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Tax 2022 – 3 TSN evasion with respect to income taxes.

At present, there are 31


Philippine Tax Treaties in force. Copies are available at the BIR
We are now into Tax Laws and regulations. We will discuss the different Library and the International Tax Affairs Division of the BIR,
regulations how to reinterpret regulation and laws pertaining to Tax. which is under the Deputy Commissioner for Legal and
Basic Principles of Interpretation of Tax Laws Inspection Group.
 Administrative Material - The Secretary of Finance, upon the
Interpretation of Tax Laws recommendation of the Commissioner, promulgates needful
rules and regulations for the effective enforcement of the
-On the interpretation and construction of tax statutes, legislative intention provisions of the Tax Code (Section 244, Tax Code of 1997).
must be considered The Commissioner of Internal Revenue, however, has the
-In case of doubt, tax statutes are construed strictly against the government exclusive and original power to interpret the provisions of the
and liberally construed in favor of the taxpayer. Tax Code, but subject to review by the Secretary of Finance.

-The rule of strict construction against the government is not applicable


where the language of the tax law is plain and there is no doubt as to the The Constitution;
legislative intent. Laws such as the NLRC;
-The exemptions (for equivalent provisions, such as tax amnesty and tax Local taxation per LGU;
condonation) are not presumed and when granted are strictly construed
against the grantee. Treaties;

-The exemptions, however, are construed liberally in favor of the grantee in Admin Material - pertains to the revenue regulations issued by the Govt
the following: agency, in our case the BIR.

 When the law so provides for such liberal Administrative Issuances


construction;
Administrative issuances which may be relied upon in
 Exemption from certain taxes granted under special interpreting the provisions of the Tax Code, which are signed by the
circumstances to special classes of persons. Secretary of Finance, or the Commissioner of Internal Revenue, or his duly
-The tax laws are presumed valid. authorized representative, come in the form of Revenue Regulations,
Revenue Memorandum Orders, Revenue Memorandum Rulings, Revenue
-The power to tax is presumed to exist. Memorandum Circulars, Revenue Memorandum Rulings, and BIR Rulings.
On the interpretation and construction of tax statutes, legislative intention So let’s go one by one. Very common are Revenue Regulations (RRs). Pag
must be considered. may batas like TRAIN Law, may RR kaagad yan.
Same as what you have learned in your Consti 1, in case of doubt tax Revenue Regulations (RRs) are issuances that specify, prescribe or define
statutes are construed strictly against the govt. Do not confuse this with rules and regulations for the effective enforcement of the provisions of the
exemption. In tax exemption, it is construed strictly against the taxpayer. If National Internal Revenue Code (NIRC) and related statutes.
it is a tax statute, it is strictly construed against the govt because you are
forcing an exaction on the people. So there must be a clear and categorical So these are detailed guidelines to implement the laws. For example, si
imposition of tax. Train Law nagkaroon ng RR, to implement the amendment brought about
by the Train Law. SO, that’s the RR, it specifies, prescribe or define rules
Now the rule of strict construction against the government is not applicable and regulations for the effective enforcement of the provisions of the
where the language of the tax law is plain and there is no doubt as to the statutes.
legislative intent.
Revenue Memorandum Orders (RMOs)
Exemptions or the like – tax amnesty, tax condonation, anything that
exempts taxation from obtaining a certain tax are not presumed and when Revenue Memorandum Orders (RMOs) are issuances that
granted are strictly construed against the grantee or the taxpayer. provide directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedure
The exemptions however, are construed liberally in favor of the grantee in necessary in the implementation of stated policies, goals, objectives, plans
the following: and programs of the Bureau in all areas of operations, except auditing.
- When the law so provides for such liberal construction; RMO’s are like an instruction to the BIR, it provides for procedures.
- Exemptions from certain taxes granted under special
circumstances to special classes of persons; Revenue Memorandum Rulings (RMRs)

Again tax laws and other principles of tax are presumed valid unless Revenue Memorandum Rulings (RMRs) are rulings, opinions
declared by the court to be otherwise. and interpretations of the Commissioner of Internal Revenue with respect to
the provisions of the Tax Code and other tax laws, as applied to a specific
The power to tax is presumed to exist. You can never question whether the set of facts, with or without established precedents, and which the
govt has the power to tax. It is always presumed to exist. Commissioner may issue from time to time for the purpose of providing
taxpayers guidance on the tax consequences in specific situations. BIR
What are the Sources of Tax Laws in the Philippines Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the
Tax law in the Philippines covers national and local taxes. Local taxes, it’s Rulings are null and void ab initio.
the local Government Code, through an ordinance.
Try to look at the National tax laws. You have the National Internal Revenue Memorandum Rulings (RMRs) are rulings (pag
Revenue Tax as amended by the CREATE Law and TRAIN Law. nakakita kayo ng rulings, those are opinions), opinions and interpretations
of the Commissioner of Internal Revenue with respect to the provisions of
Local tax laws are through an ordinance based on the LGU. the Tax Code and other tax laws, as applied to a specific set of facts, with
or without established precedents (meron kasing instances na hindi clear
GENERAL SOURCES OF NATIONAL TAX LAW kung these transactions ba are taxable then separated from the BIR Ruling.
 1987 Constitution - The 1987 Philippine Constitution sets For purposes lang of giving interpretation, pwede silang magkaroon ng
limitations on the exercise of the power to tax. RMR in the form of an opinion of certain facts.) BIR Rulings, we will
 Laws - The basic source of Philippine tax law is the National discuss later; but should not contravene duly issued RMR’s.
Internal Revenue Law, which codifies all tax provisions, the BIR Rulings
latest of which is embodied in Republic Act No. 8424 ("The Tax
Reform Act of 1997"). It amended previous national internal BIR Rulings are the official position of the Bureau to queries raised by
revenue codes, which was approved on December 11, 1997. A taxpayers and other stakeholders relative to clarification and interpretation
copy of the Tax Reform Act of 1997, which took effect on of tax laws.
January 1, 1998, can be found here.
 Local taxation is treated separately in this Guide. There are,
Rulings are official positions. When we talk about BIR Rulings, there is a
however, special laws that separately provide special tax
taxpayer, may issue na and we want to be clarified. Saka ka mag iissue ng
treatment in certain situations.
BIR Ruling, giving opinion to a specific set of facts, applicable only to that
 Treaties. The Philippines has entered into several tax treaties
taxpayer. Its like a special query.
for the avoidance of double taxation and prevention of fiscal
RMR’s walang query but just want to make an opinion regarding a matter. ng mga district offices is what we call the RDO-
Usually ang RMR kapag may bagong landmark case, sini- circulate, kina- Revenue District Officer.
cascade.
Non-retroactivity of Rulings
RMC’s also similar.
Section 246 stating that any revocation, modification of any of
Revenue Memorandum Circular (RMC’s) the rules and regulations shall not be given retroactive application, if
prejudicial to the taxpayers. This rule, however, is subject to three
Revenue Memorandum Circular (RMCs) are issuances that publish exceptions:
pertinent and applicable portions, as well as amplifications, of laws, rules,
regulations and precedents issued by the BIR and other agencies/offices.
(a) If the taxpayer deliberately misstates or omits material facts from his
return or any document required by the BIR;
If they want to emphasize something, they will issue an RMC for the
guidance of the BIR officers.
(b) If the facts subsequently gathered by the BIR are materially different
Case Law from the facts on which the ruling is based; or
In the Philippines, Supreme Court decisions form part of the law
of the land. As such, decisions by the Supreme Court (sc.judiciary.gov.ph) (c) If the taxpayer acted in bad faith.
in the exercise of its power to review, revise, reverse, modify or affirm on
appeal or certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts cases involving the legality of any We have talked about rulings. For example meron akong issue, I do not
tax, impost, assessment, or toll or any penalty imposed in relation thereto know the tax implication so I want to ask the BIR. I will write a request for
are adhered to and recognized as binding interpretations of Philippine tax ruling tapos mag iissue sila ng ruling.
law. Court of Appeals and Court of Tax Appeals decisions which have Now we have what we call the Non-retroactivity of Rulings. Before, let’s
become final and executory are also recognized interpretations of say taxable yan tapos may nag ask ng ruling ngayon, sinabi non-taxable
Philippine tax law. na. Hindi yan pwede mag retroact to say that those “irefund nyo kami kasi
non-taxable na sya.”
Of course, jurisprudence is part of the law of the land. We have what we call a Non-retroactivity of Ruling: Any revocation,
We have BIR, admin level, go to Court of Tax Appeals (CTA). May modification, or reversal of any of the rules or regulations shall not be
instances din na when you go to Tax 2, na from MTc, RTC, to CTA. given retroactive application, if prejudicial to the taxpayer. However, there
Different remedies, magkaiba yung jurisdiction. But when it comes to are 3 exceptions:
income tax provision, it’s the admin, the BIR, then go to CTA. Wala na a) If may misstatement doon sa material facts na sinubmit mo for
pong CA. Court of Tax Appeals (CTA) is a different appellate body. But for request for ruling;
you only have one office unlike a CA na may Mindanao, Visayas, Luzon. b) If the facts subsequently gathered by the BIR are materially
But for the CTA we only have the Manila in Quezon City. And then of different;
course appealable to the SC. c) And of course, if you acted in bad faith.
Now, when we talk about precedence, were talking about SC jurisprudence
and decisions. But CTA has a convincing although hindi naman talaga sya
final arbiter. Whatever is the ruling for CTA, meron siyang convincing on CIR v COL Financing Group, Inc
how to interpret, the judicial interpretation of certain set of tax laws as
applied to a certain set of facts. This is a CTA EB (En Banc) Case. This pertains to RR-02-2010
regarding OSD-Optional Standard Deduction, kasi before, there was a
Power of the Commissioner to Interpret Tax Laws revenue regulation that’s irrevocable. We’ll learn that as we go to
Deduction. You have 2 types of deduction: Optional Standard Deduction
The Court of Appeals ruled that under the 1997 NIRC, the (OSD) and the Itemized Deduction.
dispute between the parties is within the authority of the CIR to resolve.
Section 4 of the 1997 NIRC reads: Commissioner of Internal Revenue (CIR) vs. COL Financing Group,
Inc., CTA EB Case No. 1187, June 30, 2015.
SEC 4. Power of the Commissioner to Interpret Tax Laws and to Decide
Tax Cases. - The power to interpret the provisions of this Code and other In this case, the taxpayer COL Financing Group, Inc. filed its
tax laws shall be under the exclusive and original jurisdiction of the income tax return for the first three quarters of the taxable year 2009 using
Commissioner, subject to review by the Secretary of Finance. the itemized method of deduction for claiming its expenses. At the time of
its filing, RR No. 16-2008 allows the taxpayer to use either the itemized or
Optional Standard Deduction (OSD) method, but the option to choose the
The power to decide disputed assessments, refunds in internal
method of deduction shall be determined in its annual ITR. However, on
revenue taxes, fees or other charges. penalties imposed in relation thereto,
Feb. 24 and 26, 2010, the BIR issued RR No. 02-2010 and RMC 16-10,
or other matters arising under this Code or other laws or portions thereof
respectively, which now provides the method of deduction shall be
administered by the Bureau of Internal Revenue is vested in the
determined in the taxpayer's first quarterly ITR instead of the annual İTR,
Commissioner, subject to the exclusive appellate jurisdiction of the
and that this rule shall be applicable for taxable year 2009. Despite this new
Court of Tax Appeals. (Emphasis supplied)
regulation, COL filed its annual ITR on April 12, 2010 using the OSD.

Now we have the CIR, Commissioner of Internal Revenue. What’s the


It, however, paid under protest, an additional income tax under
power of the CIR?
that would have been due had it used the itemized deduction. It then filed
Actually its comprehensive: as the one who is the Commissioner or the an application for refund with the BIR on the excess income tax paid. In
head of the collecting agency, he has different powers. arriving at a decision to allow a refund to COL, the CTA in an en banc
decision applied the principle of non-the application of a retrospective law,
1. He can resolve dispute arising from the Tax Code. which in the legal sense, is one which takes away or impairs vested rights
2. The power to interpret the provisions of this Code and other tax acquired under existing laws, or creates a new obligation and imposes a
laws shall be under the exclusive and original jurisdiction of the new duty, or attaches a new disability, in respect of transactions or
Commissioner considerations already past.
3. The power to decide disputed assessments, refunds in internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto.. The court explained that when COL filed its first 3 quarterly
o That’s why admin level talaga kung may issue bago ITRs for 2009, it was with the belief that it can still change its method of
mag go to the judicial review to the CTA. Of course deduction for its annual ITR. With the issuance of RR 02-2010, it had lost
delegated yan kasi isang tao lang naman si this option. It then ruled that the issuance of RR No. 02-2010 should not be
Commissioner pero may mga deputy commissioners given retroactive application for being prejudicial to the rights of the
and each may mga revenue region. Under revenue taxpayers.
region may mga Regional Director. And under the
revenue region may mga district offices. Ang head Imprescriptibility of Taxes
General Rule: Taxes are imprescriptible Exception: When provided Section 59, Article X of the Tax Ordinance. Any declaration as to the
otherwise by the tax law itself. Province of Benguet's lack of authority to levy amusement taxes must be
limited to admission fees to resorts, swimming pools, bath houses, hot
springs and tourist spots.
Example: NIRC provides for statutes of limitation in the assessment and
collection of taxes therein imposed
Sometimes the interpretation of tax law requires the basic interpretation of
shall and may.
Important Point to consider
Tax Administration and Enforcement.
The law on prescription, being a remedial measure, should be Having known how to interpret tax laws, lets go to Tax Administration and
liberally construed to afford protection as a corollary, the exceptions to the Enforcement.
law on prescription be strictly construed. (CIR VS CA. G.R. No. 104171,
Feb. 24, 1999) Agencies involved in Tax Administration

We also have certain principles of taxes, the GR rule, taxes are Bureau of Internal Revenue and the Bureau of Customs for
imprescriptible. Exception, when provided by the tax law itself. internal revenue and customs law enforcement It is noteworthy to note that
the BIR is largely decentralized in that a great extent of tax enforcement
Tax Code actually provides for Statutes of Limitation in the Assessment and duties are delegated to the Regional Directors and Revenue District
Collection. When you talk about taxes, hindi naman talaga prescriptible or Officers. Provincial, City and Municipal assessors and treasures for local
subject to prescription. It’s just that the right of the government to collect and real property taxes.
taxes is subject to prescription. Kung hindi sila magcollect, wala ka nang
kasalanan. It’s already estopped or nag prescribe na yung right to collect.
We have the BIR and Bureau of Customs for the Tax Code.
The law on prescription, being a remedial measure, should be liberally
construed to afford protection as a corollary, the exceptions to the law on I’ve just checked the 2023 exam or syllabus, wala na syang Customs Law.
prescription be strictly construed. Wala nang Tariffs, Sinta, because it’s a very specialized field.

Mandatory and Directory Provisions BIR and the BOC for internal revenue and customs law enforcement. It is
worthy to note that the BIR is largely decentralized in that a great extent of
Sa tax law, kapag nakalagay ang SHALL, mandatory. Kapag MAY, tax enforcement duties are delegated to the RD’s and RDO’s. Provincial,
directory. City, and Municipal Assessors and treasurers for local and real property
taxes.
It’s very common kapag tax law, how to interpret, tinitingnan yung mga
provisions. BIR
Gulf Air Company v CIR Section 2. Powers and duties of the Bureau of Internal Revenue. - The
Bureau of Internal Revenue shall be under the supervision and control of
The legislature is presumed to have full knowledge of the
the Department of Finance and its powers and duties shall comprehend the
existing revenue regulations interpreting the aforequoted provision of law
assessment and collection of all national internal revenue taxes, fees, and
and, with its subsequent substantial re-enactment, there is a presumption
charges, and the enforcement of all forfeitures, penalties, and fines
that the lawmakers have approved and confirmed the rules in question as
connected therewith, including the execution of judgments in all cases
carrying out the legislative purpose. Hence, it can be concluded that with
decided in its favor by the Court of Tax Appeals and the ordinary courts.
the continued duplication of the NIRC provision on common carrier's tax,
The Bureau shall give effect to and administer the supervisory and police
the law-making body was aware of the existence of Revenue Regulations
powers conferred to it by this Code or other laws.
No. 6-66 and impliedly endorsed its interpretation of the NIRC and its
definition of gross receipts.
Bureau of Internal Revenue (BIR)
This case is about RR 6-66, old RR.
Section 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau
In this case the legislature is presumed to have full knowledge of the of Internal Revenue shall have a chief to be known as Commissioner of
existing revenue regulations interpreting the aforequoted provision of law, Internal Revenue, hereinafter referred to as the Commissioner and four (4)
and with its subsequent substantial re-enactment, there is a presumption assistant chiefs to be known as Deputy Commissioners.
that the lawmakers have approved and confirmed the rules in question as
carrying out the legislative purpose. Hence it can be concluded that with
the continued duplication of the NIRC provision on common carrier’s tax, Note: The deputy commissioners are assisted by assistant
the law-making body was aware of the existence of Revenue Regulations commissioner
No. 6-66 and impliedly endorsed its interpretation of the NIRC.
Now, yang mga number, yang sa last, that’s the year it was issued. For The BIR shall be under the supervision and control of the DOF(so we have
example uulit yan, ngayon 1-2022, 1-22, 2-22, hanggang sa next year uulit DOF, under niyan – BIR, BOC) and they comprehend the assessment and
naman, 23 na sya. collection of all national internal revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and fines (so they can forfeit
San Pablo v CIR property pag hindi talaga nagbayad. They can issue letter of garnishment,
they can levy, they can file cases for collection) including the execution of
Pelizloy Realty Corporation v. Province Benguet, GR 183137, 10 April judgments in all cases decided in its favor by the CTA and the ordinary
2013 courts. The Bureau shall give effect to and administer the supervisory and
police powers conferred to it by this Code or other laws.
In this case, the definition of' amusement places' in Section 131 (c) of the
Who are the Chief officials of the BIR?
LGC is a clear basis for determining what constitutes the other places of
amusement' which may properly be subject to amusement tax impositions You have the CIR, Commissioner of Internal Revenue, and 4 asst chiefs for
by provinces. There is no reason for going beyond such basis. To do the Deputy Commissioner. And then sa Deputy Commissioner naman, they
otherwise would be to countenance an arbitrary interpretation/application of are assisted by asst commissioner.
a tax law and to inflict an injustice on unassuming taxpayers. The previous
pronouncements notwithstanding, it will be noted that it is only the second Powers and Duties of the BIR
paragraph of Section 59, Article X of the Tax Ordinance which imposes
1. Exclusive and original power to interpret provisions of the NIRC and
amusement taxes on "resorts, swimming pools, bath houses, hot springs,
other tax laws, subject to review by the Secretary of Finance; 
and tourist spots". The first paragraph of Section 59, Article X of the Tax
Ordinance refers to "theaters, cinemas, concert halls, circuses, cockpits,
dancing halls, dancing schools, night or day clubs, and other places of 2. Assessment and Collection of all national internal revenue taxes, fees and
amusement". charges; 

In any case, the issues raised by Pelizloy are pertinent only with 3. Enforcement of all forfeitures, penalties and fines connected therewith;
respect to the second paragraph of Section 59, Article X of the Tax
Ordinance. Thus, there is no reason to invalidate the first paragraph of
4. Execution of judgment in all cases decided in its favor by the Court of  Illegal and Void Assessments 
Tax Appeals and the ordinary courts.
This is an assessment wherein the tax assessor has no power to act at
5. Effecting and administering the supervisory and police powers conferred all (Victorias Milling vs. CTA, L24213, 13 Mar 1968)
to it by the Tax Code or other laws. 
 Erroneous Assessment - This is an assessment wherein the
7. Obtaining information, summoning, examining and taking testimony of assessor has the power to assess but errs in the exercise of that
persons for purposes of ascertaining the correctness of any return or in power (ibid.)
determining the liability of any person for any internal revenue tax, or in  Deficiency Assessment. This is an assessment made by the tax
collecting any such liability. assessor whereby the correct amount of the tax is determined
after an examination or investigation is conducted. The liability
is determined and is; therefore, assessed for the following The
1. Different ito of ordinances kasi nasa local govt yan;
amount reasonsd exceeds that which is shown as tax by the
4. Pag nanalo sa case, ipapasa sa kanila, and they will execute it;
taxpayer in his return; Na amount is shown in the return or; The
5. They do tax mapping, its part of their police power;
taxpayer did not file any return at all (Sec. 5611 and 12) 1997
6. They can issue subpoena duces tecum; usually duces tecum kasi
NIRC)
document lang naman. But nothing prohibits them from issuing
a subpoena ad testificandum.
Self assessment – self assessing naman talaga yung atin sa Pilipinas.
Rule of “No Estoppel Against the Govt” Meaning, walang 3rd person na mag a-asses kung mgakano ang babayaran
It is a settled rule of law that in the performance of its mong tax. Ikaw mismo yung maglalagay dun sa form kung magkano yung
governmental functions, the state cannot be estopped by the neglect of its sales, subject lang siya to audit. So honesty system pero i-audit ka lang.
agents and officers. Nowhere is it more true than in the field of taxation Deficiency Assessment – meaning may kulang ka. Yung tax required for
(CIR vs. Abad, et. al., L19627, June 27, 1968). Estoppel does not apply to yoo to pay, will be greater than the amount you paid.
preclude the subsequent findings on taxability (Ibid.)
Illegal and void assessments – usually these are assessment in which the
tax officer or assessor has no power to act at all. For ex, in violation of due
The principle of tax law enforcement is: The Government is not
process clause.
estopped by the mistakes or errors of its agents; erroneous application and
enforcement of law by public officers do not block the subsequent correct Erroneous Assessment – may assessment nga mali naman.
application of statutes (E. Rodriguez, Inc. vs. Collector of Internal Revenue,
L23041, July 31, 1969.), Principle Governing Tax Assessment
- Assessments are presumed to be valid and in good faith.
Similarly, estoppel does not apply to deprive the government of its - Burden of proof is on the taxpayer.
right to raise defenses even if those defenses are being raised only for the - Almost always, as a tax lawyer, lahat talaga ng mga assessments are
first time on appeal (CIR vs Procter & Gamble Phil.G.R. No. 66838, 15 bloated kasi may mga presumptions. May mga accounting
April 1988.) assumptions na ginagawa and based on assumptions yon.. But if you
can prove that those assumptions will not apply in your particular
-This means pag nagkamali yung officer, hindi pwedeng sabihin mo case, then you can actually have that deleted, that particular item of
estopped na si govt. This is actually a public ad rule- The mistake of an assessment.
officer should not be _______ sa mistake of the govt. -Assessments are prima facie presumed correct and made in good faith.
Exception: -The taxpayer has the duty of proving otherwise (Interprovincial Autobus
The Court ruled in Commissioner of Internal Revenue vs. C.A., vs CIR)
et. al. G.R. No. 117982, 6 Feb 1997 that like other principles of law, the -In the absence of any proof of any irregularities in the performance of
non-application of estoppel to the government admits of exceptions in the official duties, an assessment will not be disturbed.
interest of justice and fair play, as where injustice will result to the
taxpayer. -All presumptions are in favor of tax assessments (Dayrit vs Cruz)
-Failure to present proof of error in the assessment will justify judicial
However, estoppel can be invoked against the taxpayer. affirmation of said assessments (CIR vs CC).
Estoppel Against the Taxpayer: -A party challenging an appraiser’s finding of value is required to prove not
only that the proper value is.
While the principle of estoppel may not be invoked against the
government, this is not necessarily true in case of the taxpayer. In CIR vs. -Assessments should not be based on presumptions no matter how logical
Suyac, 104 Phil 819, the taxpayer made several requests for the the presumption might be. In order to stand the test of judicial scrutiny, it
reinvestigation of its tax liabilities such that the government, acceding to must be based on actual facts.
the taxpayers request, postponed the collection of its liability. The taxpayer
cannot later on be permitted to raise the defense of prescription inasmuch as Assessment is discretionary on the party of the Commissioner. Mandamus
his previous requests for reinvestigation have the effect of placing him in will not lie to compel him to assess a tax after investigation if he finds no
estoppel. ground to assess. Mandamus to compel the commission to assess will result
in the encroachment on executive functions.

Tax Assessments Except:

Kunwari hindi ka nagbayad ng tax, inassess ka. The BIR will issue what Sabi nga natin self assessing ang Tax. So pwedeng hindi ka ma audit, good
you call an assessment notice. for you. Pero pwde din ma audit ka. But you can never compel the BIR to
audit. However:
Nature and kinds of Assessment
The BIR Commissioner may be compelled to assess by
mandamus if in the exercise of his discretion there is evidence of
An assessment is the official action of an administrative officer arbitrariness and grave abuse of discretion as to go beyond statutory
determining the amount of tax due from a taxpayer, or it may be the notice authority (Maceda vs. Macaraig, G.R. No. 8829, 8 June 1993).
to the effect that the amount therein stated is due from the taxpayer that the
payment of the tax or deficiency stated therein. (Bisaya Land The authority vested in the Commissioner to assess taxes may
Transportation Covs CIR, 105 Phil 1338) be delegated. An assessment signed by an employee for and in behalf of the
Commissioner of Internal Revenue is valid. However, it is settled that the
power to make final assessments cannot be delegated. The person to whom
Different Types of Assessment / Classifications: a duty is delegated cannot lawfully delegate that duty to another. (City
 Self assessment Tax is assessed by the taxpayer himself. The Lumber vs. Domingo, L18611, 30 Jan 1964).
amount is reflected in the tax return that is filed by him and the Investigative Powers of the CIR
tax is paid at the time he files his return. (Sec. 56 (A) (1), 1997
NIRC)
Now lets go to the power of the Commissioner to Obtain information and 4. When inspection is authorized under the Finance Regulation No. 33 of
Summon, Examine, and take testimony of persons. the Secretary of Finance.
a) The CIR or his authorized person may examine, pwede sila
pumunta sa business nyo, mag examine ng book, paper, record 5. When the production of the tax return is material evidence in a criminal
or any data. Hindi pwedeng hindi papasukin dahil may right case wherein the Government is interested in the result. (Cu Unjieng, et. al.
sila nun. vs. Posadas, etc, 58 Phil 360)
b) Meron tayong tinatawag na matching. Kung purchases mo,
sales yun ng supplier mo. So pwede sila magkaroon ng 3rd party 6. When the production or inspection thereof is authorized by the taxpayer
matching, usually yan ang ginagawa nila. Hindi yan beyond himself (Vera vs Cusi L33115, 29 June 1979).
their authority, that’s part noh, to determine the actual pack or
value
And of course, the Data privacy consent of the taxpayer.
Section 5. Power of the Commissioner to obtain information, Summon,
Examine, and Take Testimony of Persons. - In ascertaining the correctness Assessment Based on the Best Evidence Obtainable
of any return, or in making a return when none has been made, or in
Based on the nature of our tax that is self assessing, what if hindi mo
determining the liability of any person for any internal revenue tax, or in
dineclare properly? Hindi ka nag cooperate, hindi mo sila pinapasok,
collecting any such liability, or in evaluating tax compliance, the
sinabi mong close kayo, etc. Paano ngayon makakagawa ng report or
Commissioner is authorized:
assessment ang BIR?

(A) To examine any book, pager, record, or other data which may be We have what we call Best evidence obtainable.
relevant or material to such inquiry;  The law authorizes the Commissioner to assess taxe basis of the
best evidence obtainable in the following cases.
(B) To Obtain on a regular basis from any person other than the person  If a person fails to file a return or other document at the time
whose internal revenue tax liability is subject to audit or investigation, or prescribed by law; or
from any office or officer of the national and local governments,  he willfully or otherwise files a false or fraudulent return or
government agencies and instrumentalities, including the Bangko Sentral other document.
ng Pilipinas and government-owned or-controlled corporations, any  When the method is used, the Commissioner makes or amends
information such as, but not limited to, costs and volume of production, the return from his knowledge and from such information as he
receipts or sales and gross incomes of taxpayers, and the names, addresses, can obtain through testimony or otherwise.
and financial statements of corporations, mutual fund companies, insurance  Assessments made as such are deemed prima facie correct and
companies, regional operating headquarters of multinational companies, sufficient for all legal purposes. (Sec. 6 [B], 1997 NIRC)
joint accounts, associations, joint ventures of consortia and registered So ayaw mo mag cooperate, ang pwede nilang gawin, I will see
partnerships, and their members; another business which is similar to yours. Tama ba yung profit? Yung ba
yung industry? PWede din mag tanong2 sila, sa isang araw ilan karami
In the original draft of the TRAIN Law, when it was amended, meron dyang ang customer? Based on them they will do a presumption, so ganon ka
nakalagay ne exemption yun sa Bank Sececy Law that the commissioner comprehensive ang power ng BIR. And the assessment that will resort to
can go to the bank and get information on the bank deposits of certain that type of Best Evidence Obtainable Type of Assessment, is actually
individuals or taxpayer. presumed to be prima facie correct and sufficient for all legal purposes.
Inventory Taking, surveillance and Presumptive Gross Sales and
Pero in the senate provision, actually meron. But in the bicameral Receipts.
provision, nawala na yun.
Kunwari tax mapping. Like kumain sa restaurant mot apos hindi ka nag
So pwede pa rin. They cannot just go to the bank and say look into the issue ng resibo. So intentional ang pag eat nila sa resto mo. That’s part of
account even with the amendment of the TRAIN LAW, its still part of the their surveillance and investigative power.
Bank Secrecy Law.
The Commissioner is authorized at any time during the taxable
Refer to your codal, these are part of the powers of the CIR. year to order the inventory-taking of goods of any taxpayer as a basis for
assessment.
Means Employed in the Assessment of Taxes
Of course it is confidentiality. May data privacy pa din. You cannot, except If there is reason to believe that a person is not declaring his
if you are the BIR official. Kung 3 rd party ka,hindi mo pwede tingnan correct income, sales or receipts for internal revenue tax purposes, his
returns ng ibang tao. business operation may be placed under observation or surveillance. The
finding made in the surveillance may be used as a basis for assessing the
Examination of Returns: Confidentiality Rule
taxes for the other months or quarters of the same or different taxable years.
(Sec. 6 [C], 1997 NIRC)
The Tax Code requires that after the return is filed, the
Commissioner or his duly authorized representative shall examine the same
Termination of Taxable Period
and assess the correct amount of tax. The tax or the deficiency of the tax so
assessed shall be paid upon notice and demand from the Commissioner or Taxable period is the period wherein you will report your income. Can the
from his duly authorized representative. Any return, statement or BIR terminate that? YES.
declaration filed in any office authorized to receive the same shall not be
withdrawn. However, within three (3) days from the date of such filing, the The Commissioner shall declare the tax period of a taxpayer
same may be modified, changed or amended, provided that no notice for terminated at any time when it shall come to his knowledge:
audit or investigation of such return, statement or declaration has in the
meantime been actually served upon the taxpayer. (Sec 6[A], 1997 NIRC)  That the taxpayer is retiring from business subject to
tax;
1. Although Sec. 71 of the 1997 NIRC provides that tax returns shall
constitute public records, it is necessary to know that these are confidential  That he intends to leave the Philippines or remove
in nature and may not be inquired into in unauthorized cases under pain of his property therefrom;
penalty of law provided for in Sec 270 of the 1997 NIRC.  That the taxpayer hides or conceals his property; or
 That he performs any act tending to obstruct the
2. The aforesaid rule, however, is subject to certain exceptions. In the proceedings for the collection of the tax for the past
following cases, inquiry into the income tax returns of taxpayers may be or current quarter or year or to render the same
authorized: totally or partly ineffective unless such proceedings
are begun immediately.
3. When the inspection of the return is authorized upon the written order of
the President of the Philippines. Fixing of Real Property Values
Can the BIR fix Real Property Values? Meron tayong tinatawag
na zonal value. We are all adults and I think most of you have encountered
transferring property. So when you try to pay for capital gain stock, in the Enforcement and Forfeiture of Penalties
BIR, kino compare yan. Magkano ang selling price, magkano ang assessed
value. Such are offenses and penalty.

Assessed value is the value fixed by the local assessor. Zonal Additions to Tax, so from the basic tax due basic deficiency magkakaroon
value is the value fixed by the BIR. So whichever is higher. Normally mas ng surcharge and interest. Surcharge usually 25% kung may violation ka,
mataas ang zonal compared to assessed value, almost all the cases. But and interest that is twice the legal rate.
still the law provides for whichever is higher. There is a presumption that Statutory Offenses and Penalties
the assessed could be higher but I have yet to encounter that particular
instance.
Additions to the Tax. Additions to the tax are increments to the basic tax
So yun yong zonal assessor and the selling price. Kasi of course incident due to the taxpayer's non-compliance with certain legal
ina under value naman yan sa mga deed of sale. requirements, like the taxpayer's refusal or failure to pay taxes and/or other
violations of taxing provisions,
For purposes of computing any internal revenue tax, the value of
the property shall be whichever is the higher of: (1) the fair market value as
determined by the Commissioner; or (2) the fair market value as shown in Surcharge
the schedule of values of the Provincial and City Assessors for real tax
purposes (Sec 6 [E], 1997 NIRC). The payment of the surcharge is mandatory and the
Commissioner of Internal Revenue is not vested with any authority to
waive or dispense with the collection thereof. In one case, the Supreme
Inquiry into Bank Deposits Court held that the fact that on account of riots directed against the Chinese
on certain dates, they were prevented from paying their internal revenue
Bank deposits are confidential. Only 2 instances when the BIR can look
taxes on time, does not authorize the Commissioner to extend the time
into you bank acct:
prescribed for the payment of taxes or to accept them without the additional
1. For purposes of determining the gross estate; or penalty (Lim Co Chui vs. Posadas, 47 Phil 460)
2. Kung nag apply ka ng compromise. Sa compromise may 2
grounds: financial capacity and doubtful validity of assessment. Minsan pag bulok na ang Sistema, nagkakaroon ng delay. Ang problema
So if financially incapacitated ka, you will waive. Sabi mo hindi nyan is Whether or not problema ng taxpayer; or WON the taxpayer was
mo na kaya pero may millions ka pala sa bank acct mo. on time but the system of the BIR hindi gumagana, nagka count pa rin yung
Examination of bank deposits enables the Commission assess the time. Kaya frustrating sya most of the time.
correct tax liabilities of taxpayers. However, bank deposits are confidential Interest
under R.A. 1405. Notwithstanding any contrary provisions of R.A. 1405
and other general or special laws, the Commissioner is authorized to inquire Before it was 20% but under the TRAIN Law, twice the legal rate .
into the bank deposits of; 2018 na nagging effective ang TRAIN Law. Legal rate is 6%, so 12% is
twice the legal rate.
 a decedent to determine his gross estate; This is an increment on any unpaid amount of tax, assessed at the rate
 and any taxpayer who has filed an application for compromise of twenty percent (20%) per annum, or such higher rate as may be
of his tax liability under Sec. 204 (A) (@) of the Tax Code by prescribed y rules and regulations, from the date prescribed for payment
reason of his financial incapacity to pay his tax liability. In this until the amount is fully paid. (Sec. 249 (A), 1997 NIRC)
case, the application for compromise shall not be considered
unless and until he waives in writing his privilege under R.A.
1405, or under other general or special laws, and such waiver 2 Types of Interest
shall constitute the authority of the Commissioner to inquire into Deficiency and Delinquency.. nagkagulo ito before kaya this was clearly
bank deposits of the taxpayer (Sec. 6[F], 1997 NIRC). stated in the TRAIN Law.
Deficiency interest – diba meron kang kulang na binayaran na tax, so that
will earn an interest, 20% pa nakalagay dyan but that’s already 12%
Net Worth Method in Investigation starting 2018. Tapos nakalagay doon sa notice that you have to pay at this
particular period, the basic, the surcharge, and the interest. Pag dumating
This is also allowed. Net worth Method is actually based on the ka na sa period na dapat mo siyang bayaran, tapos hindi ka nakabayad,
accounting principle that if your net worth at the end of the year is greater maglalapse and magkakaron ng interest. Lahat ng basic, surcharge, and
than your net worth at the beginning of the year, then that means you have deficiency interest, will earn an interest called the Delinquency interest. So
income. The basis for this is the old RMC 4372. that is the difference between deficiency and delinquency.
The basis of using the Net Worth Method of investigation is Interest is Classified into:
Revenue Memorandum Circular No. 4372. This method of investigation,
otherwise known as "inventory method of income tax verification" is a very 1. Deficiency interest
effective method of determining taxable income and deficiency income tax Any deficiency in the tax due, as the term is defined in this code,
due from a taxpayer. shall be subject to the interest of 20% per annum, or such higher rate as
may be prescribed by rules and regulations, which shall be assessed and
Legal Source of Authority for use of the Method collected from the date prescribed for its payment until the full payment
thereof (Sec. 249 [B], 1997 NIRC)
The Commissioner’s authority to use the net worth method is
found in the Tax Code upheld by the CTA. It is a practical necessity if a fair 2. Delinquency interest
and efficient system of collecting revenue is to be maintained. This kind of interest is imposed in case of failure to pay:
But then again, it is just a presumption that the taxpayer can  The amount of the tax due on any return required to be filed, or 
always present evidence to prove otherwise.  The amount of the tax due for which no return is required, or 
 A deficiency tax, or any surcharge or interest thereon on the due
The Commissioner's authority to use the net worth method and
date appearing in the notice and demand of the Commissioner.
other indirect methods of establishing taxable income is found in Sec. 43,
1997 NIRC. This authority has been upheld by the courts in a long line of
cases, notable among which is the leading case of Perez vs. CTA, 103 Phil
1167. The method is a practical necessity if a fair and efficient system of Administrative Offenses
collecting revenue is to be maintained.  Failure to File Certain Information Returns
 Failure of a Withholding Agent to Collect and Remit Taxes
Moreover, Sec. 6(B), 1997 NIRC, provides for a broad and  Failure of a Withholding Agent to Refund Excess Withholding
general investigatory power to assess the proper tax on the best evidence Tax
obtainable whenever a report required by law as basis for the assessment of
any national Internal revenue tax shall not be forthcoming within the time Failure of these, may penalties, P1000 per penalty usually.
fixed by law or regulation, or when there is reason to believe that any such
report is false, incomplete or erroneous. Authority of the CIR to Delegate Power
He can delegate it to the regions, the RD, and to the RDO’s. The power to tax is a legislative power which under the
Constitution only Congress can exercise through the enactment
Section 7. Authority of the Commissioner to Delegate Power - The of laws. Accordingly, the obligation to pay taxes is a statutory
Commissioner may delegate the powers vested in him under the pertinent liability
provisions of this code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such imitations and
restrictions as may be imposed under rules and regulations to be  It is an enforced contribution
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner: Provided. However, that the following powers of the A tax is not a voluntary payment or donation. It is not dependent
Commissioner shall not be delegated on the will or contractual assent, express or implied, of the
person taxed. Taxes are not contracts but positive acts of the
(a) The power to recommend the promulgation of rules and regulations by government.
the Secretary of Finance;
 It is generally payable in money
(b) The power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau; Tax is a pecuniary burden- an exaction to be discharged alone in
the form of money which must be in legal tender, unless
(c) The power to compromise or abate, under Sec. 204 (A) and (8) of this qualified by law, such as RA 304 which allows backpay
Code, any tax liability: Provided, however, That assessments issued by the certificates as payment of taxes.
regional offices involving basic deficiency taxes of Five hundred thousand
pesos (P500,000) or less, and minor criminal violations, as may be  It is proportionate in character. It is ordinarily based on the
determined by rules and regulations to be promulgated by the Secretary of taxpayer's ability to pay.
finance, upon recommendation of the Commissioner, discovered by  It is levied for public purpose or purposes - Taxation involves,
regional and district officials, may be compromised by a regional and a tax constitutes, a burden to provide income for public
evaluation board which shall be composed of the Regional Director as purposes.
Chairman, the Assistant Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members; and
Lets go to INCOME TAXATION proper
(d) The power to assign or reassign internal revenue officers to
establishments where articles subject to excise tax are produced or kept. Income by analogy, kunwari may puno. Income is the Fruit, capital mo ang
puno.

Powers and Duties of the RD Income

Section 10. Revenue Regional Director - Under rules and regulations,


policies and standards formulated by the Commissioner, with the approval An income may be defined as the amount or money to a person
of the Secretary of Finance, the Revenue Regional director shall, within the or corporation within a specified time, whether as payment for services,
region and district offices under his jurisdiction, among others: interest, or profit from investment. A mere advance in the value of the
property of a person or corporation in no sense constitutes the "income
(a) Implement laws, policies, plans, programs, rules and regulations of the specified in the revenue law. Such advance constitutes and can be treated
department or agencies in the regional area; merely as an increase of capital. An income means cash received or its
equivalent; it does not mean chooses in action or unrealized increments in
(b) Administer and enforce internal revenue laws, and rules and regulations, the value of the property. The revenue law with reference to the income tax
including the assessment and collection of all internal revenue taxes, employs the term "income" in its natural and obvious sense, as importing
charges and fees. something distinct from principal or capital. (Fisher v. Trinidad, G.R. No.
(c) Issue Letters of authority for the examination of taxpayers within the 17518, (October 30, 1922), 43 PHIL 9731000)
region;
(d) Provide economical, efficient and effective service to the people in the Income, in its broad sense, means all wealth which flows into
area; the taxpayer other than as a mere return on capital. [Section 36, Revenue
Regulations 2]
(e) Coordinate with regional offices or other departments, bureaus and
agencies in the area;
What I want to highlight is that the measurement of income is for a specific
(f) Coordinate with local government units in the area; period.

(g) Exercise control and supervision over the officers and employees within Income
the region, and Commissioner v. BOAC (149 SCRA 395):
(h) Perform such other functions as may be provided by law and as may be Income means "cash received or its equivalent." It is the amount
delegated by the Commissioner. of money coming to a person within a specific time. It is distinct from
Under the RD, every region has and RDO Revenue District office. capital for, while the latter is a fund, income is a flow. As used in our laws,
income is flow of wealth. The source of an income is the property, activity
Under the RD, every region has and RDO Revenue District office. or service that produces the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that income is
TAXES derived from activity within the Philippines. IN BOAC's case, the sale of
Characteristic of Taxes, remember LEP3S: tickets in the Philippines is the activity that produces the income

L – it is levied by the law making body; For example tinanong ka randomly, magkano ang income mo? Masasagot
mo ba? Anong ibig sabihin nun, daily income? Monthly income? Yearly
E- it is an enforced contribution; income?
P – it is payable in money; (hindi pwede sasakyan or lupa ang pambayad sa So it has to have a specific reference as to time. This is what we call the
BIR. But of course kung hindi ka na makabayad, pwede nilang ilevy yun.) taxable period, or in accounting, the accounting period. It is always in
reference to time because you can never determine an income kung walang
P- Proportionate in character;
reference, kung walang basis. Kaya magkakaron ng taxable period.
P – for public purpose/s
Taxable period for individual, it’s always the calendar year, Jan-Dec.
Essential Characteristic of Taxes (LEMP3S]
For corporation, it could be a fiscal year other than ending in Dec. 31, so
pwede Jan-Jan, Feb-Jan, Mar-Feb.
 It is levied by the law-making body of the State
When is Income Taxable?
Secs. 51-53, Revenue Regulations No. 2
SECTION 51. When income is to be reported. - Gains, profits, and
income are to be included in the gross income for the taxable year in which
they are received by the taxpayer, unless they are included when they
accrue to him in accordance with the approved method of accounting
followed by him.

Please take note, we have what we call, Realization test. I want to highlight
that.
Dun sa illustration ko na puno ng manga, may mangga. Income na ba yung
manga subject to tax? The answer is NO. Magiging income yan kung
putulin mo sya. It has to be realized.
Another example is meron kang $100 bili mo ng P50. Ngayon P55 na sya.
Yung P5 na increment, income na ba yun? The answer is that is just an
unrealized income. It will become an income kung kinonvert mo na to Peso
because meron nang realization test.
Eisner v. Macomber, 252 US 89

Mere growth or increment of value in a capital investment is not


income; income is essentially a gain or profit, in itself, of exchangeable
value, proceeding from capital, severed from it, and derived or received by
the taxpayer for his separate use, benefit, and disposal. Id.

Different types of Income Tax Systems


Income Tax Systems

1. Global Tax System

A system where the tax treatment views indifferently the tax


base and generally treats in common all categories of taxable income of the
taxpayer. (Tan v. Del Rosario, Jr., G.R. No. 109289, 109446, [October 3,
1994), 307 PHIL 342-355).

2. Schedular Tax System

A system employed where the income tax treatment varies and


made to depend on the kind or category of taxable income of the taxpayer.
(Tan v. Del Rosario, Jr., G.R. No. 109289, 109446, (October 3, 1994), 307
PHIL 342-355).

Global – they will treat the income in different ways so same lang,
magiging same lang yung tax rate;
Scheduler – depende what type of income, passive income, professional
income, compensation income, will be taxed at different rates.
We follow the Schedular, semi-Schedular, and Semi-global. Kasi as to VAT,
we follow the global. As to these particular other income, we follow the
schedular.

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