observed in the enactment of an ordinance imposing real property taxes.

**** May local governments impose an annual realty tax in addition to the basic real property tax in addition to the basic real property tax on idle or vacant lots located in residential subdivisions within their respective territorial jurisdictions?

A: Not all local government units may do so. Only provinces, cities and municipalities within Metro Manila area, may impose an ad valorem tax not exceeding 5% of the assessed value of idle or vacant residential lots in a subdivision, duly approved by proper authorities regardless of area.

SPS. RAMON & ROSITA TAN vs. BANTEGUI
G.R. No. 154027, October 24, 2005, 473 SCRA 663

The auction tax sale did not conform to the requirements prescribed under PD 464. No notice of tax delinquency was given to the delinquent owner or to her representatives. The auction sale of real property for the collection of delinquent taxes is in personam and not in rem. Although sufficient in proceedings in rem like land registration, mere notice by publication will not suffice, considering that the procedure in tax sale is in personam. It is incumbent upon the city treasurer to send the notice directly to the taxpayer — the registered owner of the property in order to protect the latter’s interests. Although preceded by proper advertisement and publication, an auction sale is void absent an actual notice to a delinquent taxpayer.

5. CUSTOMS AND TARIFF CODE

**** The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff and Customs Code is its transaction value, which shall be the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by adding certain cost elements to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods.

COUNTERVAILING DUTY vs. DUMPING DUTY
Distinctions:

1) BASIS: The countervailing duty is imposed whenever there is granted upon the imported article by the country of origin a specific subsidy upon its production, manufacture or exportation and this results or threatens injury to local industry while the basis for the imposition of dumping duty is the importation and sale of imported items at below their normal value causing or likely to cause injury to local industry.

2) AMOUNT: The countervailing duty imposed is equivalent to the value of the specific subsidy while the dumping duty is equivalent to the margin of dumping which is equal to the difference between the export price to the Philippines and the normal value of the imported article.

Requirements for tax exemptions on conditionally free importation of returning nationals (residents):

1) they have stayed in a foreign country for a period of at least six (6) months;

2) for military attaché, they must have served abroad for not less than two (2) years and served his tour of duty and had not availed of the tax exemption for the past four years.

Flexible Tariff Clause refers to the authority given to the President to adjust tariff rates under Section 401 of the Tariff and Customs Code, which is the enabling law that made effective the delegation of the taxing power to the President under the Constitution.

**** Regular courts have no jurisdiction to replevin a property subject of seizure & forfeiture proceedings at the Bureau of Customs.

**** Decision of the Collector of Customs is appealable to the Commissioner of Customs.

Q: What is the basis of the automatic review procedure in the Bureau of Customs?

A: Automatic review is intended to protect the interest of the Government in the collection of taxes and custom duties in seizure and protest cases. Without such automatic review, neither the Commissioner of Customs nor the Secretary of Finance would know about the decision laid down by the Collector favoring the taxpayer.

6. ESTATE TAXATION

KINDS OF TAXPAYERS FOR GROSS ESTATE TAXATION PURPOSES:

1. Citizen and non resident citizen - value of the properties within and without the Philippines.

2. Resident alien - properties within and without the Philippines.

3. Non-resident alien - only properties within the Philippines.

Composition of Gross Estate of the decedent

1. for citizen and non-resident citizen and resident alien - all properties within and without the Philippines.

2. for non-resident alien - only properties situated in the Philippines.

3. transfer in contemplation of death;

4. transfer for insufficient consideration;

5. revocable transfer;

6. proceeds of life insurance policy where the beneficiary’s appointment is revocable;

7. transfer conditioned on survivorship;

8. property passing under a general power of appointment.

Exclusions from Gross Estate

1. insurance proceeds or other benefits from GSIS

2. accruals from SSS

3. proceeds of life insurance policies where the beneficiary was irrevocably appointed;

4. transfer by way of bonafide sale for an adequate and full consideration;

5. transfer of property to the national government or to any of its political subdivisions;

Deductions from Gross Estate

1. funeral expenses - 5% of the gross estate but not to exceed Php200,000 whichever is lower;

2. medical expenses - incurred within one year prior to death not to exceed Php500,000;

3. expenses, losses, claims, indebtedness and taxes;

4. property previously taxed (vanishing deduction);

5. transfer for public use;

6. the family home;

7. standard deduction;

8. amount received by heirs;

9. net share of the surviving spouse in the conjugal partnership.

*** Prohibition on withdrawal of bank deposits upon depositor’s death:

a) if a bank has knowledge of

b) the death of a person

1) who maintained a bank deposit

2) alone or jointly with another.

c) it shall not allow any withdrawal from said deposit account.

d) UNLESS the Commissioner of Internal Revenue has certified that the estate taxes have been paid.

7. DONOR’S TAXATION

*** Donation to candidate for elective positions shall not be subject of donor’s tax but under Omnibus Election Code.

*** Donated lot shall be based on the acquisition cost as a basis for deduction from gross income.

*** Sale of shares of stock below the fair market value is considered a donation.

For the purpose of the donor’s tax, a stranger is a person who is not:

a. Brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal ascendant, or

b. A relative by consanguinity in the collateral line within the fourth degree of relationship.

Gift Splitting is spreading the gift over numerous calendar years in order to avail of lower donor’s tax.

*** In order that donations to non-stock, non-profit educational institution may be exempt from the donor’s tax, it is required that not more than 30% of the said gift shall be used by the donee-institution for administration purposes.

8. INCOME TAXATION

***Income is all wealth that flows into the taxpayer other than as a mere return of capital.

Exclusions    from     Gross     Income:

     1)   Proceeds    of     life    insurance     policy;

     2)   Amount     received    by     insured     as     return     of     premium;

3) Gift, bequests and devises;

4) Interest on government securities;

5) compensation for injuries or sickness;

6) retirement benefits, pensions: at least 10 years of service & 50 years of age; with approved retirement plan and availed once; age requirement below 50 years is excluded when separated beyond the control of the employee;

7) separation pay beyond the control of the employee;

8) prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement but only if: (a) the recipient was selected without any action on his part to enter the contest or proceeding; (b) the recipient is not required to render substantial future services as a condition to receiving the prize or reward.

*** A “fringe benefit” is defined as being any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee.

It is the employer who is legally required to pay an income tax on the fringe benefit. The fringe benefit tax is imposed as final withholding tax placing the legal obligation to remit the tax on the employer.

*** In order that debts be considered as bad debts because they have become worthless, the taxpayer should establish that during the year for which the deduction is sought, a situation developed as a result of which it became evident in the exercise of sound, objective business judgment that there remained no practical but only vaguely theoretical prospect that the debt would ever be paid.

POSSIBLE Q & A

Q: Explain the symbiotic relationship theory

A: It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard-earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

Q: In matters involving taxes, is the government bound by the errors committed by its agents?

A: NO. It is axiomatic that the government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the state effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the government’s financial position.

Q: Proclamation No. 430 reserved certain parcel of lands in Cebu for warehousing purposes under the administration of the National Warehousing Corporation (now NDC). A warehouse was built thereon. Are the land and warehouse subject to real estate tax?

A: As to the land, it is exempt from taxation because it was simply reserved by the Republic. It is still owned by the Republic.

As to the warehouse, it is not exempt since it is owned by NDC which is separate and distinct from the government which Is its stockholder.

Q: Is there a double taxation if a surcharge is imposed upon bank reserve deficiency tax and at the same time another tax is likewise imposed for the same violation?

A: No double taxation. The payment of 1/10 of 1% for incurring deficiencies is a penalty as the primary purpose is regulation, while the payment of 1% of the same violation is a tax for the generation of revenue which is the primary purpose in this instance. This is covered by tax laws - the other one is a banking law.

Q: Distinguish global system of taxation from schedular system of taxation.

A: A global system of taxation is one where the taxpayer is required to report all income earned during a taxable period in one income tax return, which income shall be taxed under the same rule of income taxation; whereas, a schedular system of taxation requires a separate return for each type of income and the tax is computed on a per return or per schedule basis. Schedular system provides for different tax treatment of different types of income.

Q: Define capital asset.

A: Capital asset means property held by the taxpayer (whether or not connected with his trade or business), but does not include:

a) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer.

b) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;

c) property used in the trade or business and subject to the allowance for depreciation; and

d) real property used in trade or business of the taxpayer.

Q: What is meant by theoretical interest?

A: It is an interest “calculated” or computed (and not incurred or paid) for the purpose of determining the “opportunity cost” of investing funds in a given business. Such theoretical or computed interest does not arise from a legally demandable interest-bearing obligation incurred by the taxpayer who, however, wishes to find out, e.g. whether he would have been better off by lending out his funds and earning interest rather than investing such funds in his business.

Q: Is theoretical interest on capital deductible?

A: NO. It is not deductible as it does not represent a change arising under an interest-bearing obligation.

Q: What is meant by jeopardy assessment?

A: It is a tax assessment which was made without the benefit of complete or partial audit by an authorized revenue officer who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to comply with audit and/or pertinent records or to substantiate all or any of the deductions, exemptions or credits claimed in his return.

PURPOSE OF TAXATION

PLANTERS PRODUCTS, INC. vs. FERTIPHIL CORPORATION
548 SCRA 485, G.R. No. 166066, March 14, 2008

FACTS: Pursuant to the LOI 1465 which provided for the imposition of a capital recovery component on the domestic sale of all grades of fertilizers in the Philippines, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the FEBC, the depository bank of Planters Products, Inc. (PPI). After the 1986 EDSA Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid but PPI refused to accede to the demand invoking the State’s legitimate exercise of the power of taxation.

ISSUE: Whether or not the P10 levy under LOI No. 1465 is a valid exercise of the power of taxation.

HELD: NO. The imposition of the levy was an exercise by the State of its power of taxation. While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is revenue generation. If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax.

The P10 levy under LOI No. 1465 is too excessive to serve as a mere regulatory measure. The levy, no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent. The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI.

STRICTISSIMI   JURIS   OF   TAX   EXEMPTIONS

DAVAO   ELECTRIC COOPERATIVE vs.   PROVINCE   OF   DAVAO ORIENTAL
576   SCRA   645,   G.R. No. 170901,   January   20,   2009

FACTS: Petitioner was organized under P.D. 269. The same granted a number of tax and duty exemption privileges to electric cooperatives. In 1984, PD 1955 withdrew all exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts, and other charges granted to private business enterprises and/or persons engaged in any economic activity. PD 2008 issued on January 8, 1986 subsequently restored exemptions withdrawn by PD 1955.

In December 1986, Executive Order (EO) No. 93 withdrew all tax and duty exemptions granted to private entities effective March 10, 1987. Finally on July 1, 1987, FIRB No. 24-87 restored the tax and duty exemption privileges of electric cooperatives under PD 269.

In May 1990, the Province of Davao Oriental filed a complaint for collection of delinquent real property taxes against petitioner for the years 1984 to 1989 but petitioner cooperative contends that it was exempt from the payment of real estate taxes from 1984 to 1989 because the restoration of tax exemption under FIRB No. 24-87 retroacts to the date of withdrawal of said exemptions.

ISSUE: Whether or not the tax exemption under FIRB Resolution No. 24-87 be given retroactive effect.

HELD: NO. FIRB Resolution No. 24-87 is crystal clear in stating that “the tax and duty exemption privileges of electric cooperatives granted under the terms and conditions of PD 269 are restored effective July 1, 1987.” There is no other way to construe it. The language of the law is plain and unambiguous. When the language of the law is clear and unequivocal, the law must be taken to mean exactly what it says.

Further, because taxes are the lifeblood of the nation, the court has always applied the doctrine of strict interpretation in construing tax exemptions. A claim for exemption from tax payments must be clearly shown and be based on language too plain to be mistaken. Elsewhere stated, taxation is the rule, exemption thereof is the exception.

EXEMPTION FROM   REAL   PROPERTY   TAX

PHILIPPINE   FISHERIES   DEVELOPMENT   AUTHORITY vs.   COURT   OF   APPEALS
G.R.   No.   169836,   July   31, 2007,   528   SCRA   706

Philippine Fisheries Development Authority (PFDA), being an instrumentality of the national government, is exempt from real property tax but the exemption does not extend to the portions of the Navotas Fishing Port Complex (NFPC) that were leased to taxable or private persons and entities for their beneficial use.

The Court rules that PFDA is not 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 NFPC which the authority leased to private entities.

WHAT IS THE APPELLATE JURISDICTION OF CTA?

*** The CTA shall exercise exclusive appellate jurisdiction to review by appeal:

          1.    Decisions    of     Commissioner    of     Internal    Revenue    (CIR)

          2.    Inaction   of     Commissioner    of     Internal    Revenue    (CIR)

          3.    Decisions   of     Regional   Trial   Court   (RTC)    on    local   tax   cases

          4.    Decisions    of    Commissioner    of     Customs

          5.    Decisions    of    Central   Board    of    Assessment   Appeals   (CBAA) on     exercise
                 of    appellate    jurisdiction   over   real    property   tax   cases   decided   by   LBAA

6. Decisions of Department of Finance (DOF) on custom cases

elevated to him on automatic review due to adverse decision

versus the government

7. Decisions of DTI (on non-agricultural products) and Department of

Agriculture (on agricultural products) involving dumping and

countervailing duties.

CTA    Authority    to    issue    Writ    of    Certiorari

CITY   OF   MANILA    vs.    HON.   CARIDAD   G.   CUERDO
G.R.   No.   175723,   February   4,   2014,    715    SCRA    182

FACTS: The City of Manila assessed local business taxes for the year 2002 against SM Group of Retail Business in addition to the regular local business taxes assessment as a precondition for the issuance of their business permits.

On January 24, 2004, SM Group filed a complaint with the RTC for “Refund of Illegally and/or Erroneously Collected Local Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction.”

On July 9, 2004, the RTC granted the application for a writ of preliminary injunction. The City of Manila filed a motion for reconsideration but the RTC denied it.

Petitioner City of Manila filed a special civil action for Certiorari with the CA assailing orders of the RTC.

The CA dismissed the petition for certiorari holding that it has no jurisdiction over the said petition.

The CA ruled that since appellate jurisdiction over SMs complaint for tax refund, which was filed with the RTC, is vested in the CTA pursuant to its expanded jurisdiction under RA 9282.

ISSUE: Whether or not CTA has jurisdiction over the power to issue writ of certiorari.

HELD: YES. Since appellate jurisdiction over complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case should likewise be filed in the same court.

It is more in consonance with logic and legal soundness that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries with it the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction.

PROPER   PARTY   TO   CLAIM   A   TAX   REFUND

EXXONMOBIL PETROLEUM &   CHEMICAL HOLDINGS, INC. vs.   COMMISSIONER   OF    INTERNAL   REVENUE
G.R.   No. 180909,   January 19, 2011,   640   SCRA   203

FACTS: Exxon is a foreign corporation authorized to do business in the Philippines. In pursuit of its business, Exxon purchased from Caltex and Petron jet A-1 fuel and other petroleum products. However, Caltex and Petron had paid and remitted the excise taxes on the purchases of Exxon. Two years later, Exxon filed an administrative claim for refund with the BIR.

ISSUE: Whether or not Exxon is the proper party to claim refund for the excise taxes paid.

HELD; NO. The excise tax, when passed to the purchaser, becomes part of the purchase price. Excise taxes are of the nature of indirect taxes, the liability for payment of which may fall on a person other than he who actually bears the burden of the tax. The party liable for the tax can shift the burden to another, as part of the purchase price of the goods or services.

In a case where the party statutorily liable for the tax is different from the party who bears the burden of such tax, the proper party to question, or to seek a refund of an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who passed the same, even if he shifts the burden thereof to another. Therefore, Exxon is not the party statutorily liable for payment of excise tax and it is not the proper party to claim a refund of any taxes erroneously paid.

SILKAIR    (Singapore)   PTE,   LTD.    vs.
COMMISSIONER    OF    INTERNAL    REVENUE
G.R. No. 166482,   January   25,   2012,   664   SCRA   33

FACTS: Silkair is a foreign corporation duly licensed to do business in the Philippines as on-line international carrier. It purchased aviation fuel from Petron, the latter paying the excise taxes thereon. Later on, Silkair filed an administrative claim for refund on the purchase of jet fuel from Petron, which it alleged to have been erroneously paid.

ISSUE: Whether Silkair has the legal personality to file an administrative claim for refund of excise taxes allegedly to have been erroneously paid to its supplier of aviation fuel.

HELD: NO. The person entitled to claim a tax refund is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even when he shifts the burden thereof to another.

JURISDICTION   OF   CTA    ON    REAL    PROPERTY    TAXES

ATTY.   DENIS    HABAWEL   vs.   COURT   OF   TAX   APPEALS
G.R.   No. 1747590,   September   7,   2011,   657   SCRA   138

FACTS: Surfield sought from Mandaluyong City Treasurer refund of excess realty taxes paid. After the City government denied its claim, Surfield brought an action for mandamus with the RTC. However, RTC dismissed the petition.

Unsatisfied, Surfield elevated the case to the CTA, however CTA denied the appeal for lack of jurisdiction.

ISSUE: Whether CTA has jurisdiction over decisions of the RTC in real property tax cases.

HELD: NO. The CTA has no jurisdiction over decisions of the RTC in real property tax cases. LGC covers only appeals of the decisions, orders or resolutions of the RTC in local taxes. The provision is clearly limited to local tax disputes decided by the RTC. In contrast, the CTA is cognizance of appeals of the decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. Real property tax, being an ad valorem tax, could not be treated as a local tax.

EFFECT   OF    WITHDRAWAL    OF      AN     APPEAL
AGAINST     CTA      DECISION

CENTRAL LUZON   DRUG   CORPORATION   vs.   COMMISSIONER   OF   BIR
G.R. No. 181371,   March   2,   2011, 644   SCRA   433

FACTS: Petitioner is a duly registered corporation engaged in the retail of medicines and other pharmaceutical products operating under the name of “Mercury Drug.” Central Luzon filed with the Commissioner of Internal Revenue a request for the issuance of a tax credit certificate representing the 20% sales discount granted to senior citizens. The following day, Central Luzon filed with the CTA a petition for review, however, the CTA denied the claim for insufficiency of evidence.

Unsatisfied, Central Luzon filed a review on certiorari before the SC. However, instead of filing a reply to the comments of the CTA, Central Luzon filed a Motion to Withdraw on the theory that it would just be included in its future claims for issuance of a tax certificate.

ISSUE: Whether the motion to withdraw rendered the assailed decision of the CTA final.

HELD: YES. By withdrawing the appeal, Central Luzon is deemed to have accepted the decision of the CTA. And since CTA had already denied Central Luzon’s request for the issuance of a tax certificate for insufficiency of evidence, it may no longer be included in its future claims. Central Luzon cannot be allowed to circumvent the denial of its request for a tax credit by abandoning its appeal and filing a new claim. An appellant who withdraws his appeal x x x must face the consequence of his withdrawal, such as the decision becomes final and executory.

***** GODSPEED *****

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