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TAXATION-LAW-Survival-Kit-by-4C.pdf Version 1 PDF
TAXATION-LAW-Survival-Kit-by-4C.pdf Version 1 PDF
T able of Contentss
Do’s ................................................................................................................3
Dont’s ............................................................................................................4
Tips................................................................................................................5
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Taxation Law Review
T he Professor
Atty. Anthony Dy
Atty. Dy always comes to class donning a huge smile and starts the meeting by
a roll call and shuffling of index cars. Come recit time, students find themselves
gripping their seats, waiting for their names to be called, for 30-40 minutes worth of
recitation. Merely memorizing the codal provisions and commentaries in Atty. Dy’s
class is not enough. One has to learn the law by heart because he asks very
anything under the sun. Students love his class because despite the surprise quizzes,
extended class hours, and his cardinal rule that only handwritten notes are allowed in
his class, Atty. Dy’s witty remarks and anecdotes make law subjects interesting and his
class, fun and lively. Atty. Dy teaches Property, Taxation I and II, and Taxation Law
Review. He ranked No. 16 in the 2002 Bar Examinations and is currently working at
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D
o’s
1.) Come to class early. Atty. Dy checks the class attendance on time.
2.) Try to achieve perfect attendance if you want an additional point on your
final grade.
3.) Memorize every single detail, from tax remedies, to requisites for
exemptions from income tax to tax rates. You’ll never know what Atty. Dy will
4.) Never take any topic for granted. Read religiously like there’s no tomorrow.
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Don’t’s
1.) Never come to class unprepared. Atty. Dy is fond of shuffling class cards.
2.) Do not ask for a class party especially when there are only a few meetings
left during the sem. Chances are, your request will not be granted. But if you’re
persistent, you can still try and experience having your first recit with balloons
3.) Do not justify your inability to answer a question with an excuse that you
were not present when that particular topic was discussed in class. Atty. Dy
4.) If you do not know the answer to a question, don’t attempt to invent one
5.) Do not attempt to bluff. You will only look like a fool in the end. Atty. Dy
6.) Do not ever make the mistake of having a class boycott. It’s going to be an
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T ips
2. Notes
Notes of those who previously took the subjects are particularly helpful when it
comes to questions during recitations. The Dimaampao notes or more popularly
known as tapsi notes also give students a simple approach to tax.
Your own personal notes of important topics will also be a great help in easily
remembering ideas and concepts which appear to be challenging. Make this a
habit. They may even be helpful “come bar time.”
Take down notes during recitations. The questions will be a great help in
determining topics which the professor wanted to focus on. They might even be
questions which could be asked during examinations.
3. The green codal or the National Internal Revenue Code, and its amendments.
Atty. Dy told the class that the tax codal must be read as much as we read the
other codals like the Civil code and the Rules of Court. The best evidence of the
extent of the use of your tax codal depends on the cleanliness and condition of it
compared to other codals. As Atty. Dy puts it, “just compare.”
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Visit the BIR website for recent rulings and Revenue Regulations. You might also
want to check websites of certain Accounting firms which publish on their sites
monthly Tax briefs . (e.g. Punongbayan & Araullo)
5. Preparation
Do not come to class unprepared. Preparation is key, both in recitations and
examinations. Taxation I and Taxation II are both 3-unit subjects. If you want a
definite number of hours study, 9 hours of quality study time before the class
should be a reasonable period (Period of study = No. of units x 3).
But of course, every one of us has his or her own style of studying so the period
of study time will always depend on you.
For a review class, more time is demanded despite the review being a mere 2
unit subject. The class might be lucky enough if Atty. Dy asks for volunteers and
asks the person reciting to choose a topic. But do not rely on this as Att. Dy, as a
general rule, calls students by shuffling the class cards.
Tax Tips
1. Expect the class to have on overtime every meeting. Atty. Dy’s class usually
dismisses the class 30 minutes later than the designated time.
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As a follow up, Atty. Dy will subsequently ask, “You are now the BIR or the
counsel for the defense, what would be your arguments?” In this type of
question, you are being asked to counter the arguments you mentioned in the
first place.
3. Exams. You should expect a long and difficult exam. The types of questions maybe in
the form of True or False, Enumeration, MCQ’s, and Essay. He gives bonus questions at
the end of an exam. He even asks questions for those who have not recited. A final
exam usually asks for a final grade you expect from the subject.
Answer briefly but completely. Do not enumerate more than what was asked for. Give
three if the question asks for three even if you know ten of them.
4. Have a complete attendance if you can. The benefit is an additional 1% on your final
grade. But there is really nothing wrong if you do not come to class because you are
unprepared. Weigh the consequences.
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5. In the words of Atty. Dy, “Do not give reasons for me to fail you.” Looking at the
brighter side of this, always give him reasons to pass the subject with flying colors. Or
give yourself a favor, learn the topics assigned not for the purpose of getting a good
grade but for your own benefit in the future (e.g. bar time and future career)
Disclaimer and this is a serious one. By the time you finished reading this, Atty. Dy could
already have changed his manner of asking questions, making exam questions, and his
style of teaching in general.
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I. TRUE OR FALSE
(b) Taxes paid by a taxpayer are deductible as expenses for purposes of income
taxes.
FALSE. Taxes paid or incurred within the taxable year in connection with the
taxpayer’s profession, trade or business, shall be allowed as deductions, except (a)
the income tax provided for under the NIRC and (b) income taxes imposed by
authority of any foreign country. (NIRC, Sec. 34, C)
II. OBJECTIVE
(b) Give 3 areas of distinction between Donor’s tax and Value Added Tax.
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DONOR’S TAX – is a direct tax; VALUED ADDED TAX – is an indirect tax, it can
be passed to the buyer
DONOR’S TAX is computed on the basis of the total net gifts made during the
calendar year; VAT is equivalent to 10% of the gross selling price of or gross
value in money of the goods or properties sold, bartered or exchanged paid by
the seller or transferor.
(c) Explain the concept of de minimis benefits in relation to fringe benefits tax.
Give 3 examples of de minimis benefits.
Fringe benefits are goods, services or any benefits furnished or granted in cash
or in kind by an employer to an individual employee. Under the NIRC, there is a
special treatment of fringe benefits, which shall be taxed at 32%, payable by the
employer.
III. ESSAY
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Leah is a single mother with a 15 year old son. In 2009, her reported income
includes ff:
a. Determine the Gross Income to be reported by Lea. Explain how you arrived at
your answer.
b. What are the exceptions to be recognized by Lea in 2009.
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Matchbox Phils is engaged in the selling of cars. Due to slow demand and business slow
down, it sells all its properties to Micro-Phil Inc. amounting to Php 10M. It also
transfers the warranty liabilities of its customers amounting to Php 20,000.00
whereby in the event that warranty expense exceeds said amount, Matchbox Phils
agreed to pay the excess. However, in the event that warranty expense is less than that
amount, the balance will belong to Micro-Phil Inc.
I think yes. Kindly verify this. Absent ata ako nung tinuro ito. Hehehe.
In a tax-free exchange pursuant to Sec. 40(C )(2) of the Tax Code, transfer of real
property between two real estate dealers in exchange for shares shall be VAT-exempt.
If the exchange is not solely in kind (for example, money plus property was exchanged
or shares of stock or vice-versa), then there is no tax-free exchange because the gain is
taxed but the loss is not allowed to be deductible.
Exchange of property
(1) General rule: Except as herein provided, upon the sale or exchange of property, the
entire amount of the gain or loss, as the case may be, shall be recognized.
(3) Exchanges not solely in kind; (a) If, in connection with an exchange described in the
above exceptions, a shareholder or security holder receives not only stock or securities
permitted to be received without recognition of gain or loss, but also money and/or
other property, the gain, if any, but not the loss, shall be recognized but in an amount
not in excess of the sum of the money and the fair market value of such other property
received.
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a) Does the transfer of the two bedroom units by Manny Billar to Quizon subject
to 12% VAT? Why or why not.
Answers: Caveat.
a. No. Under Section 109 (V) of the Tax Code, the transfer is a VAT-exempt
transaction. The said provision states that sale or lease of goods or properties
or the performance of services other than the transactions other than the
transactions mentioned in the preceding paragraphs, the gross annual sales
and/or receipts do not exceed the amount of P1.5M.
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VIII.
A is very rich. He donated P10M to the government for youth sports program. Is
the donation subject to donor’s tax?
No. The donation is exempt from donor’s tax in accordance with Section
101(A)(2) of the Tax Code, which provides that gifts made to or for the use of the
National Government or any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision shall be exempt from tax.
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The question is trying to elicit a wrong answer by mentioning “for youth sports
program.” This would have been relevant had the question been: “Is the donation
deductible?”
The question on which rate is applicable makes the question trickier because the
donation is really an exempt transaction. A is not liable for donor’s tax.
1.Purely compensation Income earners are not allowed any deduction on their
gross income.
FALSE. They are allowed deductions on premium payments on health and/or
hospitalization insurance.
2.Sellers of Marine food products are subject to 12% VAT when their gross sales
exceed the P1.5M threshold provided in Section 109(v) of the Tax Code.
FALSE. They are exempt from value added tax under Sec 109(a).
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II.
III.
a. Explain the procedure in filing income tax return of domestic corporation. 4
pts
Every corporation subject to tax shall render in duplicate, a true and accurate
quarterly income tax return and final or adjustment return in accordance with the
provisions of Chapter XII of Title II. The return shall be filed by the president, vice-
president or other principal officer, and shall be sworn to by such officer and by the
treasurer or assistant treasurer(Sec.52). As required by the BIR, it shall be filed with
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the authorized agent banks or Revenue District Officer or Collection Agent or duly
authorized Treasurer of the City or municipality having jurisdiction over the location
of the principal office of the corporation filing the return or place where the main
books of accounts and other data from which the return is prepared are kept.(Sec 76-
A). The corporate quarterly declaration shall be filed within 60 days following the
close of each of the first three quarters of the taxable year. The final adjustment return
shall be filed on or before the fifteenth day of April, or on or before the fifteenth day of
the fourth month following the close of the fiscal year as the case may be (Sec 76-B).
IV.
Leah obtained a loan from 5-6 Universal Bank with an interest rate of 12%. After
one year the interest payable by Leah amounted to P1 M. Before she can claim
the whole amount as deductions, it was found out that the loan was obtained by
Leah was re-lent by the latter to Janice.
Can Leah claim as deduction the full amount of P1 Million as interest expense? 5
pts
Pursuant to the Sec 34(B) of the Tax Code, the amount of interest expense paid or
incurred by a taxpayer within a taxable year on indebtedness in connection with his
trade, business or exercise of profession shall be allowed as a deduction from his gross
income, the said interest expense however, shall be reduced if the taxpayer has derived
certain interest income which had been subject to final withholding tax. The said
reduction shall be equal to the percentages of the interest income earned depending
on the year when the interest income was earned. (BIR Ruling No. 006-2000)
V.
Aga and Lucy got ,married on January 1, 2007. On her 9-month pregnancy she
gave birth to triplets named Tito, Vic, and Joey. On October 7, 2007, 18 hours
after his birth, Tito died. One month later Joey also died. How much additional
exemptions can Aga claim at the end of the taxable year? 5 pts
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If any of such dependents dies during the taxable year, the taxpayer may still claim
the exemptions as if any of the dependendents dies at the close of such year.( RR 10-
2008.)
VI.
Dolphy was overwhelmed when Vandolph, his favourite son, was about to get
married to Marsha. One day before the celebration of the marriage, Dolphy gave
a gift check in the amount of P8,888.88 to Marsha. Is Dolphy liable to donor’s
tax? 5 pts
Yes. While the gift has been made on account of marriage, to qualify for
exemption to the extent of the first P10,000.00 of the value thereof such gift
should have been given to a legitimate recognized natural or adopted child of
the donor. (Sec 101-A)
VII.
Joanne the manager of SM Bank, while reading her favourite tabloid, The Buzz ,
found out in the obituary that Don Juan died. Don Juan had left a P1M account in
the name of Don Juan and his wife Dona Juanita, in the the SM Bank. On the
following day, Dona Juanita requested to withdraw P10,000 from said account.
a. If you were the bank manager, would you allow the withdrawal request of
Dona Juanita?
b. What steps should be taken by Dona Juanita, including the periods to be
observed, to withdraw the full amount? 5 pts
1. In all cases of transfers subject to tax, or where though exempt from tax, the gross
value of the estate exceeds P20,000, the executor, administrator, or any of the legal
heirs, as the case may be, within two (2) months after the decedent’s death, or within a
like period after qualifying as such executor or administrator, shall give a written
notice thereof to the Commissioner. (Sec 90-A).
2. File the return within six (6) months from decedent's death. However, the
Commissioner may, in meritorious cases, grant extension not exceeding thirty (30)
days.
3. A certified copy of the schedule of partition and the order of the court
approving the same shall be furnished the Commissioner within 30 days after the
promulgation of such order. (Sec. 90)
4. The Estate Tax imposed shall be paid at the time the return is filed by the
executor or administrator or the heirs. However, when the Commissioner finds that
payment on the due date of the Estate Tax or of any part thereof would impose undue
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hardship upon the estate or any of the heirs, he may extend the time for payment of
such tax or any part thereof not to exceed five (5) years, in case the estate is settled
through the courts or two (2) years in case the estate is settled extra-judicially.
VIII.
Pedro, one of the billionaires in Metro Manila celebrated his birthday on
February 29, 2008. As a tradition in celebrating his birthday, he donated a
vacant lot to a non-governmental organization and said organization would use
the lot in constructing a sports complex. The fair market value of the land at the
time it was given was P10,000 but Pedro had bought the said Land for only 1
million.
a. Is Pedro exempted from paying the donor’s tax and if so what
circumstances should the donee comply with?
Yes. In order that donations shall be exempt from donor’s gift tax, it is required
that not more than 30% of the said gifts shall be used by the done-institution
for administration purposes. (Sec 101-A)
b. Can Pedro claim as a deduction the donation given and if so, what amount
can he claim?
The amount of 1 Million. The amount of any charitable contribution of property
other than money shall be based on the acquisition cost of said property.
(Sec.34-H)
IX.
Romulo a wealthy businessman gave to his friend Jun a lot valued at 20M so that
Jun can retire from his work and fulfill his dream of having a goat farm.
b.Between giving the lot to Jun during his lifetime or giving the lot as a devise to
Jun in his last will and testament, which mode is more tax efficient from the
point of view of the donor? 2 pts
Estate Tax. The donor’s gift tax is much higher considering the donation was
given to a stranger. Romulo will pay 30% of the net gifts because Jun can be
considered a stranger if he chooses to make the donation intervivos as
compared to estate taxes
X.
Determine whether the following is, a) subject to 12%VAT; b)vat exempt or c)
zero rated:
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Section 105 of the Tariff and Customs Code of the Philippines as amended by Executive
Order No. 206 provides duty and tax free privileges to the following individuals, the
extent of which depends on their particular status:
Mr. Cortez is a non-resident alien based in Hong Kong. During the calendar year
1999, he came to the Philippines several times and stayed in the country for an
aggregated period of more than 180 days. How will Mr. Cortez be taxed on his
income derived from sources within the Philippines and from abroad? (5%)
SUGGESTED ANSWER:
Mr. Cortez being a non-resident alien individual who has stayed for an aggregated
period of more than 180 days during the calendar year 1999, shall for that taxable year
be deemed to be a non-resident alien doing business in the Philippines.
Considering the above, Mr. Cortez shall be subject to an income tax in the same manner
as an individual citizen and a resident alien individual, on taxable income received
from all sources within the Philippines. [Sec. 25 (A) (1), NIRC of 1997] Thus, he is
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allowed to avail of the itemized deductions including the personal and additional
exemptions but subject to the rule on reciprocity on the personal exemptions. (Sec. 34
(A) to (J) and (M) in relation to Sec. 25 (A) (1), Ibid, Sec. 35 (D),
P's dependents will be shouldered by HK Co. A Co. will credit the 50% of P's
salary to P's Philippine bank account. P will sign the contract of employment in
the Philippines. P will also be receiving rental income for the lease of his
Philippine residence. Are these salaries, allowances and rentals subject to the
Philippine income tax? (5%)
SUGGESTED ANSWER:
The salaries and allowances received by P are not subject to Philippine income tax. P
qualifies as a nonresident citizen because he leaves the Philippines for employment
requiring him to be physically present abroad most of the time during the taxable year.
(Section 22(E), NIRC). A nonresident citizen is taxable only on income derived from
Philippine sources. (Section 23, NIRC). The salaries and allowances received from
being employed abroad are incomes from without because these are compensation for
services rendered outside of the Philippines. (Section 42, NIRC).
However, P is taxable on rental income for the lease of his Philippine residence
because this is an income derived from within, the leased property being located in the
Philippines.
(Section 42, NIRC).
Explain if the following items are deductible from gross income for income tax
purposes. Disregard who is the person claiming the expense.
SUGGESTED ANSWER:
1) Interest on loans used to acquire capital equipment or machinery is a deductible
item from gross income. The law gives the taxpayer the option to claim as a deduction
or treat as capital expenditure interest incurred to acquire property used in trade,
business or exercise of a profession.
(Section 34(B) (3), NIRC).
2) Depreciation for goodwill is not allowed as deduction from gross income. While
intangibles maybe allowed to be depreciated or amortized, it is only allowed to those
intangibles whose use in the business or trade is definitely limited in duration. (Basilan
Estates, Inc. v, CIR, 21 SCRA 17). Such is not the case with goodwill.
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Panganiban, Victoria
Q: What is taxation?
Taxation is an inherent power of the sovereign, exercised through the
legislature to impose burdens upon subjects and objects within its jurisdiction
for raising revenues to carry out the legitimate objects of the government. It is
merely a way of apportioning the costs of government among those who in
some measure are privileged to enjoy its benefits and must bear its burdens.
Q: Is revenue the only purpose of taxation? What are the other purposes and objectives of
taxation?
No. The purposes and objectives of taxation are as follows:
1. Revenue
2. Regulation
3. Promotion of General Welfare
4. Reduction of Social Inequality
5. Encourage Economic Growth
6. Protectionism
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secures to the citizen that general benefit resulting from the protection of
his person and property and welfare of all. As to police power, however,
while no direct benefits are received, a healthy economic standard of
society known as “damnum absque injuria” is attained.
4. As to Non-Impairment of Contracts – In taxation, the non-impairment of
contracts rule subsists. A taxing act cannot impair the obligation of
contracts. In the exercise of police power, however, this limitation does not
apply.
5. As to Transfer of Property Rights – In taxation, taxes paid become part
of the public funds; in police power, no transfer, but only restraint on the
exercise, of property rights exists.
Calvan, Myrtle
Q: In what part of a proposed bill can you find the declaration of public purpose?
To start with, the equal protection clause does not require the universal
application of the laws to all persons or things without distinction. What it
simply requires is equality among equals as determined according to a valid
classification. The test developed by jurisprudence here and yonder is that of
reasonableness, which has four requisites:
Q: State the doctrine in British American Tobacco Case. Does the assailed law violate the
equal protection clause?
The assailed law does not violate the equal protection and uniformity of taxation
clauses.
Petitioner argues that the classification freeze provision violates the equal
protection and uniformity of taxation clauses because Annex “D” brands are
taxed based on their 1996 net retail prices while new brands are taxed based
on their present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of
Ormoc City, petitioner asserts that the assailed provisions accord a special or
privileged status to Annex “D” brands while at the same time discriminate
against other brands.
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The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and
expediency. That is, since a new brand was not yet in existence at the time of
the passage of RA 8240, then Congress needed a uniform mechanism to fix the
tax bracket of a new brand. The current net retail price, similar to what was
used to classify the brands under Annex “D” as of October 1, 1996, was thus the
logical and practical choice. Further, with the amendments introduced by RA
9334, the freezing of the tax classifications now expressly applies not just to
Annex “D” brands but to newer brands introduced after the effectivity of RA
8240 on January 1, 1997 and any new brand that will be introduced in the
future. (However, as will be discussed later, the intent to apply the freezing
mechanism to newer brands was already in place even prior to the
amendments introduced by RA 9334 to RA 8240.) This does not explain,
however, why the classification is “frozen” after its determination based on
current net retail price and how this is germane to the purpose of the assailed
law. An examination of the legislative history of RA 8240 provides interesting
answers to this question.
xxxx
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thereof. Curiously, the classification freeze provision was put in place of the
periodic adjustment and reclassification provision because of the belief that the
latter would foster an anti-competitive atmosphere in the market. Yet, as it is,
this same criticism is being foisted by petitioner upon the classification freeze
provision.
To our mind, the classification freeze provision was in the main the result of
Congress’s earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with other
State interests. In particular, the questioned provision addressed Congress’s
administrative concerns regarding delegating too much authority to the DOF
and BIR as this will open the tax system to potential areas for abuse and
corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would
address the problems of tax avoidance and tax evasion.
a. Failure to declare for taxation purposes true and actual income derived from
business for two consecutive years.
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Q: What are the differences between tax evasion and tax avoidance?
Answer: Tax avoidance is legal and not subject to criminal penalty. Its effect is
the minimization of taxes. Tax Evasion is illegal and subject to criminal penalty.
It almost always results in the absence of tax payments.
Q: Angel Locsin failed to report some of her income in her income tax return. Is it a
case of tax evasion?
Answer: Mere failure to report some income does not constitute tax evasion.
There must be an accompanying state of mind which is described as being evil,
in bad faith, wilful, or deliberate and not coincidental. The course of action
must be unlawful. However, Substantial underdeclaration of taxable sales,
receipts, or income or a substantial overstatement of deductions shall
constitute prima facie evidence of a false or fraudulent return. Substantial
underdeclaration means failure to report sales, receipts, or income in an
amount exceeding 30% of that declared per return. Substantial overstatement
means claim of deductions in an amount exceeding 30 % of actual deductions.
Sandoval, Camhella
Q: If you are going to give another name for the Lifeblood theory, what will it be?
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Q: What is the reason behind why the title of the Bill must contain only one subject?
Answer: To inform the public and to prevent hodgepodge legislation or log-rolling
legislation.
Q: Cafeteria, exempt?
Yes. For the sustenance of the students.
Revilla, Rodrigo
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least 2/3 of all the members of the Senate." (Sec. 21, Art. VII, Philippine
Constitution)
Publication is not required. The treaty enters into force as soon as the consent
of all the parties to be bound by the treaty is established. But note: Article 102
of the UN Charter requires that every treaty and international agreement
entered into by any UN member as soon as possible with the Secretariat and
published by it. Failure to register would not, however, affect the validity of the
treaty; however, the unregistered instrument cannot be invoked by any party
thereto before any organ of the UN.
Q: When a treaty grants a tax exemption, can the government by regulation prescribe
additional requirements before a taxpayer can avail the tax exemption under the treaty?
Q: If you were a taxpayer, what can you argue against such tax regulation?
Q: If you were the government, what can you argue against the taxpayer?
Rules and regulations must not override, but must remain consistent and in
harmony with the law or tax treaty that is sought to be applied and
implemented. They are intended to carry out, neither to supplant nor to
modify, the law. Thus a taxpayer who intends to avail of an exemption under a
tax treaty can argue that a regulation is in the guise of legislation by not only
imposing additional burden but depriving the taxpayer of a tax exemption,
which, if without the regulation, will be available to him under the law or tax
treaty. The government, may, however, argue that the issuance of the
regulation is for mere administration and collection purposes, or that the
government is expressly granted by the law or tax treaty to prescribe
additional requirements by regulation.
Q: How are tax laws construed? 6. Are there exceptions? 7. Why are the exceptions
construed that way?
Tax laws are construed most strongly against the Government, and liberally in
favor of the citizen because burdens are not to be imposed beyond what the
statute expressly and clearly import.
Tax exemptions, however, are highly disfavored in law and construed strictly
against he who claims an exemption. So as not to defeat the purpose for which
certain tax exemptions are granted, this rule of strict construction of tax
exemptions does not apply: a) When the statute granting exemption provides
for liberal construction thereof, b) In case of special taxes relating to special
cases and affecting only special classes of persons, c) If the tax exemption
refers to public property, and d) in cases of those granted to 1) organizations
performing strictly religious, charitable and education functions and 2)
government political subdivisions or instrumentality.
Zulueta, Isabel
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Q: Can an exaction be both a tax and a regulatory fee at the same time?
Yes as in the case of license taxes. A law like PD 1987 which regulates the
videogram industry may validly impose a tax of 30% on the gross receipts of
videogram operators. In the case of Tio v. Videogram Regulatory Board, it was
held that the provisions of Sec.26 of the Constitution which requires that every
bill must contain only one subject which must be expressed in the title thereof
is not violated.
Q: With regard to the exemption I n the Constitution: Sec. 28(3), Art Vi, of the
Constitution provides “Charitable Institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation, to what kind of tax does this
exemption apply?
This applies only to property or realty taxes assessed on such properties used
directly, actually and exclusively for religious, charitable and educational
purposes.
Q: Can the local government also impose other taxes on the same property aside from the
basic real property tax?
Yes. The local taxing power extends not only to the imposition of the basic real
property tax, which has already been discussed, but it also includes the
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imposition of the special levies. These are: (1) the 1% additional real estate tax
to finance the Special Education Fund (SEF) which is levied on an ad valorem
basis (Sec.235 LGC); (2) the 5% additional tax on idel lands likewise imposed
on an ad valorem basis (Sec. 236,LGC); and (3) the special levy or special
assessment which is not actually a tax (Sec.240, LGC).
Q: Congressman Manny pacquiao will pass a bill imposing tax upon all residents of
General Santos. Valid or not?
Q: The City of Manila intends to impose local tax to the LRT, can they validly do so?
Section 5, Article 10, 1987 Constitution provides that “Each local government
unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local governments.”
However, in the case at bar, the City of Manila cannot impose local tax to the
LRT by virtue of the Principle of Pre-emption where the National Government
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elects to tax a particular area, it impliedly withholds from the local government
the delegated power to tax the same field. This doctrine principally rests on the
intention of the Congress. LRT is being taxed by the National Government,
hence, the City of Manila cannot impose its local tax upon it.
Gross estate
Less: (1) Deductions
(2) Net Share of the Surviving Spouse in the CPP
---------------------------------------------------------------------------
Net Taxable Estate
C. Payment of Tax
1. General Rule: Pay-as-you-file
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a. Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the BIR.
b. Where facts subsequently gathered by the BIR are materially different from
the facts on which the ruling was based.
c. Where the taxpayer acted in bad faith.
Sampaga, Genelou
Q: What are the powers and duties of the Commissioner of Internal Revenue?
Q: What are the powers and duties of the Commissioner which cannot be delegated?
Q: From the decision of the Commissioner of Internal Revenue, what is the remedy of the
taxpayer? Under what rule in the Rules of Court?
Income Taxation
Cachapero, Oliver
Q: What is the effect if administrative agencies like the BIR make an interpretation of tax
laws through a regulation?
ANSWER:
Such interpretation must be given much weight and respect since even if it is not
a law, it has the efficacy of a law applying the doctrine of subordinate legislation.
Q: In a taxicab business, how will you categorize the vehicle used in such business?
ANSWER:
It cannot be considered as a capital asset because it is a property used in his
trade or business. (Sec.39 of NIRC)
Q: What are the rates that are needed to be considered in dealing with interests on
individuals?
ANSWER:
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The imposable 20% final tax rate on interests and the 33% allowable interest
deduction on interest expenses.
Casibang, Ruben
Q: What are the governing principles relating to income taxation that are embodied in
Section 23 of the Tax Code?
a. Citizenship principle
b. Residence principle
c. Source principle
Q: Nora Aunor is a known actress. She went to the US and stayed there for several years
and earned income. In the middle of the year, say June , she came back and accepted
projects in the movie industry. how will her tax on income be treated?
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Under Sec 22 (e) (4) of the Tax Code, Nora aunor shall be considered as a
nonresident citizen. It states that a citizen who has been previously considered
as nonresident and who arrives in the Philippines at anytime during the
taxable year to reside permanently in the Philippines shall likewise be treated
as a nonresident citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from sources abroad until the
date of his arrival in the Philippines. Thus, income she received while she was
in the US shall be treated as income from sources without and is not taxable
because was then a nonresident citizen. On the other hand upon arrival in the
Philippines, income within shall be taxable.
Q: Pilots and stewardess of Philippine Airlines, how will their tax on income be treated?
Are their tax treatment similar to seaman?
Quinto, Ramiila
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Q: What else?
GSIS, SSS, PHIC, PCSO. Generally all government owned and controlled
corporations have the same rules governing domestic corporations engaged in
similar business industry, or activity applies.
Q: What else,
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Payumo, Margielyn
General Rule:
Subject to 15% final tax as long as the country in which the NRFC is domiciled
allows a tax credit for taxes "deemed paid" in the Philippines equivalent to
15% or does not impose tax on dividends.
The fact that the country in which the NRFC is domiciled does not impose any
tax on.the dividends received by such corporation should be held as a full
satisfaction ofthe condition for the availment of the 15% final tax.
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Exception: It is subject to final tax of 30% IF the country within which the
NRFC is domiciled does NOT allow a tax credit.
Quilates, Donelle
ANSWERS:
1. Capital asset is defined in the NIRC in the negative. Meaning, if the asset is not
included within the meaning of an ordinary asset, it is considered to be a
capital asset. The term "capital assets" means property held by the taxpayer
(whether or not connected with his trade or business), but does not include
stock in trade of the taxpayer or other property of a kind which would properly
be included in the inventory of the taxpayer if on hand at the close of the
taxable year, or property held by the taxpayer primarily for sale to customers
in the ordinary course of his trade or business, or property used in the trade or
business, of a character which is subject to the allowance for depreciation
provided in Subsection (F) of Section 34; or real property used in trade or
business of the taxpayer.
2. No, the sale of Megaworld to the Chief Justice is not subject to the capital gains
tax on sale of real property located in the Philippines. In order to subject the
said transaction to the capital gains tax, it is necessary that the real property be
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treated as a capital asset. In the case at bar, since Megaworld is engaged in the
trading and selling of real estate, the said Bellagio unit should not be
considered as a capital asset. This is so because the said property is included in
the inventory of the Megaworld.
3. The tax base of the capital gains tax from the sale of real property located in the
Philippines is 6% of the higher between: (a) The gross selling price; and (b)
prescribed zonal value of real properties as prescribed by the commissioner
OR the fair market value based on schedule of values of the of the provincial or
city assessors whichever is higher.
4. Tax arbitrage is the mandatory deduction of the interest income subject to final
tax against the interest expense to be recognized under deductions of the gross
income. The purpose is to discourage back to back loan to take advantage of
the lower rate of tax on interest income and a higher rate of tax on interest
expense deduction.
5. No, the rate is not arbitrary. The 33% reduction is derived from the ratio of the
difference between the 30% corporate income tax and 20% final tax on
interest income over the 30% corporate income tax rate [(30% - 20%) / 30% =
33%]. In this way the 10% advantage in case of back to back loans will be
avoided.
Antonio, Regatta
Q: If, for example, Iggy Arroyo, designated Grace Ibuna, his mistress as the beneficiary in
an insurance contract, tax implication?
Grace Ibuna, as a mistress, may not be designated as a beneficiary to the
insurance contract because she fall sunder the exceptions of void donations
under Art. 329 of the NCC.
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Q: What if I donated a painting to a church worth P1 million, and the church sells it for
the renovation of the church building, what are the tax implications?
The first transaction – your donation to the church – not taxable. Donation to a
religious organization. The second transaction – the selling of the painting –
not taxable – the fund will be used to rebuild the church.
Q: What if they put up a store outside San Beda and made a business of selling shirts and
jackets?
Taxable, if the selling is done on a commercial level with an economic end, it
will be subject to tax.
Q: If articles are already subject to final tax, can they still be subject to the scheduler
rates?
No. There will be double taxation.
Q: If capital would be equated to a tree, what would it be? Branch, roots, leaves, fruits?
Tree.
Castillo, Beverly
Q: Kinds of Deductions
There are three types of deductions from gross income. These are:
a. The itemized deductions in Section 34(A)to (J) and (M) available to all
kinds of taxpayers engaged in trade or business or practice of
profession in the Philippines;
b. The optional standard deduction in Section 34(L) available only to
individual taxpayers deriving business, professional, capital gains and
passive income not subject to final tax, or other income; and
c. The special deductions in Section 37 and 38, both of the Tax Code, and
in special laws like the BOI law (E.O.226) (Mamalateo, Reviewer on
taxation, Second Edition 2008).
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employer for at least five years and that he be not less than 65 years of age at
the time of his retirement (Domondon, Taxation Volume II, 2009 Eight Edition).
Q: If you were an employer, and your top rank in-house counsel acquired HIV, will the
separation benefits be excluded in the gross income?
1. There is an indebtedness
2. The indebtedness must be that of the taxpayer
3. The interest must be legally due
4. The interest must be stipulated in writing
5. The interest expense must have been paid or incurred during the taxable year
6. The indebtedness must be connected with the taxpayer’s trade, business or
exercise of profession
7. The interest arrangement must not be between related taxpayers
8. The interest is not expressly disallloed by law to be deducted from gross
income of the taxpayer
9. The amount of interest deducted from gross income does not exceed the limit
set forth in the law
Tax arbitrage is one wherein back-to-back loan is used to take advantage of the
lower rate of tax on interest income and a higher rate of tax on interest
expense deduction.
As a general rule, the entire amount shall be allowed as a deduction from the
taxpayer’s gross income. However, to deal with the tax arbitrage, the
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ABC Corporation borrowed P1million from XYZ Savings Bank at 10% per
annum. Since it did not really need the money, it placed the proceeds of the
loan in a time deposit, which earns interest at 10% per annum with the same
bank. The interest income in the amount of P100,000 of ABC Corporation was
subjected to 20% final withholding tax, but the interest expense of ABC
Corporation in the amount of P100,000 was deducted from its gross income
during the taxable year. The tax benefit of the corporation on such interest
expense deduction was 33%.
Q: You own a Taxi Company. One cab driven by your employee was lost due to theft. Can
you deduct the value of the car as a loss from the gross income?
YES. Ordinary Losses include losses of property connected with trade,
business, or profession, if the loss arises from fires, storms, shipwreck or other
casualties, or from ROBBERY, THEFT, or embezzlement.
Q: What are the essential requisites in allowing necessary and ordinary expenses as
deduction?
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An expense need not be necessary and ordinary at the same time to be allowed as
deduction.
Yes, Section 34 (A) (1)(b), NIRC, is explicit: "x x x the taxpayer shall substantiate
with sufficient evidence, such as official receipts or other adequate records: (i) the
amount of the expense being deducted, and (ii) the direct connection or relation of
the expense being deducted to the development, management, operation and/or
conduct of the trade, business or profession of the taxpayer.
Q: When a withholding agent fails to withhold and remit, what’s the liability of such
withholding agent? 9. Can the withholding agent treat the payment of such liability as a
necessary or business expense?
The withholding agent shall be liable for the amount not withheld and remitted.
Such amount, however, cannot be allowed as a business expense because it is not
paid/incurred in carrying on a trade or business. It is instead a penalty which is
paid/incurred by the withholding agent for his failure to comply with his duties
under the law as withholding agent.
The following are non-deductible taxes: a) income tax, b) estate and donor's tax, c)
special assessments, d) excess electric consumption tax, e) foreign income tax, war
profits, and excess profits tax, if the taxpayer makes use of tax credit and f) final
taxes, being in the nature of income tax.
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Only the tax proper paid/incurred by the taxpayer shall be allowable as deduction.
Hence, payments for interests, surcharges and penalties or fines, incident to
delinquency, are not included.
Sampaga, Genelou
Q: If the seller has gross receipts amounting to P100,000 and input tax amounting
to P20,000, is the taxpayer liable for VAT?
Q: What if the seller has gross receipts amounting to P100,00 and input tax
amounting to P20,000, is the taxpayer liable for VAT? What are the options of the
taxpayer?
Q: Is there a prescriptive period if the taxpayer avails of the tax refund remedy?
Transfer Taxes
Calvan, Myrtle
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(2) Relative by consanguinity in the collateral line within the fourth degree of
relationship.
Q: What are the exemptions from donor’s tax? Distinguish those made by a resident and
those made by a non-resident.
(2) Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit, or to any
political subdivision of the said Government; and
That not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes. For the purpose of the exemption, a
'non-profit educational and/or charitable corporation, institution, accredited
nongovernment organization, trust or philanthropic organization and/or
research institution or organization' is a school, college or university and/or
charitable corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or organization,
incorporated as a nonstock entity, paying no dividends, governed by trustees
who receive no compensation, and devoting all its income, whether students'
fees or gifts, donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes enumerated in its
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NIRC Remedies
Sulit, Dioxenos
Q: Period to assess? What is the exact date? If your 2009 income is filed on April 15 2010,
when will the prescription period begin and end?
For ordinary assessment, the period to assess is 3 years after the last day
prescribed by law for filing a return (April 16, the day after April 15).
The period to assess begins on April 16, 2010 and will end April 16, 2013.
If you file your return before March 16, when will the prescription period to
assess start? What is the reason behind the provision “if a return is filed before
the last day for filing thereof, it shall be considered filed on such last day?”
The prescription period to assess will still start April 16. If a return is filed
before the last day for filing thereof, it shall be considered filed on such last
day
The reason is that there will be uniformity in the assessment of the BIR;
otherwise there will be different starting points upon which the BIR would
assess.
Q: How do you compute the 3-year prescription period? Do you consider the leap year?
The last day to assess is always the 1095th day from April 16 regardless
whether it’s a leap year or not (RMC No. 48-90).
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Q: Is there a difference between levy under the NIRC and levy under the LGC?
Aside from difference between 1) laws governing the levy, NIRC- Sec 207-227
LGC- Sec 176-180 and 2) Issuance of certificate of levy, in NIRC there is
Warrant of Levy served upon the Register of Deeds and delinquent taxpayer
while in LGC, there is only Certificate of Levy to be served upon the Assessor,
Registrar of Deeds, and taxpayer, ALL other aspects and procedure are the
same.
Q: Prescription of assessment. What if April 15 falls on a Sunday, when is the last day of
filing a return? When will assesment prescribe?
If April 15 falls on a Sunday, the last day of filing of a return shall be the next
working day after Sunday which is Monday, April 16. With respect to the
prescription of assessment, count (365 x 3) days from the day the return was
filed.
1. When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing on the face of the return
2. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed agaisnt the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year
4. When the excise tax due on excisable articles has not been paid
5. When an article locally purchased or imported by an exempt person such as
but not limited to, vehicles, capital equipment, machineries adn spare parts has
been sold, traded, or transferred to non-exempt persons
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4. When the taxpayer is intending to perform any act tending to obstruct the
proceedings for collecting the tax due or which may be due from him
Madridijo, Marlon
Under abnormal circumstances, the government may assess within ten years from
the discovery of the non-filing or the filing of fraudulent or false return.
Sampaga, Genelou
Q: What are the instances when a Preliminary Assessment Notice is not required?
Q: What happens when the taxpayer fails to respond after receipt of the Preliminary
Assessment Notice?
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Q: What are some of the amendments brought about by Republic Act no. 9282?
Answer: The Court of Tax appeals was elevated to the same level as the Court
of Appeals. Appeals from its decision shall now be made before the Supreme
Court. The expanded jurisdiction of the Tax Court included the following:
a. Exclusive original jurisdiction over all criminal offense under the NIRC and
TCC and other laws admissible by the BIR and BOC where the amount of taxes
and fines is P1 million or more;
d. Exclusive original jurisdiction over tax collection cases where the amount
involved is P1 million or more
e. Exclusive appellate jurisdiction over tax collection where the amount is less
than P1 million.
Answer: Republic Act no. 9503 enlarged the organizational structure of the
Court of Tax Appeals by increasing the number of CTA justices from 6 to 9 and
increasing the number of Divisions from 2 to 3, each division constituting of 3
justices. The Supreme Court is composed of a Chief Justice and 14 Associate
Justices. It may sit en banc or in its discretion, in divisions of three, five or
seven members.
Q: How do the CTA and Supreme Court render decision? What is the quorum of CTA?
Answer: The CTA may sit en banc or in three Divisions, each Division consisting
of three Justices.
Five Justices shall constitute a quorum for sessions en banc and two Justices for
sessions of a Division provided, that when the required quorum cannot be
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The affirmative votes of five members of the Court en banc shall be necessary
to reverse a decision of a Division but a simple majority of the Justices present
necessary to promulgate a resolution or decision in all other cases or two
members of a Division, as the case may be, shall be necessary for the rendition
of a decision or resolution in the Division level.
All other cases involving rulings, orders or decisions filed with the CTA shall be
raffled to its Divisions. A party adversely affected by a ruling, order or decision
of a Division of the CTA may file a motion for reconsideration of new trial
before the same Division of the CTA within fifteens (15) days from notice
thereof: provided, however, that in criminal cases, the general rule applicable
in regular Courts on matters of prosecution and appeal shall likewise apply.
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No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court,
provincial, city or municipal treasurer or the Secretary of Finance, the
Secretary of Trade and Industry and Secretary of Agriculture, as the case may
be shall suspend the payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability as provided by existing law:
provided, however, that when in the opinion of the Court the collection by the
aforementioned government agencies may jeopardize the interest of the
Government and/or the taxpayer the Court any stage of the proceeding may
suspend the said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount
with the Court.
A party adversely affected by a decision or ruling of the CTA en banc may file
with the Supreme Court a verified petition for review on certiorari pursuant to
Rule 45 of the 1997 Rules of Civil Procedure.
Panganiban, Victoria
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Conditionally- free importations are articles which are exempt from import
duties upon compliance with the formalities prescribed or with regulations
promulgated by the Commissioner of Customs with the approval of Secretary
of Finance. This article includes:
a. Those prohibited for in Sec. 105 of the Tariff and Customs Code;
b. Those granted to government agencies, government-owned or controlled
corporations with agreement with foreign countries;
c. Those given to international institutions, entitled to exemption by
agreement or special laws; and;
d. Those that maybe granted by the President upon NEDA’s recommendation.
Q: What are the articles prohibited from being imported into the Philippines?
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Q: What are the conditions for aquatic products to be exempt from import duties?
Aquatic products caught or gathered by fishing vessels of Philippine registry:
provided that they are imported in such vessels or in crafts attached thereto:
and provided further, that they have not been landed in any foreign territory or
if so landed, they have been landed solely for transshipment without having
been advanced in condition.
Q: What are the special duties imposed under the Tariff and Customs Code?
a. Dumping duties
b. Countervailing duties
c. Marking duties
d. Discriminatory duties
Q: Can tariff and customs duties be the subject of a claim for refund or credit? If yes,
within what period must the claim for refund be filed?
Yes, all claims for refund of duties shall be made in writing and forwarded to the Collector
to whom such duties are paid, who upon receipt of such claim, shall verify the same by the
records of his Office, and if found to be correct and in accordance with law, shall certify the
same to the Commissioner with his recommendation together with all necessary papers
and documents. Upon receipt by the Commissioner of such certified claim he shall cause
the same to be paid if found correct. If a result of the refund of customs duties there would
necessarily result a corresponding refund of internal revenue taxes on the same
importation, the Collector shall likewise certify the same to the Commissioner who shall
cause the said taxes to be paid, refunded, or tax credited in favor of the importer, with
advice to the Commissioner of Internal Revenue.
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1. General Principles
a. Non Impairment of Contracts
In Timbol vs. Sec. of Finance,( G.R. No. 193007; July 19, 2011), Petitioner Timbol
has no personality to invoke the non-impairment of contract clause on behalf of
private investors in the tollway projects. She will neither be prejudiced by nor be
affected by the alleged diminution of return of investments that may result from the
value-added tax imposition. She has no interest at all in the profits to be earned under
the toll operating agreements. The interest in and right to recover investments solely
belongs to private investors.
b. Administrative feasibility.
In the same case of Timbol vs. Sec. of Finance,( G.R. No. 193007; July 19, 2011)
Administrative feasibility is one of the canons of a sound tax system. It simply means
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that the tax system should be capable of being effectively administered and enforced
with the least inconvenience to the taxpayer. Non-observance of the canon, however,
will not render a tax imposition invalid “except to the extent that specific constitutional
or statutory limitations are impaired. Thus, even if the imposition of value-added tax
on tollway operations may seem burdensome to implement, it is not necessarily
invalid unless some aspect of it is shown to violate any law or the Constitution. .
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determination, it is premature for the respondent city to have conducted the auction
sale and caused the transfer of title over the real properties to its name. The denial by
the Regional Trial Court (RTC) to issue an injunction or a temporary restraining order
does not automatically give the respondent city the liberty to proceed with the actions
sought to be enjoined, especially so in this case where a certiorari petition assailing the
denial is still being deliberated in the Court of Appeals (CA). All the more it is
premature for the RTC to issue a writ of possession where the ownership of the subject
properties is derived from an auction sale, the validity of which is still being threshed
out in the CA. The RTC should have held in abeyance the issuance of a writ of
possession. At this juncture, the writ issued is premature and has no force and effect.
According to Sta. Lucia Realty & Development, Inc. vs. City of Pasig, (G.R. No.
166838, June 15, 2011), Under Presidential Decree No. 464, or the “Real Property
Tax Code,” the authority to collect real property taxes is vested in the locality where
the property is situated. This requisite was reiterated in Republic Act No. 7160, or the
Local Government Code. Thus, while a local government unit is authorized under
several laws to collect real estate tax on properties falling under its territorial
jurisdiction, it is imperative to first show that these properties are unquestionably
within its geographical boundaries. The Court cited the case of Mariano, Jr. v
Commission on Elections which stated that “the importance of drawing with precise
strokes the territorial boundaries of a local unit of government cannot be
overemphasized. The boundaries must be clear for they define the limits of the
territorial jurisdiction of a local government unit. It can legitimately exercise powers of
government only within the limits of its territorial jurisdiction. Beyond these limits, its
acts are ultra vires.” Clearly therefore, the local government unit entitled to collect real
property taxes from Sta. Lucia must undoubtedly show that the subject properties are
situated within its territorial jurisdiction; otherwise, it would be acting beyond the
powers vested to it by law.
In the same case of Sta. Lucia the Supreme Court said that while a certificate of title
is conclusive as to its ownership and location, this does not preclude the filing of an
action for the very purpose of attacking the statements therein. As the Court
proclaimed in the case of De Pedro vs Romasan Development Corporation: “[W]hile
certificates of title are indefeasible, unassailable and binding against the whole world,
including the government itself, they do not create or vest title. They merely confirm or
record title already existing and vested. That cannot be used to protect a usurper from
the true owner, nor can they be used as a shield for the commission of fraud; neither
do they permit one to enrich himself at the expense of other.” Although it is true that
“Pasig” is the locality stated in the transfer certificates of title of the subject properties,
both taxpayer and the municipality of Cainta aver that the metes and bounds of the
subject properties, as they are described in the certificates, reveal that they are within
Cainta’s boundaries. This only means that there may be a conflict between the location
as stated and the location as technically described in the certificates. Mere reliance
therefore on the face of the certificates will not suffice as they can only be conclusive
evidence of the subject properties’ locations if both the stated and described locations
point to the same area. The Antipolo regional trial court, wherein the boundary dispute
case between Pasig and Cainta is pending, would be able to best determine once and
for all the precise metes and bounds of both Pasig’s and Cainta’s respective territorial
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jurisdictions. The resolution of this dispute would necessarily ascertain the extent and
reach of each local government’s authority, a prerequisite in the proper exercise of
their powers, one of which is the power of taxation.
In the same case of AGFHA, the Commissioner of Customs cannot escape liability for
the lost shipment for goods. As discussed in the case of Republic of the Philippines
represented by the Bureau of Customs vs UNIMEX Micro-Electronics GmBH, “the Court
cannot turn a blind eye to [the Bureau of Custom’s] ineptitude and gross negligence in
the safekeeping of respondent’s goods. [The Court is] not likewise unaware of its
lackadaisical attitude in failing to provide a cogent explanation on the goods’
disappearance, considering that they were in its custody and that they were in fact the
subject of litigation. The situation does not allow [the Court] to reject respondent’s
claim on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine
must be fairly observed and the State should not avail itself of this prerogative to take
undue advantage of parties that may have legitimate claims against it.
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5. Income taxation
a. Power of Commissioner of Internal Revenue
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interest expense from its gross income, there would still be no factual basis for the
imputation of theoretical interests on the subject advances and assess deficiency
income taxes thereon. Further, pursuant to Article 1959 of the Civil Code of the
Philippines, no interest shall be due unless it has been expressly stipulated in writing.
b. Gross income
In the same case of Filinvest, there is no deficiency tax that can be assessed on the
gain on the supposed dilution and/or increase in the value of taxpayer’s shareholdings
in the transferee which the Commissioner of Internal Revenue (CIR), at any rate, failed
to establish. Bearing in mind the meaning of “gross income,” it cannot be gainsaid that
a mere increase or appreciation in the value of the shares cannot be considered income
for taxation purposes. Since “a mere advance in the value of the property of a person or
corporation in no sense constitute the ‘income’ specified in the revenue law,” it has
been held in the early case of Fisher vs. Trinidad that it “constitutes and can be treated
merely as an increase of capital.” Hence, the CIR has no factual and legal basis in
assessing income tax on the increase in the value of the taxpayer’s shareholdings in the
transferee until the same is actually sold.
The Supreme Court in Supreme Transliner, Inc., Moises C. Alvarez and Paulita S.
Alvarez vs BPI Family Savings Bank, Inc., G.R. No. 165617, February 25, 2011,
said that Revenue Regulations (RR) No. 13-85 (December 12, 1985), every sale or
exchange or other disposition of real property classified as capital asset under the
National Internal Revenue Code (NIRC) shall be subject to final capital gains tax. The
term “sale” includes pacto de retro and other forms of conditional sale. Section 2.2 of
Revenue Memorandum Order (RMO) No. 29-86, as amended by RMO Nos. 16-88, 27-
89 and 6-92, states that these conditional sales “necessarily includes mortgage
foreclosure sales (judicial and extrajudicial foreclosure sales).” Further, for real
property foreclosed by a bank on or after September 3, 1986, the capital gains tax and
documentary stamp tax must be paid before title to the property can be consolidated
in favor of the bank. Under Section 63 of Presidential Decree No. 1529, or the Property
Registration Decree, if no right of redemption exists, the certificate of title of the
mortgagor shall be cancelled, and a new certificate issued in the name of the
purchaser. But where the right of redemption exists, the certificate of title of the
mortgagor shall not be cancelled, but the certificate of sale and the order confirming
the sale shall be registered by brief memorandum thereof made by the Register of
Deeds on the certificate of title. It is therefore clear that in foreclosure sale, there is no
actual transfer of the mortgaged real property until after the expiration of the one-year
redemption period as provided in Act No. 3135, or An Act or Regulate the Sale of
Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages, and
title thereto is consolidated in the name of the mortgagee in case of non-redemption. In
the interim, the mortgagor is given the option whether or not to redeem the real
property. The issuance of the Certificate of Sale does not by itself transfer ownership.
RR No. 4-99 (March 16, 1999), further amends RMO No. 6-92 relative to the payment
of capital gains tax and documentary stamp tax on extrajudicial foreclosure sale of
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capital assets initiated by banks, finance and insurance companies. Under this RMO, in
case the mortgagor exercises his right of redemption within one year from the
issuance of the certificate of sale, no capital gains tax shall be imposed because no
capital gain has been derived by the mortgagor and no sale or transfer of real property
was realized. Moreover, the transaction will be subject to documentary stamp tax of
only PhP 15 because no land or realty was sold or transferred for a consideration.
d. Tax-free exchange
Under the abovementioned case of Filinvest the requisites for the non-recognition
of gain or loss under section 34 (c) (2) [now Section 40 (c) (2)] of the 1993 National
Internal Revenue Code (NIRC) are the following: (a) the transferee is a corporation; (b)
the transferee exchanges its shares of stock for property/ies of the transferor; (c) the
transfer is made by a person, acting alone or together with others, not exceeding four
persons; and (d) as a result of the exchange the transferor, alone or together with
others, not exceeding four, gains control of the transferee. [Prior to the exchange,
transferor already had a controlling interest in the transferee. The taxpayer, together
with another affiliate which was not an existing stockholder of the transferor prior to
the exchange, exchanged property for shares of stock in the transferee. The taxpayer’s
controlling interest went down from 67.42% prior to the exchange to 61.03% after the
exchange. The affiliate acquired 9.96% of the transferee as a result of the
exchange.]The Commissioner of Internal Revenue (CIR) argues that taxable gain
should be recognized for the exchange considering that the taxpayer’s controlling
interest in the transferee was decreased as a result of the transfer while the affiliate
acquired only 9.96% of the transferee. Rather than isolating the same as proposed by
the CIR, the taxpayer’s 61.03% control of transferee should be appreciated in
combination with the 9.96% which as issued to its affiliate. Since, the term “control” is
clearly defined as “ownership of stocks in a corporation possessing at least fifty -one
percent of the total voting power of classes of stock entitled to vote,” the exchange of
property for stocks between taxpayer, the affiliate and the transferee clearly qualify as
a tax free exchange under the NIRC.
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Commissioner of Internal Revenue, G.R. No. 176165; June 15, 2011, The last
sentence of Section 76 of the National Internal Revenue Code, stating that “[o]nce the
option to carry-over and apply the excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor,” is clear in its
mandate. Once the corporation exercises the option to carry-over and apply the excess
quarterly income tax against the tax due for the taxable quarters of the succeeding
taxable years, such option is irrevocable for that taxable period. Having chosen to
carry-over the excess quarterly income tax, the corporation cannot thereafter choose
to apply for a cash refund or for the issuance of a tax credit certificate for the amount
representing such overpayment.
f. Withholding agent
6. Tax Remedies
The requisites for claiming a tax credit or a refund of creditable withholding tax are
as follows: (1) the claim must be filed with the Commissioner of Internal Revenue
within the two-year period from the date of the payment of the tax; (2) it must be
shown on the return that the income received was declared as part of the gross
income; and (3) the fact of withholding must be established by a copy of a statement
duly issued by the payor to the payee showing the amount paid and the amount of the
tax withheld. Commissioner of Internal Revenue vs. Mirant (Philippines)
Operations, Corporation, G.R. No. 171742; Mirant (Philippines) Operations,
Corporation vs. Commissioner of Internal Revenue, G.R. No. 176165; June 15,
2011.
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The authority to print (ATP) need not be reflected or indicated in the invoices or
receipts because there is no law or regulation requiring it. In the absence of such law
or regulation, failure to print the ATP on the invoices or receipts should not result in
the outright denial of a claim or the invalidation of the invoices or receipts for
purposes of claiming a refund. However, section 238 of the National Internal Revenue
Code (Tax Code) expressly requires persons engaged in business to secure an ATP
from the Bureau of Internal Revenue prior to printing invoices or receipts. Under
section 112 (A) of the Tax Code, a claimant must be engaged in sales which are zero-
rated or effectively zero-rated. To prove this, duly registered invoices or receipts
evidencing zero-rated sales must be presented. However, since the ATP is not
indicated in the invoices or receipts, the only way to verify whether the invoices or
receipts are duly registered is by requiring the claimant to present its ATP from the
BIR. Without this proof, the invoices or receipts would have no probative value for the
purpose of refund. Silicon Philippines, Inc. (formerly Intel Philippines
Manufacturing, Inc.) vs Commissioner of Internal Revenue, G.R. No. 172378,
January 17, 2011.
Failure to print the word “zero-rated” on the sales invoices or receipts is fatal to a
claim for refund of input value-added tax on zero-rated sales. As explained in the case
of Panasonic Communications Imaging Corporation of the Philippines (formerly
Matsushita Business Machine Corporation of the Philippines) vs Commissioner of
Internal Revenue, compliance with section 4.108-1 of Revenue Regulations No. 7-95,
requiring the printing of the word “zero-rated” on the invoice covering zero-rated
sales, is essential as this regulation proceeds from the rule-making authority of the
Secretary of Finance under section 244 of the National Internal Revenue Code. Silicon
Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs
Commissioner of Internal Revenue, G.R. No. 172378, January 17, 2011.
When claiming tax refund or credit, the value-added taxpayer must be able to
establish that it does have refundable or creditable input value-added tax (VAT), and
the same has not been applied against its output VAT liabilities- information which are
supposed to be reflected in the taxpayer’s VAT returns. Thus, an application for tax
refund or credit must be accompanied by copies of the taxpayer’s VAT return or
returns for taxable quarter or quarters concerned. Atlas Consolidated Mining and
Development Corporation vs Commissioner of Internal Revenue, G.R. No.
159471, January 26, 2011.
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The provision in Revenue Regulation (RR) No. 16-2005 subjecting PAGCOR to 10%
value-added tax (VAT) is invalid for being contrary to Republic Act (RA) No. 9337.
Nowhere in RA No. 9337 is it provided that PAGCOR can be subjected to VAT. RA No.
9337 is clear only as to the removal of PAGCOR’s exemption from the payment of
corporate income tax. RA No. 9337 itself exempts PAGCOR from VAT pursuant to
Section 7 (k) thereof which provides among the transaction exempt from VAT,
transactions which are exempt under special laws. PAGCOR’s charter, Presidential
Decree No. 1869, is a special law that grants it exemption from taxes. Moreover,
PAGCOR’s exemption from VAT is supported by Section 6 of RA No. 9337, which
retained Section 108 (B)(3) of RA No. 8424. Under this Section 108 (B)(3), among
transactions subject to zero percent (0%) rate are services rendered to persons or
entities whose exemption under special laws effectively subject the supply of such
services of zero percent (0%) rate. PAGCOR’s exemption from VAT has been discussed
in the case ofCommissioner of Internal Revenue vs Acesite (Philippines) Hotel
Corporation, where the Court held that Section 13 of PAGCOR’s charter clearly gives
PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are
direct or indirect. Philippine Amusement and Gaming Corporation (PAGCOR) vs
The Bureau of Internal Revenue, G.R. No. 172087, March 15, 2011
Taxpayer insists that Sections 113 and 237 of the National Internal Revenue Code
(NIRC) and Section 4.108-1 of Revenue Regulations (RR) No. 7-95 do not provide that
failure to indicate the word “zero-rated” in the invoices or receipts would result in the
outright invalidation of these invoices or receipts and the disallowance of a claim for
tax credit or refund. Sections 113 (A) and 237 of the NIRC provide for the invoicing
requirements for value-added tax (VAT) registered persons. Related to these
provisions, Section 4.108-1 of RR No. 7-95 enumerates the information which must
appear on the face of the official receipts or invoices for every sale of goods by VAT-
registered persons. At the time taxpayer filed its claim for credit of VAT input tax, RR
No. 7-95 was already in effect and it required, among others, that the word “zero-
rated” be imprinted on the invoice covering zero-rated sales. It also provided that only
VAT-registered persons are required to print their tax identification number followed
by the word “VAT” in their invoices or receipts and this shall be considered as a “VAT
invoice.” All purchases covered by invoices other than a “VAT invoice” shall not give
rise to any input tax. The invoicing requirements for VAT-registered taxpayer as
provided in the NIRC and revenue regulations are clear. A VAT-registered taxpayer is
required to comply with all the VAT invoicing requirements to be able to file a claim
for input taxes on domestic purchases for goods or services attributed to zero-rated
sales. A “VAT invoice” is an invoice that meets the requirements of Section 4.108-1 of
RR No. 7-95. Contrary to taxpayer’s claim, RR No. 7-95 expressly states that “purchases
covered by invoices other than a VAT invoice shall not give rise to any input tax.”
Taxpayer’s invoice, lacking the word “zero-rated,” is not a “VAT invoice,” and this
cannot give rise to any input tax. The subsequent enactment of Republic Act No. 9337
[amending the NIRC] on 1 November 2005 elevating provisions of RR No. 7-95 into law
merely codified into law administrative regulations that already had the force and
effect of law. Such codification does not mean that prior to the codification the
administrative regulations were not enforceable. Microsoft Philippines, Inc. vs.
Commissioner of Internal Revenue, G.R. No. 180173, April 6, 2011.
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As the Court has ruled in several cases, the printing of the word “zero-rated” is
required to be placed on VAT invoices or receipts covering zero-rated sales in order to
be entitled to claim for tax credit or refund. In Panasonic vs. Commissioner of Internal
Revenue, the Court held that the appearance of the word “zero-rated” on face of
invoices covering zero-rated sales prevents buyers from falsely claiming input VAT
from their purchases when no VAT is actually paid. Absent such word, the government
may be refunding taxes it did not collect. Microsoft Philippines, Inc. vs.
Commissioner of Internal Revenue, G.R. No. 180173, April 6, 2011.
In Renato V. Diaz and Aurora Ma. F. Timbol vs. the Secretary of Finance and the
Commissioner of Internal Revenue, G.R. No. 193007; July 19, 2011, Section 108 of
the National Internal Revenue Code (NIRC) imposes value added tax on “all kinds of
service” rendered in the Philippines for a fee, including those specified in the list. The
enumeration of affected services is not exclusive. By qualifying services with the words
“all kinds,” Congress has given the term “services” an all-encompassing meaning. Thus,
every activity that can be imagined as a form of “service” rendered for a fee should be
deemed included unless some provision of law especially excludes it. When a tollway
operator takes a toll fee from a motorist, the fee is in effect for the latter’s use of the
tollway facilities over which the operator enjoys private proprietary rights that its
contract and the law recognize. In this sense, the tollway operator is no different from
those enumerated under Section 108 of the NIRC who allow others to use their
properties or facilities for a fee.
Section 108 of the National Internal Revenue Code (NIRC) also imposes value added
tax (VAT) on “all other franchise grantees” other than those under Section 119 of the
NIRC. Tollway operators are franchise grantees and they do not belong to the
exceptions (the low-income radio and/or television broadcasting companies with
gross annual incomes of less than PhP 10 million and gas and water utilities) that
Section 119 spares from VAT. The word “franchise” broadly covers government grants
of a special right to do an act or series of acts of public concern. It has been broadly
construed as referring, not only to authorization that Congress directly issues in the
form of a special law, but also to those granted by administrative agencies to which the
power to grant franchises has been delegated by Congress. Tollway operators are,
owning to the nature and object of their business, “franchise grantees.” The
construction, operation, and maintenance of toll facilities on public improvements are
activities of public consequence that necessarily require a special grant of authority
from the state. Apart from Congress, tollway franchise may also be granted by the Toll
Regulatory Board, pursuant to the exercise of its delegated powers under Presidential
Decree No. 1112. The franchise in this case is evidence by a “Toll Operation
Certificate.”
Petitioners argue that toll fee is a user’s tax and to impose value-added tax on toll
fees is tantamount to taxing a tax. Fees paid by the public to tollway operators for use
of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of
the government principally for the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction, maintenance
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and operation of the tollways, as well as to assure them a reasonable margin of income.
Although toll fees are charged for the use of public facilities, they are not government
exactions that can be properly treated as tax. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
VAT is not a tax on tax. Even if toll fees were deemed as a “user’s tax,” value-added
tax (VAT) on tollway operations cannot be a tax on tax. VAT is assessed against the
tollway operator’s gross receipts and not necessarily on the toll fees. Although the
tollway operator may shift the VAT burden to the tollway user, it will not make the
latter directly liable for the VAT. The shifted VAT simply becomes part of the toll fees
that one has to pay in order to use the tollways.
8. Excise tax
According to Exxonmobil Petroleum and Chemical Holdings, Inc.- Philippine
Branch vs Commissioner of Internal Revenue, G.R. No. 180909, January 19, 2011,
Excise taxes are imposed under Title VI of the National Internal Revenue Code (Tax
Code). They apply to specific goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition, and to those that are
imported. In effect, these taxes are imposed when the following conditions concur: (1)
the articles subject to tax belong to any of the categories of goods enumerated in Title
VI of the Tax Code and (2) that said articles are for domestic sale or consumption,
excluding those that are actually exported. There are certain exemptions to the
coverage of excise taxes, such as petroleum products sold to international carriers and
exempt entities or agencies such as under section 135 of the Tax Code. Under section
135 of the National Internal Revenue Code (Tax Code), petroleum products sold to
international carriers of [Philippine or] foreign registry for their use or consumption
outside the Philippines are exempt from excise tax, provided that the petroleum
products sold to such international carriers shall be stored in a bonded storage tank
and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner of
Internal Revenue. 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. Accordingly, the party liable for the tax can shift the burden to another, as part
of the purchase price of the goods or services. Although the manufacturer/seller is the
one who is statutorily liable for the tax, it is the buyer who actually shoulders or bears
the burden of the tax, albeit not in the nature of a tax, but part of the purchase price or
the cost of the goods or services sold. 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 paid the same, even if he shifts the burden thereof to another.
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to the provision. It effectively extended the qualification stated in the third paragraph
of Section 145 (c) of the National Internal Revenue Code that was supposed to apply
only during the transition period. The said paragraph states: [t]he excise tax from any
brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is due from each brand on October 1, 1996… [
The savings account plus (SAP) product is subject to documentary stamp tax (DST)
under Section 180 [now 179] of the National Internal Revenue Code where, although
the money is payable anytime, the withdrawal of the money before the expiration of
the term results in the reduction of the interest rate. The fact that the SAP is evidence
by a passbook does not remove it from the coverage of Section 180. A document to be
considered a certificate of deposit need not be in a specific form. Thus, a passport
issued by a bank qualifies as a certificate of deposit drawing interest because it is
considered a written acknowledgment by a bank that it has accepted a deposit of a sum
of money from a depositor. Prudential Bank vs. Commissioner of Internal
Revenue, G.R. No. 180390; July 27, 2011.
10. Estoppel
Taxpayer assails the validity of the waivers of the statute of limitations on the ground
that the waivers were merely attested to by the coordinator for the Commissioner of
Internal Revenue (CIR) and he failed to indicate the acceptance or agreement of the
CIR, as required under Section 223 of the National Internal Revenue Code. Taxpayer
argues that the principle of estoppel cannot be used against it because its payment of
the other tax assessment does not signify a clear intention on its part to give up its
right to question the validity of the waivers. The Court ruled that estoppel applied to
the taxpayer. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored
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on the rule that “an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon.” Thus, a party is precluded from denying his own acts, admissions or
representation to the prejudice of the other party in order to prevent fraud and
falsehood. In this case, taxpayer, through its partial payment of the revised
assessments issued within the extended period as provided for in the questioned
waivers, impliedly admitted the validity of those waivers. Had taxpayer believed that
the waivers were invalid and that the assessments were issued beyond the
prescriptive period, then it should not have paid the reduced amount of taxes in the
revised assessment. Its subsequent action effectively believes its insistence that its
waivers are invalid. The records show that taxpayer immediately made payment on
the uncontested taxes immediately upon receipt of the revised assessment. It is thus
estopped from questioning the validity of the waivers. To hold otherwise and allow a
party to gainsay its own act of deny rights which it had previously recognized would
run counter to the principle of equity which the Court holds dear. Rizal Commercial
Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 170257,
September 7, 2011
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~~COMMITTEE~~
The Professor
By: Cayaban, Iva Freyritz
Sulit, Dx
Taguba, Jezreel Caridad
Zulueta, Isabel