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Bullet QQR Taxation Law Final
Bullet QQR Taxation Law Final
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
TRENDING TOPICS IN TAXATION LAW 6. Addressed and served to the correct person
TO GET AT LEAST 85% in his/its registered or duly notified new
address.
1 Jeopardy Assessment
TAX PAYER’S REMEDIES
Assessment without the benefit of
complete or partial audit by an authorized
ASSESSMENT
revenue officer
Notice and demand for payment for the
amount due to the taxpayer. (Commissioner Belief that assessment and collection of a
v. CTA, 27 SCRA 1159) deficiency tax will be jeopardized by delay
Official action of an administrative officer. Due to the taxpayer’s failure to comply
(Bisaya Land Transportation Co. v. Collector, with to present his pertinent records (Sec.
105 Phil. 1338) 3.1.a, Revenue Regulations 07-2001).
Contains computation of tax liabilities, and Ground to compromise a tax liability.
demand for payment within a prescribed (2011 Bar)
period. (Tupaz v. Ulep, 316 SCRA 118)
Delinquency Tax
Purpose of Assessment a. Self-assessed tax per return filed by the
To ascertain the amount that each taxpayer on the prescribed date was not paid
taxpayer is to pay (ibid). at all or only partially paid; or
b. Deficiency tax assessed by the BIR becomes
Requisites for Valid Assessment final and executory.
1. The Final Assessment Notice (FAN) (BIR
Form 17.08)
contains the name Deficiency Tax
address a. Amount that exceeds the amount shown
TIN of the taxpayer upon the taxpayer’s return. ; or
kind of tax b. Amount of tax which exceeds the amounts
period covered previously assessed or collected without
basic tax assessment. (Sec. 56, NIRC)
penalties
signed by the authorized BIR official, Assessment Process
date of payment of the tax Issuance of a letter of authority;
Demand letter Audit stage;
Factual and legal bases of the
Issuance of notice of informal conference;
assessment
2. Issued on account of or covered by a Informal conference;
validly issued letter of authority Issuance of preliminary assessment notice;
3. State the factual and legal bases of the and
assessment and jurisprudence on Issuance of formal letter of demand and
which it is based; otherwise, the assessment notice. (Sec. 228, NIRC)
assessment shall be void;
4. Signed by the Commissioner or his
duly authorized representative;
5. Issued within the original prescriptive
period prescribed by law or within the
extended prescriptive period as validly Issuance of preliminary assessment notice
agreed between the BIR and the taxpayer; Concept of a Pre-Assessment Notice
and served by personal delivery or by (PAN)
registered mail; and
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TAXATION LAW
FREQUENTLY ASKED QUESTIONS
Rate Exception:
capital gains tax or final tax of Prizes amounting to P10,000 or less
five percent (5%); or (5%)
ten percent (10%)
Income from Any Source Whatever
during the taxable year. (Sec. Forgiveness of indebtedness
24(C) and Sec. 27(D)(2), NIRC) It is income to the extent of the amount
realized by the debtor as compensation
IMPORTANT: for his services.
Whether the shares of stock are traded in the When treated as a gift.
local stock exchange and not where the actual
Need not be included in the latter’s
sale happened are controlling(Del Rosario v.
income.
CIR, CTA Case no. 4796, December 1, 1994)
Separation pay due to death, sickness or Prizes and awards made primarily in recognition
other disability or any other cause beyond of religious, charitable, scientific, educational,
the control of the employee or the official artistic, literary, or civic achievement
(e.g., retrenchment);
Social security benefits, retirement REQUIREMENTS:
gratuities, pensions and other similar Selection was made without any action
benefits received by citizens or aliens who on the part of recepient; and
come to reside permanently in the Recipient is not required to render
Philippines from foreign government substantial future services. (Sec.
agencies, private or public; 32(B)(7)(c), NIRC)
Benefits due to residents under laws of the
United States administered by the United Deductions from gross income
States Veterans Administration;
SSS benefits received in accordance with Items or amounts which are allowed be to
R.A. 8282; and deducted from gross income.
GSIS benefits received under R.A 8291.
(NIRC, Sec.32(B)(6)) Itemized deductions
GENERAL RULE:
Conditions: Capital outlay cannot be claimed as a deduction.
- Such amount has not theretofore been
allowed as a deduction, and EXCEPTION:
- It is apportioned in equal parts over a - Claimed by private educational
period of ten (10) consecutive years institutions, during the taxable year
beginning with the year in which the for the expansion of school
transfer or payment is made. (Sec. 34(J), facilities or
NIRC)
- deduct allowance for depreciation
Deductions under special laws thereof. (Sec. 34(A)(2), NIRC)
- Advertising expense to maintain some No deductions shall in any case be allowed in
form of goodwill. (General Foods respect of losses from sales or exchanges of
Corporation v. CIR, April 24, 2003)
property directly or indirectly:
- Payments made in exchange for the
revelation of a competitor’s trade. (3M
Philippines, Inc. v. CIR, September 26, - Between members of a family;
1988) - Between an individual and corporation
more than 50% in value of the
- Bribes, Kickbacks and Other Similar
outstanding stock of which is owned,
Payments.
directly or indirectly, by or for such
- Tax deduction reduces the taxable individual;
income while tax credits reduce the tax o Except in the case of
liability. (CIR v. Central Drug
distributions in liquidation
Corporation, G.R. No. 159647, April 15,
2005) - Between two corporations more than 50%
in value of the outstanding stock of
which is owned, directly or indirectly, by
Items NOT Deductible or for the same individual if either one
Personal, living or family expenses of such corporations, with respect to the
Any amount paid for new buildings taxable year of the corporation
or for permanent improvements preceding the date of the sale of
(capital expenditures); exchange was under the law applicable
to such taxable year, a personal holding
Premiums paid on life insurance policy
company or a foreign personal holding
covering life or any other officer or
company;
employee financially interested in any trade o Except in the case of
or business carried on by the taxpayer, distributions in liquidation
individual or corporate, when the taxpayer is - Between the grantor and a fiduciary of
directly or indirectly a beneficiary under any trust;
such policy. - Between the fiduciary of and the fiduciary
Interest expense, bad debts, and losses from of a trust and the fiduciary of another
sales of property between related parties trust if the same person is a grantor with
Losses from sale or exchange of property respect to each trust; or
- Between a fiduciary of a trust and
beneficiary of such trust. (Sec. 36(B),
NOTE: NIRC)
Capital expenditures and major repairs
are considered as capital outlays. Non-deductible interest
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TAXATION LAW
FREQUENTLY ASKED QUESTIONS
If the indebtedness is payable in periodic Personal and additional exemption (R.A. No.
amortizations, 9504, Minimum Wage Earner Law)
- Amount of interest shall be allowed as Coverage
deduction in such taxable year. Citizens
o If both the taxpayer and the resident aliens and
person to whom the payment has non-resident aliens engaged in trade or
been made or is to be made are business
persons specified under Section .
36 (B); or Allowance of Personal Exemption for
o If the indebtedness is incurred to Individual Taxpayer:
finance petroleum exploration. - P50,000.00 for each individual taxpayer.
(Sec. 34(B), NIRC)
In the case of married individual where only
Non-deductible taxes one of the spouses is deriving gross income,
- Income taxes provided for under Title - only such spouse shall be allowed the
II of NIRC personal exemption. (Sec. 4, R.A. 9504)
- Income taxes imposed by authority of Additional exemptions for Dependents:
any foreign country, if taxpayer does not - P25,000.00 for each dependent
signify in his return his desire to have - Not exceeding four (4). (Sec. 38(B), NIRC)
any extent the benefits relating to
- Claimed by only one of the spouses in the
credits for taxes of foreign countries;
case of married individuals. (Ibid.)
- Estate and donor’s taxes; and
- Taxes assessed against local benefits of
a kind tending to increase the value of In the case of legally separated spouses,
the property assessed. (Sec. 34(C)(1), - only by the spouse who has custody of the
NIRC) child or children. (Ibid.)
Total amount of additional exemptions
shall not exceed the maximum additional
Non-deductible losses exemptions allowed under R.A. 9504.
(Ibid.)
- No loss shall be allowed as a deduction
o if at the time of the filing of the Classification of income as to source:
return, such loss has been claimed Within the Philippines
as a deduction for estate tax Without the Philippines
purposes in the estate tax return. Partly within or partly without the
(Sec. 34(D), NIRC) Philippines
Losses from wash sales of stock or securities
14
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
GROSS INCOME AND TAXABLE Taxable income from sources within the
INCOME FROM SOURCES WITHIN Philippines
THE PHILIPPINES GENERAL RULE:
From the items of gross income within the
Gross income from sources within the Philippines,
Philippines Deducted the expenses, losses and
Interests: other deductions properly allocated
From sources within the Philippines and thereto and a ratable part of expenses,
interest on bonds, notes, or other interest- interests, losses and other deductions
bearing obligations of residents, effectively connected with the business
corporate or otherwise; or trade conducted exclusively within
the Philippines which cannot definitely
Dividends: be allocated to some items or class of
gross income:
From the following:
Provided,
Domestic corporation; and Must be fully substantiated by all the
Foreign corporation, unless information necessary for its
less than 50% of its income calculation.
for the 3-year period ending The remainder, shall be treated in full as
with the close of its taxable taxable income from sources within the
year preceding the declaration Philippines. (Sec. 42(B)(1), NIRC)
of such dividends was derived
from sources within the EXCEPTION:
Philippines. No deductions for interest paid or
incurred abroad
Unless, indebtedness was actually incurred
to provide funds for use in connection with
NOTE: the conduct or operation of trade or
Limited only in an amount which bears business in the Philippines. (Sec. 42(B)(2),
the same ratio to such dividends as the NIRC)
gross income of the corporation for
such period derived from sources
within the Philippines bears to its gross GROSS INCOME AND TAXABLE
income from all sources. INCOME FROM SOURCES WITHOUT
Services: THE PHILIPPINES
Compensation for labor or personal Gross income from sources without the
services performed in the Philippines; Philippines
Interests other than those derived from
Rentals and royalties:
sources within the Philippines;
From property located in the Philippines
Dividends other than those derived from
or from any interest in such property; sources within the Philippines;
Sale of real property:
Compensation for labor or personal
Gains, profits and income from the sale of services performed without the
real property, located in the Philippines; Philippines;
and Rentals or royalties for the use of or for
Sale of personal property: the privilege of using without the
Gains, profits and income from the sale of Philippines, patents, copyrights, secret
personal property. (Sec. 42(A), NIRC) processes and formulas, goodwill,
15
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
trademarks, trade brands, franchises and other deduction which cannot definitely be allocated
other like properties; and to some items or classes of gross income;
Gains, profits and income from the sale Second, such portion of the taxable income
of real property located without the attributable to sources within the Philippines may be
Philippines. (Sec. 42(C), NIRC) determined by processes or formulas of general
apportionment prescribed by the Secretary of
Taxable income from sources without the Finance. (Ibid.)
Philippines Gross Income All income, gain, or
Items of gross income from sources without the profit subject to
Philippines, there shall be deducted the expenses, income tax under
losses, and other deductions properly apportioned Sec. 32(A), NIRC.
or allocated thereto and a ratable part of any Taxable Income items of gross
expense, loss or other deduction which cannot income specified in
definitely be allocated to some items or classes of the NIRC, less
gross income. deductions and/or
The remainders shall be treated in full as taxable personal and
income from sources without the Philippines. (Sec. additional
42(D), NIRC) exemptions if any ,
authorized for such
INCOME PARTLY WITHIN OR types of income by
PARTLY WITHOUT THE this Code or other
PHILIPPINES special laws (Sec. 31,
Income partly from sources within and partly NIRC)
from sources without the Philippines Net Income Gross income less
The following shall be treated as derived partly statutory deductions
from sources within and partly from sources and exemptions
without Philippines: (Sec.36, Revenue
Gains, profits and income from the sale of Regulation No. 2)
personal property produced in whole or in
part by the taxpayer within and sold 3
without the Philippines, or produced in TAXATION OF RESIDENT, CITIZEN,
whole or in part by the taxpayer without NON-RESIDENT CITIZENS, AND
and sold within the Philippines; and RESIDENT ALIENS
Gains, profits and income derived from Resident citizens are taxable on income from
the purchase of personal property within all sources within and without the
and its sale without the Philippines, or Philippines. (Sec. 23, NIRC)
from the purchase of personal property NRC is taxable only on income derived from
without and its sale within the Philippines. sources within the Philippines. (Ibid.)
(Sec. 42(E), NIRC) Aliens, whether a resident or not of the Philippines,
NOTE: Gain from the sale of shares of stock in is taxable only on income derived from sources
domestic corporations shall be treated as derived within the Philippines. (Ibid.)
entirely form sources within the Philippines Taxation on compensation income
regardless of where the said shares are sold. (Ibid.)
Taxable income partly from sources within and Inclusions
partly from sources without the Philippines
First, be computed by deducting the expenses, (a) Monetary compensation
losses or other deductions apportioned or allocated
Regular salary/wage
thereto and a ratable part of any expense, loss or
16
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
Statutory minimum wage refers to from taxable gross income. (Sec. 32(B),
the rate fixed by the Regional NIRC, as amended by R.A. No. 10653)
Tripartite Wage and Productivity Deductions
Personal exemptions and additional
Board as defined by the Bureau of
exemptions
Labor and Employment Statistics of
the Department of Labor and Basic personal exemption of P50,000.00
Employment. (Sec. 22 [GG]) for each individual taxpayer (Sec. 35(A),
Separation pay/retirement benefit NIRC, as amended by R.A. No. 9504); and
not otherwise exempt Additional exemption amounting to
P25,000.00 for each qualified dependent
Bonuses, 13th month pay, and other
not exceeding four (4) (Sec. 35(B), ibid,);
benefits not exempt
Director’s fees Dependent: Any legitimate, illegitimate or
Excluded from the gross income legally adopted child dependent and living
provided they do not exceed P upon the taxpayer who are not more than
twenty-one (21) years of age, unmarried and
82,000. (Sec. 32 B [7] e)
not gainfully employed or regardless of age
(b) Non-monetary compensation Exclusions if incapable of self-support because of
Fringe benefit subject to tax mental or physical defect. (Sec. 35, ibid.)
Employer is the one required to pay income
tax on fringe benefit . Health and hospitalization insurance
De minimis benefits Only an individual taxpayer may claim deduction
Facilities or privileges furnished or offered on premium payments of health and hospitalization
by an employer to his employees that are of insurance. However, in case of married taxpayers,
relatively small value and are offered or only the spouse claiming additional exemptions for
furnished by the employer, which are not dependents may claim (Sec. 34 (M), NIRC).
considered as compensation, but merely as a Taxation of compensation income of a
means of promoting the health, goodwill, minimum wage earner
contentment and efficiency of his
employees. (Revenue Regulations No. 10-2008) Statutory minimum wage: Rate fixed by
the Regional Tripartite Wage and
Productivity Board, as defined by the Bureau
NOTES: of Labor and Employment Statistics (BLES)
of the Department of Labor and
Non-taxability of de minimis benefits
Employment (DOLE). (Sec. 22(GG), NIRC)
applies to both managerial and rank-and-
Minimum wage earner: workers paid with
file employees. (Ibid)
the statutory minimum wage.
De minimis benefits are generally exempt Taxation of business income/income
from both fringe benefits tax and income tax. from practice of profession
(Revenue Regulations 02-98) Income derived from the exercise of a
13th month pay and other benefits, profession (Sec. 32(A)(2), NIRC). Hence no
and payments specifically excluded from employee-employer relation.
taxable compensation income.
Passive income subject to final tax
Interest income
NOTE: Gross benefits received by officials Interest: Amount of compensation paid for
and employees of public and private entities the use of money from such use
not exceeding P82,000.00 shall be excluded
17
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
business operations (Sec. 27(A), NIRC), 40% of the gross sales or gross receipts
provided: of a qualified individual taxpayer; or
They have zero or negative taxable 40% of the gross income of a qualified
income; or corporation. (Sec. 34 (L), NIRC)
When the MCIT is greater than the normal
income tax due. (Revenue Regulations 09-98)
Collection without Prior Assessment Income refers to all wealth which flows
Assessment made within three (3) years into the taxpayer other than a mere
from the date of filing of the return or from return of capital. It includes the forms on
the last day required by law for filing, income specifically described as gains
whichever is later. (Sec. 203, NIRC) and profits, including gains derived from
No return was filed, or the return filed was false the sale or other disposition of capital
or fraudulent
Collection with Prior Assessment
assets. (Sec. 36, RR No. 2)
Assessment = within 10 years from the date of An income is an amount of money
discovery of the failure to file the return, or the coming to a person or corporation within
falsity or fraud in the return. (Section 222 [a], NIRC) a specified time, whether as payment for
Collection without Prior Assessment services, interest or profit from
Collection = within 10 years after the discovery of investment. Unless otherwise specified, it
falsity or fraud or non-filing and it should only be means cash or its equivalent. (Hernando
by judicial proceeding (Sec. 222 [a], NIRC) Conwi vs. CIR G.R. No. 48532 August 31,
Appeal to the CTA in division – within 30 days from 1992)
receipt of decision on the protest or from the lapse
of 180 days due to inaction of the CIR. (Sec. 228, When Income Taxable
NIRC)
Requisites:
a. Appeal to the CTA en banc– the party adversely 1. Gain must be realized or received;
affected by the decision of a CTA division may 2. Gain must not be excluded by law or
file a motion for reconsideration or new trial treaty from taxation; and
within 15 days from receipt of the decision of 3. There must be gain whether in cash
the CTA division. If the MR is denied file a or its equivalent. (CIR v. Manning,
petition for review with the CTA en banc. G.R. No. L- 28398, August 6, 1975)
b. Appeal to the SC – within 15 days from the
receipt of the decision of the CTA. TESTS IN DETERMINING WHETHER
c. By way of special civil action – Petition for certiorari, INCOME IS EARNED FOR TAX PURPOSES
prohibition and mandamus to the SC in cases of
20
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
(1) Realization Test – Revenue is generally payment of the tax rests primarily on the
recognized when both of the following payor as a withholding agent. In case of his
conditions are met: failure to withhold or in case of under
a. The earning process is complete or withholding, deficiency shall be collected
virtually complete; and against the payor. (Sec. 2.57 (A), Revenue
b. An exchange has taken place. (Manila Regulations, 02-98)
Mandarin Hotels, Inc. vs. CIR, CTA case The finality of the withholding tax is limited
no. 5046, March 24, 1997) only to the payee’s income tax liability on
(2) Claim of Right Doctrine – A taxable gain the particular income. (ibid)
is conditioned upon the presence of a claim
of right to the alleged gain and the absence 8.
of a definite unconditional obligation to
return or repay. COMPROMISE AND ABATEMENT OF TAXES
(3) Economic Benefit Test, Doctrine of
Proprietary Interest – taking into COMPROMISE
consideration the pertinent provisions of It is an agreement between two or more
law, income realized is taxable only to the persons who, amicably settle their
extent that the taxpayer is economically differences on such terms and conditions as
benefited. they may agree on to avoid any lawsuit
(4) Severance Test – income is recognized between them. It implies the mutual
when there is separation of something agreement by the parties in regard to the
which is of exchangeable value. (Eisner vs. thing or subject matter which is to be
Macomber, 252 US 189, 1920) compromised.
(5) All-events test
Requirements:
a. Fixing of a right to income or liability Requisites for compromise:
to pay; and 1. Tax liability of the taxpayer;
b. Availability of reasonable accurate 2. An offer of compromise is rejected by the
determination of such income or taxpayer of an amount to be paid by him;
liability. (CIR vs. Isabela Cultural and
Corporation, February 12, 2007) 3. The acceptance (the CIR or the taxpayer) of
the offer in the settlement of the claim.
NOTE: The amount of liability does not have to be
determined exactly, it must be determined with ABATEMENT
reasonable accuracy. Reasonable accuracy implies It is the cancellation of a tax liability.
something less than an exact or completely accurate
amount. (ibid) Instances when the CIR is authorized to abate or
cancel a tax liability:
7. 1. The tax or any portion thereof appears to be
unjustly or excessively assessed; or
WITHHOLDING TAX 2. The administration and collection costs
involved do not justify the collection of the
Concept amount due. (Sec. 204 [B], NIRC)
Taxes imposed by the NIRC are to be
deducted and withheld by the payor- 9.
corporations and or persons for the former
to pay the same directly to the BIR. ITEMS TO BE INCLUDED IN GROSS
It is not a tax but a means of collecting taxes ESTATE
in advance of the payment of tax.
(1) Decedent’s interest;
Final Withholding Tax (2) Transfers in contemplation of death;
Amount of income tax withheld by the (3) Revocable transfers;
withholding agent is constituted as a full and (4) Property passing under general power of
final payment of the income tax due from appointment;
the payee on said income. The liability for (5) Proceeds of life insurance;
(6) Prior interests;
21
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
Revocable Transfers
22
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
(a) the possession or enjoyment of the property at the time of the decedent’s death
right to the income from the property; over the consideration received. (Ibid.)
or
(b) the right, either alone or in conjunction Capital of the Surviving Spouse
with any person, to designate the Refers to the exclusive property of the
persons who shall possess or enjoy the surviving spouse and shall not, for estate tax
property or the income. (Sec. 85 (D), purposes, be deemed as part of his or her
NIRC) gross estate, such as:
(1) That which is brought to the marriage
Proceeds of Life Insurance as his/her own;
Taxation of the proceeds of life insurance will (2) That which each acquires during the
depend on the designated beneficiary, the marriage by lucrative title;
manner of designation of such beneficiary (3) That which is acquired by right of
(whether revocable or irrevocable), and the redemption or by exchange with other
period and source of the funds used in paying property belonging to only one of the
the premiums on the insurance contract. (Sec. spouses;
85 (E), NIRC) (4) That which is purchased with exclusive
money of the surviving spouse;
Requisites to be included in the Gross Estate: (5) The sums collected by installments
(1) The decedent takes an insurance policy on during the marriage from credit payable
his own life; and in a certain number of years are
(2) The amounts are receivable by: considered property of the spouse to
(a) the estate, his executor, or whom the credit belongs; and
administrator irrespective of whether (6) The right to an annuity, whether
or not the insured retained the power perpetual or for life, and the right of
of revocation; or usufruct, belonging to one of the
(b) any beneficiary designated as revocable. spouses, form part of his/her separate
(Ibid.) property, but the fruits, pensions and
interests, due during the marriage
The proceeds of life insurance are not included belong to the partnership. (Sec. 85 (H),
in a decedent’s gross estate hence, not subject to NIRC)
estate tax when:
(1) The beneficiary is other than the estate, his 10.
executor, or administrator; and
(2) The designation is irrevocable. (Ibid.) DETERMINATION OF GROSS ESTATE AND
NET ESTATE
NOTE: Life insurance proceeds are always excluded
from gross income of the recipient whether the Gross Estate - refers to all properties and interests
designation of the beneficiary is revocable or in properties of the decedent at the time of his death.
irrevocable.
Net Estate - refers to the value of the estate after all
Transfers for Insufficient Consideration deductions have been made against the gross estate;
Transfers, trusts, interests, rights or powers but it will be subject to the graduated tax rates. (Sec.
(denominated as transfer in contemplation 86, NIRC)
of death, revocable transfer and property
passing under general power of Gross Estate is determined:
appointment) made, created, exercised or If the decedent is a resident or non-resident
relinquished for a consideration in money or citizen, or a resident alien – All properties, real
money’s worth. (Sec. 85 (G), NIRC) or personal, tangible or intangible, wherever
EXCEPTION: a bona fide sale for an adequate situated.
and full consideration in money or money’s If the decedent is a non-resident alien –Only
worth. properties situated in the Philippines provided
The value to be included in the gross estate that, intangible personal property is subject to
is the excess of the fair market value of the the rule of reciprocity provided for under
Section 104 of the NIRC. (Sec. 85, NIRC)
23
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
Individuals: GOVERNMENT
including all expenses, is collected. (Sec. 217, Persons liable to VAT imposed in Sections 106 to 108
NIRC) of Tax Code:
1. Any person who, in the course of his trade
5. Suspension of business operations – or business, sells, barters, exchanges, or
leases or properties, or renders services;
The CIR may suspend business operations when: 2. Any person who imports goods.
a. In case of a VAT-registered person:
i. Failure to issue receipts or invoices; 17.
ii. Failure to file a VAT return as required NATURE AND SOURCE OF TAXING POWER
under Sec. 114; or Grant of local taxing power under the
iii. Understatement of taxable sales or Local Government Code
receipts by 30% or more of his correct
taxable sales or receipts for the taxable Local Taxation
quarter. Each LGU has the power to create its own
b. Failure of any person to Register as sources of revenues and to levy taxes, fees and
required under Sec. 236 of NIRC. charges subject to such guidelines and
limitations as the Congress may provide,
(6) Non-availability of injunction to consistent with the basic policy of local
retrain collection of taxes – autonomy.
Such taxes, fees, and charges shall accrue
GR: No court shall have the authority to grant an exclusively to the LGUs. (Sec. 5, Art. X, 1987
injunction to restrain the collection of any national Constitution)
internal revenue, tax, fee or charge. (Sec. 219, RA No.
8424) Authority to prescribe penalties for tax violations
EXPNS:
a. Filing of injunction with the CTA as an 1. Sanggunian of a Local Government Unit
incident to its appellate jurisdiction: Authorized to prescribe fines or other
i. showing that collection of the tax may penalties for violation of tax ordinances.
jeopardize the interest of the
government and/or the taxpayer; Limitations:
ii. deposit of the amount claimed or file a a. Fines shall not be less than P1,000.00 nor
surety bond; more than P5,000.00, nor shall
iii. showing by taxpayer that appeal is not imprisonment be less than 1 month nor
frivolous nor dilatory. more than 6 months.
b. The SC, on exceptional cases of suits b. Fine or other penalty, or both, shall be
questioning the constitutionality of a tax imposed at the discretion of the court.
law;
c. In local taxes, RTC’s may issue an
injunction upon a suit questioning their 2. Sangguniang barangay
validity.
may prescribe a fine not less than P100.00
nor more than P1,000.00.
JUDICIAL REMEDIES
1. Ordinary civil action
Authority and Powers of LGUs
2. Criminal action
1. Authority to grant local tax exemptions (Sec.
Approval of CIR is a requisite before civil or 192, LGC)
criminal action is filed in court for the recovery 2. Authority to adjust local tax rates of tax
of taxes or the enforcement of any fine penalty ordinances (Sec. 191, LGC)
or forfeiture under the NIRC (Sec. 220, NIRC) Adjustments shall not be not
oftener than once every 5 years
16. and not to exceed 10% of the
rates fixed under the NIRC.
PERSONS LIABLE
3. Residual taxing power of local
governments (Sec. 186, LGC)
28
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
not be subject to attachment, levy, deceased before his death. Therefore, the
execution, or any tax.); (Sec. 86, claims existing at the time of his death are
NIRC) significant to, and should be made the basis
8. Net share of the surviving spouse of, the determination of allowable
in the conjugal partnership or deductions. (Rafael Arsenio S. Dizon vs CTA,
community property. (Sec. 6, RR 2- G.R. No. 140944, April 30, 2008; Gutierrez vs.
2003) BarrettoDatu, 5 SCRA 757; Aguas vs. Llemos,
5 SCRA 959)
Note: This is an exclusion rather than a deduction.
Requisites for the deductibility of claims against
Expenses, losses, indebtedness, and taxes the estate:
(a) Funeral expenses – Actual funeral 1. The liability represents a personal obligation
expenses (whether paid or unpaid) up to the of the deceased existing at the time of his
time of interment, or an amount equal to death except unpaid obligation incurred
five (5%) of the gross estate, whichever is incident to his death, such as unpaid funeral
lower, but in no case to exceed P200,000. expenses (i.e. expenses incurred up to the
(Sec. 86(A)(1)(a), NIRC) time of interment) and unpaid medical
(b) Judicial expenses of the testamentary or expenses which are classified under a
intestate proceedings – Expenses allowed different category of deductions pursuant to
as deduction under this category are those these Regulations;
incurred in the inventory-taking of assets 2. The liability was contracted in good faith
comprising the gross estate, their and for adequate and full consideration in
administration, the payment of debts of the money or money’s worth;
estate, as well as the distribution of the 3. The claim must be a debt or claim which is
estate among the heirs. In short, these valid in law and enforceable in courts; and
deductible items are expenses incurred 4. The indebtedness must not have been
during the settlement of the estate but not condoned by the creditor or the action to
beyond the last day prescribed by law, or the collect from the decedent must not have
extension thereof, for the filling of the estate prescribed. (Sec. 6 (A)(3)(i), RR 2-2003)
tax return. It may include:
i. fees of executor or administrator; Requisites for the deductibility of claims of the
ii. attorney’s fees; deceased against insolvent persons:
iii. court fees; 1. The value of the claims against insolvent
iv. accountant’s fees; person should have been included as part of
v. appraiser’s fees; the gross estate; and
vi. clerk hire; 2. It must be shown that the debtors are
vii. cost of preserving and distributing incapable of paying their indebtedness. (Sec.
the estate; 6(A)(4), RR2-2003)
viii. cost of storing or maintaining
property of the estate; Requisites for the deductibility of unpaid
ix. brokerage fees for selling property mortgages or indebtedness:
of the estate; and 1. Unpaid mortgages upon, or any
x. commissions for selling or indebtedness in respect to, property where
disposing of the estate, and the the value of the decedent’s interest therein,
like. (CIR vs CA, CTA & Josefina P. undiminished by such mortgage or
Pajonar, as Administratrix of the indebtedness, should be included in the
Estate of Pedro P. Pajonar, G.R. No. value of the gross estate.
123206, March 22, 2000) 2. The deduction herein allowed in the case of
(c) Claims against the estate – The term claims against the estate, unpaid mortgages
“claims against the estate” required to be or any indebtedness shall, when founded
presented against a decedent’s estate is upon a promise or agreement, be limited to
generally construed to mean debts or the extent that they were contracted bona
demands of a pecuniary nature which could fide and for an adequate and full
have been enforced against the deceased in consideration of money’s worth.
his lifetime, or liability contracted by the
30
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
3. In case of unpaid mortgage payable being On the property left behind by the decedent
claimed by the estate, verification must be which he had acquired previously by
made as to who was the beneficiary of the inheritance or donation.
loan proceeds. If the loan is found to be Thus, vanishing deduction is deducted only
merely an accommodation of loan where from the exclusive properties of the decedent
the loans proceeds went to another person, which from part of his gross estate. (Sec. 86 [A-
the value of the unpaid loan must be 2], NIRC)
included as a receivable of the estate. If
there is a legal impediment to recognize the Requisites for deductibility of vanishing
same as receivable of the estate, said unpaid deduction:
obligation/mortgage payable shall not be 1. The present decedent died within five (5)
allowable as a deduction from the gross years from receipt of the property from the
estate. prior decedent or donor;
4. In all instances, the mortgaged property, to 2. The property on which vanishing deduction
the extent of the decedent’s interest therein, is being claimed is located within the
should always form part of the gross taxable Philippines;
estate. (RR No. 2-2003) 3. The property formed part of the taxable
estate of the prior decedent or of the taxable
Requisites for the deductibility of taxes from the gift of the donor;
gross estate: 4. The estate tax on the prior succession or
1. Said taxes must have been accrued as of the donor’s tax on the gift must have been
time of death of the decedent; finally determined and paid;
2. Said taxes were unpaid as of the time of 5. The property on which the vanishing
death; deduction is taken must be identified as the
3. These taxes will NOT include: one received or acquired; and
a. Income tax upon income received 6. No vanishing deduction was allowed on the
after death; same property on the prior decedent’s
b. Property taxes not accrued before estate. (Ibid.)
his death; or The estate tax due
from the transmission of his Requisites for the deductibility of transfers for
estate. (De la Vina vs. CIR, 65 Phil public use:
520) 1. The disposition is in the last will and
testament;
Requisites for the deductibility of losses from the 2. Disposition should take effect after death;
gross estate: 3. In favor of the Government of the
1. Losses must be incurred settlement of the Philippines or any of its political
estate; subdivision;
2. Losses arose from fires, storms, shipwreck, 4. Exclusively for public purpose; and
or other casualties, or from robbery, theft or 5. The value of the property given is included
embezzlement; in the gross estate. (Sec. 86 (A-3), NIRC)
3. Said losses are not compensated for by
insurance or otherwise; Special Deductions
4. Losses claimed must not have been claimed
as deduction from gross income for income Family Home
tax purposes under Section 34(D)(1)(c) of The place where the family actually resides.
the Tax Code; and
Under the Civil Code, a family home has to be
5. Such losses were incurred not later than the
constituted judicially or extra- judicial.
last day for the payment of the estate tax.
(Sec. 6(A)(5)(c), RR 2-2003) Under the Family Code, there is no need to
constitute it as a family home, as it is deemed
constituted thereunder.
Property previously taxed (Vanishing deduction)
Vanishing deduction
Conditions for the allowance of family home
Refers to the diminishing deductibility allowed
(FH) as deduction from the gross
from the gross estate of the decedent
1. The FH must be the actual residential home
of the decedent and his family at the time of
31
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
his death, as certified by the Barangay deduction from the gross estate, provided that
Captain of the locality where the FH is such amount is included in the gross estate of
situated; the decedent. (Sec. 86 [A-7], NIRC, RR 2-2003)
2. Total value of the FH must be included as
part of the gross estate of the decedent; and Net share of the surviving spouse in the conjugal
3. Allowable deduction must be in an amount partnership or community property
equivalent to the current fair market value After deducting the allowable deductions
of the FH as declared or included in the appertaining to the conjugal or community
gross estate, or the extent of the decedent’s properties included in the gross estate
interest (whether conjugal/community or The share of the surviving spouse must be
exclusive property), whichever is lower, but removed to ensure that only the decedent’s
not exceeding P1,000,000. (Sec. 86 [A-4], interest in the estate is taxed. (RR 2-2003)
NIRC, RR 2-2003)
20.
Standard Deduction
A deduction in the amount of P1, 000,000 shall POWER OF THE COMMISSIONER TO
be allowed as an additional deduction from the SUSPEND THE BUSINESS OPERATION OF A
gross estate without need of substantiation. TAXPAYER
The full amount of P1, 000,000 shall be
allowed as deduction for the benefit of the The Commissioner or his authorized
decedent. (Sec. 86 [A-4], NIRC, RR 2-2003) representative has the power to suspend the
business operations and temporarily close the
Requisites for the deductibility of medical business establishment of any person for any of
expenses from the gross estate of the decedent: the following violations:
1. The medical expenses (cost of medicines, 1. For VAT-registered persons:
hospital bills, doctors’ fees, etc.) were a. Failure to issue receipts or invoices;
incurred (whether paid or unpaid) within b. Failure to file a VAT return as required
one (1) year prior to the death of the said under Section 114; or
decedent. c. Understatement of taxable sales or
2. The said medical expenses are duly receipts by 30% or more of his correct
substantiated with official receipts for taxable sales or receipts for the taxable
services rendered by the decedent’s quarter
attending physicians, invoices, statements of 2. Failure of any person to register as required
account duly certified by the hospital, and under Section 236
such other documents in support thereof;
and The temporary closure of the establishment
3. That the total amount thereof, whether paid shall be for the duration of not less than five
or unpaid, does not exceed P500, 000. Any (5) days and shall be lifted only upon
amount of medical expenses incurred within compliance with whatever requirements
one (1) year prior to the death in excess of prescribed by the Commissioner in the closure
P500,000 shall not be allowed as a order. (Sec. 115, NIRC)
deduction under this subsection. Neither
can any unpaid amount thereof in excess of 21.
the P500,000 threshold nor any unpaid
amount for medical expenses incurred prior COLLECTION OF BUSINESS
to the one (1)-year period from the date of
death be allowed to be deducted from the Tax Period and Manner of Payment:
gross estate as a claim against the estate. (Sec. The tax period of all local taxes, fees and
86 [A-6], NIRC) charges shall be the calendar year.
Such taxes, fees and charges may be paid in
Amount received by heirs under R.A. 4917– quarterly installments. (Sec. 165, LGC)
Any amount received by the heirs from the
decedent’s employer as a consequence of the Accrual of Tax:
death of the decedent-employee in accordance
with RA 4917 shall also be allowed as
32
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
22. ANSWER:
Double taxation in its strict sense means the
DOUBLE TAXATION taxpayer is:
33
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
Note: While a person may not be Pepsi Cola v. City of Butuan, G.R. No. L-
imprisoned for non-payment of a 22814, August 28, 1968
cedula or poll tax (People v. - The general principle against the delegation
Linsangan, 62 Phil. 646), he may be of legislative powers as a consequence of the
imprisoned for non-payment of principle of separation of powers is subject
other kinds of taxes where the law to one well-established exception: legislative
so expressly provides. powers may be delegated to local
government units.
3. Prohibition against taxation of non- - Included in this grant of legislative power is
stock, non-profit institutions the grant of local taxing power.
o All revenues and assets of non-
stock, non- profit educational Appropriation of Public Money
34
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
time within which to pay a tax resident foreign corporation. The residential house
or a deficiency tax or any part and lot will be used by officials of EEE, Inc. during
thereof, there shall be their visit to the Philippines. The lease agreement was
assessed and collected interest signed by representatives from DDD Corp. and
at the rate hereinabove EEE, Inc. in Singapore. DDD Corp. did not subject
prescribed on the tax or the said lease to VAT believing that it was not a
deficiency tax or any part domestic service contract.
thereof unpaid from the date
of notice and demand until it Was DDD Corp. correct? Explain. (3%)
is paid. (Ibid.)
ANSWER:
DDD Corporation is not correct
26. Leasing of properties is subject to VAT
Irrespective of the place where the contract
VAT ON SALE OF GOODS OR PROPERTIES of lease was executed if the property is
leased or used in the Philippines.
General Principle
VAT is imposed and collected on every sale, Goods or properties which are subject to VAT
barter or exchange, or transactions “deemed
sale” of taxable goods or properties All tangible and intangible objects which are
At the rate of 12% of the gross selling price or capable of pecuniary estimation and shall
gross value in money of the goods or include:
properties sold, bartered, or exchanged, or 1. Real properties held primarily for sale to
deemed sold in the Philippines. (Sec. 4.106-1, customers or held for lease in the ordinary
RR 16-2005, as amended by RR 4-2007) course of trade or business;
2. The right or the privilege to use patent,
Requisites of taxability of sale of goods or copyright, design or model, plan secret
properties: formula or process, goodwill, trademark,
1. The seller must be VAT-registered, or even trade brand or other like property or right;
if not, he/it is a VAT-registrable person and 3. The right or the privilege to use in the
his/its gross annual sales (i.e., gross selling Philippines of any industrial, commercial or
price) exceeds 1,919,500.00; scientific equipment;
2. The goods or properties sold may either be 4. The right or the privilege to use motion
tangible or intangible objects which are picture films, films, tapes and disc; and
capable of pecuniary estimation; 5. Radio, television, satellite transmission and
3. The sale must be an actual or constructive cable television time. (Sec. 106[A][1], NIRC)
sale or a transaction deemed sale;
4. The sale must be undertaken in the course 27.
of trade or business;
5. The sale must have been done in the COLLECTION OF REAL PROPERTY TAX
Philippines;
6. The sale must be for use or consumption in Date of Accrual of Real Property Tax and Special
the Philippines; Levy
7. The sale must not be considered as a zero-
rated sale; and General Rule: Local taxes, fees and charges accrue
8. The sale must not be exempt from VAT on the first day of the calendar year.
under the Tax Code, special law, or Exception: In case the effectivity of any new tax
international agreement. (R.A. No. 8424) ordinance falls on any date other than the beginning
of the quarter, the same shall be considered as falling
Bar Question 2015 at the beginning of the next ensuing quarter and the
new tax levy or revised rate due shall begin to accrue
In June 2013, DDD Corp., a domestic corporation therefrom. (Sec. 166, LGC)
engaged in the business of leasing real properties in
the Philippines, entered into a lease agreement of a Note: The collection of real property tax, interests and
residential house and lot with EEE, Inc., a non- the enforcement of remedies shall be the responsibility
36
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
of the city or municipal treasurer concerned. (Sec 247, 3. Calamity in any province, city, or
LGC) municipality (Sec. 276, LGC); or
4. When public interest so requires (Sec. 277,
Notice of time for collection of tax LGC)
1. To be posted by the city or municipal
treasurer in conspicuous and publicly By whom condoned and reduced; and process
accessible place at the city or municipal hall thereof
on: 1. For grounds (1), (2) and (3) as mentioned
a. For basic RPT and additional tax for above, by the Sanggunian concerned, by
Special Education Fund (SEF) - Before ordinance, and upon recommendation of
January 31 of each year; the Local Disaster Coordinating Council
b. For any other tax - any other date (Ibid.); or
provided in the ordinance. 2. For ground (4), by the President of the
2. Publication in a newspaper of general Philippines.
circulation in the locality once a week for
two (2) consecutive weeks. (Sec. 249, LGC) REMEDIES OF LOCAL GOVERNMENT
UNITS FOR COLLECTION OF RPT
Periods within which to Collect Real Property Tax
(1) Local government lien
General Rule: It is superior to all liens, charges or
The basic RPT and any other tax levied shall encumbrances in favor of any
be collected within five (5) years from the person,
date they become due. Irrespective of the owner or
No action for the collection of the tax, possessor
whether administrative or judicial, shall be Enforceable by administrative or
instituted after expiration of such period. judicial action, and
(Sec. 270, LGC) May only be extinguished upon
Exception: payment of the tax and the related
In case of fraud or intent to evade payment interests and expenses. (Sec. 257,
of the tax, LGC)
Such action may be instituted for the (2) Administrative action of levy
collection thereof within ten (10) years from The real property subject to such
discovery of such fraud or intent to evade tax may be levied upon through
payment. (Ibid.) the issuance of a warrant
On or before, or simultaneously
When period of prescription is suspended with, the institution of the civil
1. The local treasurer is legally prevented from action for the collection of the
collecting the tax; delinquent tax. (Sec. 258, LGC)
2. The owner of the property or the person (3) Judicial action
having legal interest therein request for Talusan v. Tayag, G.R. No.
reinvestigation and executes a waiver in 133698, April 04, 2001
writing before the expiration of the period
- The registered owner of
within which to collect; and
a property is deemed the
3. The owner of the property or the person
taxpayer
having legal interest therein is out of the
country or otherwise cannot be located. - And, hence, the only one
(Ibid.) entitled to a notice of tax
delinquency
CONDONATION OR REDUCTION OF REAL - And the resultant
PROPERTY TAX proceedings relative to
an auction sale.
Grounds of Condonation or Reduction - Petitioners, who
1. General failure of crops; allegedly acquired the
2. Substantial decrease in the price of property through an
agricultural products;
37
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
import capital equipment and raw materials levy, distraint, and/or sale of any property of
free from duties, taxes and other import the taxpayer for the satisfaction of his tax
restrictions. (R.A. No. 7916) liability as provided by existing law. When in
the opinion of the Court, the collection by the
29. aforementioned government agencies may
jeopardize the interest of the Government
REQUIREMENTS OF IMPORTATION and/or taxpayer either to deposit the amount
claimed or to file a surety bond for not more
Obligations of Importer than double the amount with the court. (Sec. 9,
R.A. No. 9282)
Cargo Manifest
It is a document used in shipping, containing a Who may appeal?
list of the contents, value, origin, carrier and
destination of the goods to be shipped. Any party adversely affected by a decision, ruling or
It refers to a written document required to be inaction of the Commissioner of Internal Revenue,
carried by merchant vessels, containing an the Commissioner of Customs, The Secretary of
account of the cargo, with other particulars, for Finance, the Secretary of Trade and Industry or the
the facility of the customs officers (Black’s Law Secretary of Agriculture or the Regional Trial Court,
Dictionary) may file an appeal with the CTA:
1. Withinthirty(30)daysafterreceiptofsuch
Beginning and ending of importation decision or ruling; or
When importation begins 2. After the expiration of the period fixed by law
for action referred to in Section 7(a)[2] of
Importation begins when the carrying
R.A.9282, in which case the inaction shall be
vessel or aircraft enters the
deemed a denial.
jurisdiction of the Philippines with
the intention to unload therein.
What is the mode of appeal?
When importation ends
Upon payment of duties, taxes and
1. Appeal may be made by filling a petition for
other charges due upon the articles,
review under a procedure analogous to that
or secured to be paid, at the port of
provided for under Rule 42 of the 1997 of
entry; and
Civil Procedure, within thirty (30) days from
Upon grant of the legal permit for the receipt of the decision or ruling or from the
withdrawal; In case the articles are expiration of the period fixed by law for the
free of duties, taxes and other official concerned to act, in cases of
charges, until they have legally left the inaction, before the CTA. A Division of the
jurisdiction of the customs. (Sec. 1202, CTA shall hear the appeal.
TCC) 2. Appeals with respect to decisions or rulings
of the Central Board of Assessment Appeals and
30. the Regional Trial Court in the exercise of its
appellate jurisdiction, may be made by filing a
CIVIL CASES petition for review under a procedure
analogous to that provided for under Rule
Who may appeal, mode of appeal, effect of appeal? 43 of the 1997 Rules of Civil Procedure,
with CTA, which shall hear the case en banc.
Suspension of collection of tax 3. Petition for Review on Certiorari may be filed by
Appeal to the CTA shall not suspend the a party adversely affected by a decision or
payment, levy, distraint and sale of taxpayer’s ruling of the CTA en banc, through a verified
property. petition before the Supreme Court, pursuant to
No appeal taken to the CTA from the decision Rule 45 of the 1997 Rules of Civil
of the Commissioner of Internal Revenue or Procedure.
the Commissioner of the Customs or the RTC,
provincial, city, or municipal treasurer or the 31.
Secretary of Finance, the Secretary of Trade
and Industry or the Secretary of Agriculture, as
the case may be, shall suspend the payment,
39
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
from the close of the taxable excess input VAT attributable to its
quarter when zero rated sales were effectively zero- rated sales in 2012? (2%)
made. o No, my answer would not be
o The CIR has 120 days from the different if the claim for refund is
date of submission of complete for effectively zero rated sales in
documents in support of the claim 2012.
to decide. If the 120 days expires o The requirement to print the word
without the CIR acting on it, the zero rated is mandatory.
taxpayer has 30 days to file a o Failure to indicate is fatal to the
petition for review upon the claim for refund or tax credit.
expiration of the 120 day period.
33.
Bar Question 2015
ESTATE TAX RETURN
MMM, Inc., a domestic telecommunications
company, handles incoming telecommunications An estate tax return is required to be filed in the
services for non-resident foreign companies by following cases:
relaying international calls within the Philippines. To 1. In all cases of transfers subject to the estate
broaden the coverage of its telecommunications tax;
services throughout the country, MMM, Inc. entered 2. Where though exempt from tax, the gross
into various interconnection agreements with local value of the estate exceeds P200,000; or
carriers. The non-resident foreign corporations pay 3. Regardless of the gross value of the estate,
MMM, Inc. in US dollars inwardly remitted through where the said estate consists of registered
Philippine banks, in accordance with the rules and or registrable property, such as real
regulations of the Bangko Sentral ng Pilipinas. property, motor vehicle, shares of stock or
other similar property for which a clearance
MMM, Inc. filed its Quarterly VAT Returns for 2000. from the BIR is required as a condition
Subsequently, MMM, Inc. timely filed with the BIR precedent for the transfer of ownership
an administrative claim for the refund of the amount thereof in the name of the transferee. (Sec.
of P6,321,486.50, representing excess input VAT 90 [A], NIRC)
attributable to its effectively zero-rated sales in 2000.
The BIR ruled to deny the claim for refund of MMM, Contents of the Estate Tax Return
Inc. because the VAT official receipts submitted by 1. The value of the gross estate of the decedent
MMM, Inc. to substantiate said claim did not bear the at the time of his death, or in case of a
words “zero-rated” as required under Section 4.108- nonresident, non-citizen of the Philippines,
1 of Revenue Regulations (RR) No. 7-95. On appeal, of that part of his gross estate situated in the
the CTA division and the CTA en bane affirmed the Philippines;
BIR ruling. 2. The deductions allowed from gross estate in
determining the net taxable estate;
MMM, Inc. appealed to the Supreme Court arguing 3. Such part of such information as may at the
that the NIRC itself did not provide for such a time be ascertainable and such supplemental
requirement. RR No. 7-95 should not prevail over a data as may be necessary to establish the
taxpayer’s substantive right to claim tax refund or correct taxes; and
credit. 4. For estate tax returns showing a gross value
exceeding P2, 000,000, there must be a
ANSWERS: statement duly certified to by a Certified
a. Rule on the appeal of MMM, Inc. (3%) Public Accountant containing the following:
o The appeal of MMM must be a. aItemized assets of the decedent with
denied. MMM’s position that BIR their corresponding gross value at the
requirements do not prevail over time of his death, or in the case of a
taxpayer’s substantive rights to nonresident, not a citizen of the
claim tax credit or refund is Philippines, of that part of his gross
unavailing. estate situated in the Philippines;
b. Will your answer in (a) be any different b. Itemized deductions from gross estate
if MMM, Inc. was claiming refund of allowed in Section 86; and
41
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
assessor in the assessment of his property Scheme used outside of those lawful means
(Sec. 226, LGC) and when availed of, it usually subjects the
taxpayer to further or additional civil or
Period of appeal criminal liabilities.
Within sixty (60) days from the date of Connotes the integration of three
receipt of the written notice of assessment factors:
(Ibid.) 1. The end to be achieved;
2. Accompanying state of mind
Notes: which is described as being “evil,”
in “bad faith” “willful,” or
Doctrine of primacy of administrative “deliberate and not accidental”;
remedies - an error in the assessment must and
be administratively pursued to the exclusion 3. Course of action or failure of
of ordinary courts whose decisions would action which is unlawful.
be void for lack of jurisdiction.
38.
Appeal on assessments of real property shall
not suspend the collection of the COMPENSATION AND SET OFF
corresponding realty taxes on the property
involved as assessed by the provincial or city
assessor. (Sec. 231, LGC) Compensation
Take place when two persons, in their own
EXHAUSTION OF ADMINISTRATIVE right, are creditors and debtors of each
REMEDIES other. (Art. 1278, Civil Code)
Note: Offsetting, when both of the
GR: The doctrine of exhaustion of obligations have not yet been fully-
administrative remedies applies even to liquidated is not allowed under the law.
tax cases.
Doctrine of Equitable Recoupment
1. Allows a taxpayer whose claim for refund
EXPNS: has prescribed to offset tax liabilities with
1. Questioning the validity or his claim of overpayment.
constitutionality of a rule or regulation
by an administrative agency 39.
2. Issue involves a purely legal question;
3. Action of the administrative agency is CONSTRUCTION AND INTERPRETATION:
patently illegal amounting to lack or LAWS, EXEMPTION, EXCLUSION, RULES,
excess of jurisdiction; or PENAL PROVISIONS, NON-RETROACTIVE
4. Violation of due process. APPLICATION
1. Levy (Tax Legislation): Enactment of a law by Taxes that are imposed or assessed upon
Congress, imposing a tax. merchandise from, exported to a foreign country for
2. Assessment and Collection (Tax the purpose of raising revenue.
Administration): Act of administration and
implementation of the tax law by the executive Kinds of customs duties
department through the administrative agencies. 1. Ad valorem duty: computed on the basis
3. Payment: Act of compliance by the taxpayer, of value of imported article.
including such options, schemes or remedies as may 2. Specific duty: computed on the basis of
be legally available. dutiable weight of good.
4. Refund: Recovery of any tax alleged to have been 3. Compound Duty: impose both ad
erroneously or illegally assessed or collected, or any valorem and specific customs duties.
penalty claimed to have been excessively, or in any 4. Alternative: alternates between ad valorem
manner wrongfully collected. and specific.
42.
43.
CLASSIFICATION OF DUTIES
INCOME TAXATION
Regular Duties
44
TAXATION LAW
FREQUENTLY ASKED QUESTIONS
Income tax
• Tax on all yearly profits arising from Joint venture and consortium
property, profession, trade or business • Corporation, for tax purposes, shall not
• Tax on person’s income, emoluments, include a joint venture or consortium
profits and the like. (Fisher v. Trinidad, formed for purposes of undertaking
G.R. No. L17518, October 20, 1922) construction projects engaging in
• Regarded as an excise tax petroleum, coal, geothermal and other
• Not levied upon persons, property, energy operations pursuant to an operating
funds or profits but on the privilege of or consortium agreement under a service
receiving said income or profit. contract with the Government. (Sec. 22(B),
NIRC)
State Partnership Theory
• Basis of the government in taxing income. 45.
It emanates from its partnership in the
production of income by providing the TAXABLE PERIOD
protection, resources, incentive and proper
climate for such production. (CIR v. Taxable Period
Lednicky, G.R. Nos. L 18169, L18262 & • Calendar year or the fiscal year ending
L21434, July 31, 1964) during such calendar year, upon the basis of
which the net income is computed for
44. income tax purposes.