CHARLOTTE GRACE CASTILLO 2016-0227
ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
TAX REMEDIES
(Tax Principles and Remedies by Justice Japar B.
Dimaampao)
I.
-
-
REMEDIES
GOVERNMENT
OF
THE
A. ASSESSMENT AND COLLECTION
Assessment precedes collection except
when unpaid tax due per return in the case of
self-assessed income tax under the pay-asyou file system (in such a case, collection
might be instituted without assessment).
Cases where assessment is necessary:
collectability of the tax liability attaches only
when the assessment becomes final and
unappealable.
What is an assessment?
An assessment is a written notice and demand
made by the BIR on the taxpayer for the
settlement of a due tax liability that there is
definitely settled and fixed.
What is included in an assessment?
An assessment not only contains the
computation of the tax liabilities but also the
demand for payment within the prescribed
period. To enable the taxpayer to determine his
remedies thereon, due process requires that it
must be served on and received by the taxpayer.
Is the Commissioner’s Recommendation Letter
Considered a formal assessment of tax liability?
No. The recommendation letter cannot be
considered a formal assessment due to the
following:
(1) It was not addressed to the taxpayer
(2) There was no demand made on the
taxpayer to pay the tax liability, nor a
period for payment set therein; and,
(3) The letter was not mailed to the taxpayer.
Assessments are prima facie presumed correct
and made in good faith, it is the taxpayer not the
BIR who has the duty of proving otherwise.
An assessment is deemed made only when the
internal revenue releases, mails, or send such
notice to the taxpayer.
What is the meaning of “Best Evidence”?
The best evidence envisaged in Sec. 16 of the
NIRC includes corporate and accounting records
of the taxpayer who is subject of the assessment
process, the accounting records of other
taxpayers engaged in the same line of business,
including their gross profit and net profit sales.
The law allows the BIR access to all relevant or
material r
ecords and data in the person of the taxpayer. It
places no limit or condition on the type or form of
medium by which the record subject to the order
of the BIR is kept.
The rule on the “best evidence obtainable”
applies when a tax report required by law for the
purpose of assessment is not available or when
the tax report is incomplete or fraudulent. In the
instant case, the persistent failure of the late Po
Bien Sing and the herein petitioner to present
their books of accounts for examination for the
taxable years involved left the Commissioner of
Internal Revenue no other legal option except to
resort to the power conferred upon him under
Section 16 of the Tax Code. Bonifacia SyPo vs.
CTA (164 SCRA 524)
Does best evidence include mere photocopies of
records / documents?
Mere photocopies of the consumption entries
have no probative weight if offered as proof of the
contents thereof.
B. Remedies of the Government for
Delinquent Taxes
(1) Distraint of personal property or levy
upon real property
(2) Civil or criminal action
(3) Compromise
(4) Tax Lien
(5) Forfeiture
(6) Civil Penalties
When is an assessment deemed made?
a. Distraint and Levy
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ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
Both remedies are summary in nature
and either may be pursued by the
authorities charged with the collection of
the tax independently or simultaneously
with civil and criminal action once the
assessment becomes final and
demandable.
What is distraint?
Distraint is a remedy whereby the collection of tax
is enforced on the goods, chattels, or effects of
the taxpayer including other personal property of
whatever character including stocks and other
securities, debts, credits, banks accounts and
interest in and rights to personal property.
What is levy?
Levy refers to the seizure of real properties and
interest on the rights of such properties for the
satisfaction of the tax due from the delinquent
taxpayer.
What are the two types of distraint?
proceed to prepare the list of such property and
in the presence of two witnesses, leave a copy
thereof in the premises where the property
distrained is located, after which the property is
now considered as under constructive distraint.
What is actual distraint?
Actual distraint is resorted to upon the failure of
such person to pay a delinquent tax.
Who institutes distraint?
If the amount of the property is in excess of
Php1,000,000.00 – it is the Commissioner or his
authorized representative
If the amount involves Php1,000,000.00 or less,
the Revenue District Officer.
Procedure for actual distraint:
b. Civil Action
-
These are actual and constructive distraint.
When can the government place the taxpayer’s
property under constructive distraint?
The government can place the taxpayer’s
personal property under constructive distraint
when the property of a delinquent taxpayer:
(1) Is retiring from business subject to tax;
(2) Intending to leave the Philippines or to
remove his property therefrom or to hide
or conceal his property;
(3) Intending to perform any act tending to
obstruct the proceedings for collecting
the tax due or which may be due from
him.
How is constructive distraint effected?
The constructive distraint is effected by requiring
the taxpayer or any person having possession or
control of such property to sign a receipt covering
the property distrained and obligate himself to
preserve the same intact and unaltered and not
to dispose of the same in any manner without the
express authority of the commissioner.
When the taxpayer refuses to sign the receipt: the
revenue officer effecting the distraint shall
Civil action is resorted when a tax liability
becomes collectible, that is, the assessment
becomes final and unappealable, or the
decision of the Commissioner has become
final, executory and demandable. This occurs
when:
o The tax is assessed and the taxpayer
fails to file and administrative protest
by filing for a request for
reconsideration or reinvestigation
within 30 days from receipt of the
FAN.
o A protest against the assessment is
filed by the taxpayer but the
Commissioner’s decision denying in
whole or in part was not appealed to
the CTA.
A proceeding in Court after the collection of the
Tax may be begun without assessment when
fraudulent tax returns are involved (Adamson vs.
CA). An assessment of deficiency is not
necessary to a criminal prosecution for willful
attempt to defeat and evade income tax. A crime
is complete when the violator has knowingly and
willfully filed a fraudulent return, with the intent to
evade and defeat the tax.
-
c. Criminal Action
A criminal action cannot be instituted without
the approval of the CIR.
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ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
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It is instituted not only for the collection of the
tax but for the enforcement of other statutory
penalties.
Extinction of one’s criminal liability does not
extinguish his liability for payment of the tax
because civil liability arises not as a
consequence of a felonious act but because
of his failure to pay taxes.
In the same manner, extinguishment of civil
liability will not extinguish criminal liability
under tax laws.
Note: The CIR shall not consider any offer of
compromise settlement by reason of financial
incapacity until and unless: the taxpayer waives
in writing the privilege of the secrecy of bank
deposits
d. Compromise
Who has the power to compromise a tax liability?
What is compromise?
The power to compromise is vested with the
Commissioner of Internal Revenue.
-
-
A compromise is an agreement between two or
more persons who, to avoid a lawsuit, amicably
settle their differences on such terms as they
agree on.
What is a compromise penalty?
A compromise penalty is a certain amount of
money which the taxpayer pays to compromise a
tax violation.
What are cases which may be compromised?
If
the
basic
assessed
tax
exceeds
Php1,000,000.00 or the settlement offered is less
that the prescribed minimum rates, compromise
shall be subject to the approval of the Evaluation
Board composed of the Commissioner and
Deputy Commissioners.
Is this power delegable?
If 500,000.00 and below – may be delegated to
Regional Evaluation Board
Above 500,000.00 to less than 1,000,000.00 –
CIR (non delegable)
1,000,000.00 and above – National Evaluation
Board
What is abatement?
The following matters may be subject to a
compromise:
1. Delinquent Accounts;
2. Cases under administrative protest after
the issuance of the final assessment
notice to the taxpayer which are still
pending;
3. Civil tax cases being disputed before the
courts;
4. Collection cases filed in court;
5. Criminal cases except: (a) those already
filed in court (b) those involving tax fraud
6. Cases covered by pre-assessment
notices by taxpayer
What are the grounds for compromise?
(1) When a reasonable doubt as to the
validity of the claim against the taxpayer
exists (minimum 40% of the basic
assessed tax);
(2) The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax (minimum compromise rate
to 10% of the basic assessed tax).
Abatement means the cancellation of the
ENTIRE tax liability.
What are the grounds for abatement?
Abatement is authorized when:
(1) The tax or any portion thereof appears to
be unjustly or excessively assessed; or
(2) The administration or collection costs
involved does not justify the collection of
the amount due.
What are the cases NOT subject to compromise?
(1)
(2)
(3)
(4)
Withholding taxes;
Criminal tax fraud cases;
Criminal violation already filed in court;
Delinquent accounts with duly approved
schedule of installment payments;
(5) Cases
where
final
reports
of
reinvestigation or reconsideration have
been issued resulting to a reduction in the
original assessment and the taxpayer is
agreeable to such decision.
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CHARLOTTE GRACE CASTILLO 2016-0227
ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
(6) Cases which have been final and
executory.
(7) Estate tax cases where compromise is
requested on the ground of financial
incapacity.
e. Tax Liens
What is a tax lien?
A tax lien is a legal claim or charge on the
property established by law as a sort of security
for the payment of the tax obligations. A tax lien
in favor of the government is superior to all other
claims or preferences.
NO INJUNCTION
COLLECTION
TO
RESTRAIN
TAX
An injunction is not available to restrain collection
of tax. No court shall have the authority to grant
an injunction to restrain the collection of any
national internal revenue tax, fee, or charge
imposed under the NIRC.
What is the rationale of the no injunction rule?
No government could exist that permitted its
collection to be delayed by every litigious man or
very embarrassed man, to whom delay was more
important than collection of taxes.
What is the exception to the no injunction rule?
However, the lien is not valid against any
mortgagee, purchaser, or judgement creditor until
and unless it is registered with the register of
deeds of the province or city where the property
is located.
f.
Forfeiture
Difference between forfeiture and seizure.
In seizure for the enforcement of a tax lien, the
residue after deducting the tax liability and
expenses, will go to the taxpayer. On the other
hand, in forfeiture, all the proceeds of the sale will
go to the coffers of the government.
g. Civil Penalties
25% Surcharge shall be imposed:
a. Failure to file any return and pay the tax
thereon;
b. Filing a return with an internal revenue
officer other than those with whom the
return is required to be filed;
c. Failure to pay the deficiency tax within
the time prescribed for its payment in the
notice of assessment;
d. Failure to pay in full or in part of the
amount of the tax shown in any return
required to be filed
50% penalty shall be imposed:
a. Willful neglect to file the return within the
time prescribed
b. In case of false or fraudulent returns
An injunction may be had when the decision of
the CIR is pending before the Court of Tax
Appeals provided that:
(1) The collection will jeopardize the interest
of the government or the taxpayer;
(2) The taxpayer either deposit the amount
claimed or to file a surety bond for not
more than double the amount with the
Court.
When can the bond requirement be dispensed
with?
(1) The method employed by the collector in
the collection of the tax is not sanctioned
by law;
(2) The order of the Collector to effect the
collection of the alleged income taxes
through
summaty
administrative
remedies had been issued well beyond
the 3 year period.
STATUE OF LIMITATIONS:
Rationale: (Republic vs. Ablaza)
The law prescribing a limitation of actions for the
collection of the income tax is beneficial both to
the Government and to its citizens.
To the government because tax officers would
be obliged to act properly in the making' of
assessments
to citizens because after the lapse of the period
of prescription citizens would have a feeling of
security against unscrupulous tax agents who will
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ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
always find an excuse to inspect the books of
taxpayers, not to determine the latter's real
liability but to take advantage of every opportunity
to molest peaceful law abiding citizens. Without
such a legal defense taxpayers would
furthermore be under obligation to always keep
their books and keep them open for inspection
subject to harassment by unscrupulous tax
agents.
The law of prescription being a remedial measure
should be interpreted in a way conducive to
bringing about the beneficent purpose of
affording protection to the taxpayer within the
contemplation of the Commission which
recommend the approval of the law.
Counting of the Period:
Sec. 31 of the Revised Administrative Code:
Legal Periods: “Year” shall be understood to be
twelve calendar months, “month” of 30 days,
unless it refers to a specific calendar month in
which case it shall be computed according to the
number of days the specific month contains; “day”
to a day of twenty-four hours; and “night from
sunset to sunrise.
In CIR vs Primetown Property Group, G.R. No.
162155, August 28, 2007:
The Supreme Court held that Section 31, Chapter
VIII, Book I of the Administrative Code of 1987,
being the more recent law, governs the
computation of legal periods. Lex posteriori
derogat priori.
a. Assessment of Tax Liabilities
Three (3) years – commences to run
after the last day of the filing of the return. If
the return is filed before the due date, the
prescriptive period runs only during the due
date. On the other hand, if the return was filed
after the due date, it shall commence after the
return has been filed.
Ten (10) years – when no return was
filed
-
The return was fraudulent with intent to evade
the tax. Commences after the date of
discovery
b. Collection of the Tax
5 years – with assessment
involving false or fraudulent
returns or failure to file a return
10 years – without assessment
and in case of false or fraudulent
returns with intent to evade the
tax or failure to file a return.
CRIMINAL ACTION:
A. FIVE YEARS – from the commission
or discovery of the violation
whichever is earlier.
MATTERS THAT
MAY
PRESCRIPTIVE PERIOD:
AFFECT
THE
1. Wrong Form / Return
Butuan Sawmill, Inc. vs CTA, G.R. No. L-20601,
February 28. 1966
The Supreme Court held that an income tax
return cannot be considered as a return for
compensating tax for purposes of computing the
period of prescription and the taxpayer must file a
return for the particular tax required by law in
order to avail himself of the benefits of Sec. 331
of the NIRC. Otherwise, he does not file a return,
an assessment may be made within the time
stated in the Sec. of the same code.
2. Amended Return
CIR vs. Phoenix, G.R. No. L-19727, May 20, 1965
It was held that the running of the prescriptive
period should commence from the filing of the
amended return. To hold otherwise, it would be
paving way for taxpayers to evade the payment
of taxes by simply reporting in their original return
heavy losses and amending the same more than
five years later when the CIR has lost his authority
to assess the property tax thereunder.
3. Defective Return
CIR vs. Gonzales, G.R. No. L-19495
The return was so defective in this case that it
prevented the Commissioner from collecting the
taxes due on the estate. It was though no return
was made. The Commissioner had to determine
and assess the taxes on data obtained, not from
the return, but from other sources. The Court held
that the return in question was no return at all
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ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
4. False, Fraudulent Return, Omission to
File
a
Return/
Extraordinary
Prescription
The prescriptive period under the NIRC shall be
suspended in the following instances (Sec. 223,
NIRC):
Sec. 222(a), NIRC: In the case of fraudulent
return with the intent to evade tax or failure to file
a return, the tax may be assessed, or a
proceeding in court for the collection of such tax
may be filed without an assessment, at any time
within 10 years after the discovery of the falsity,
fraud or omission
a. There has been a waiver of the defense
of prescription
b. The running of the prescriptive period is
also suspended when:
a. The Commissioner is prohibited
in making an assessment or
beginning of a distraint or levy or
a proceeding in court or 60 days
thereafter (filing of criminal
action is not suspended)
b. When the taxpayer requests for
a reinvestigation which was
granted
c. When the taxpayer cannot be
located in the address as
indicated in the return;
d. When the warrant of distraint or
levy has been served and no
property could be located;
e. When the taxpayer is out of the
Philippines.
Sec. 248(b), NIRC: In case of willful neglect to file
the return within the period prescribed by this
code, or in case of false or fraudulent return is
willfully made, the penalty to be imposed shall be
50% of the tax or of the deficiency tax.
Prima facie evidence of false or fraudulent
return: Substantial under declaration of taxable
sales, receipts or income or a substantial
overstatement of deductions
Substantial under-declaration / overstatement:
the failure to report sales or receipts or income
exceeding 30% of that declared per return and a
claim of deductions in an amount exceeding 30%
if the deductions.
Presumption of Falsity of The Return (CIR vs.
Asalus Corporation, G.R. No. 22150, February
22, 2017)
The failure to report sales, receipts or income in
an amount exceeding 30% what is declared as
substantial under declaration. A prima facie
evidence is one which will establish a fact or
sustain a judgment unless contrary evidence is
produced.
In other words, when there is a showing that a
taxpayer has substantially underdeclared its
sales, receipt or income, there is a presumption
that it has filed a false return. As such, the CIR
need not immediately present evidence to
support the falsity of the return, unless the
taxpayer fails to overcome the presumption
against it.
Read also: CIR vs. Fitness Design, G.R. No.
215957, November 9. 2016
5. SUSPENSION
PERIODS:
OF
PRESCRIPTIVE
Cases:
Did the pendency of the taxpayer’s appeal to the
CTA and the SC have the effect of legally
preventing the CIR from instituting an action in the
CIR for the collection of the tax?
Republic vs. Kerr, G.R. No. L-21609, September
1996: Yes. The filing of an appeal with the said
courts effectively suspended the prescriptive
period to collect the taxes due.
Compare with CIR vs. United Salvage and
Towage (Phils.), Inc., G.R. No. 197515, July 2,
2014.
In this case, the SC held that the period to collect
was not suspended by the fact that the taxpayer
filed a Motion for Reinvestigation. The same must
be granted by the CIR. However, the CIR acted
upon such motion belatedly beyond the three (3)
year statute of limitations reckoned from January
9, 1996, notwithstanding the lack of impediment
to rule upon such issue. We cannot countenance
such inaction by petitioner to the prejudice of
respondent .
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CHARLOTTE GRACE CASTILLO 2016-0227
ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
Continental Micronesia vs. CIR, CTA Case No.
6191, March 22, 2006:
Petitioner herein requested for Reinvestigation on
the Preliminary Assessment Notice issued by the
BIR. Settled is the rule that when the taxpayer
requests for reinvestigation the period to assess
under the NIRC is suspended.
While the request for reinvestigation was based
on the PAN and not on the FAN, the provision
Sec. 223 of the NIRC still applies since the law
did not make any distinction.
When the taxpayer cannot be located in the
address as indicated in the return; In the case of
CIR vs. BASF Coating + Inks, Phils, Inc. G.R. No.
198677, November 26, 2014:
Despite the absence of a formal notice to the BIR
involving the change of address of the taxpayer,
the fact still remains that it became aware of the
new address as shown by the records. As a
consequence, the running of the 3-year period
was not suspended and has already prescribed.
Waiver of assessment: need not specify the
particular taxes to be assessed or the amount
thereof and may state “all internal revenue taxes”
Notarization: need not be notarized for as long
as it is in writing as specifically provided under the
NIRC
2 material dates that need to be present in the
waiver:
1. The date of the execution of the waiver
by the taxpayer or its authorized
representative; and
2. The expiry date of the period the taxpayer
waives the statue of limitations.
Phil. Journalists, Inc. vs. CIR, G.R. No. 162852,
December 16, 2004:
WAIVER OF THE STATUTE OF LIMITATIONS:
The waiver of the statute of limitations is not a
waiver of the right to invoke the defense of
prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer
and the BIR that the period to issue an
assessment and collect the taxes due is extended
to a date certain.
New Requirements: RMO 14-2016 dated April
4, 2016
The Court declared the waiver as invalid for the
following defects:
The waiver may be, but not necessarily, in the
form prescribed by RMO No. 20-90 or RDAO No.
05-01. It will not automatically invalidate the
executed waiver for as long as the following are
complied with:
1. It did not specify the agreed date
between the BIR and taxpayer within
which the former may assess or collect
the taxes;
2. It was signed only the RDO and not the
Commissioner; and,
3. There was no date of acceptance;
4. Taxpayer was not furnished with a copy
of the waiver.
a. The waiver of the statue of limitations
shall be executed prior the expiration of
the period to assess or collect taxes. The
date of execution must be specifically
stated in the waiver.
b. The waiver must be signed by the
taxpayer himself or his duly authorized
representative. In case of a corporation:
any responsible official; and,
c. The expiry date of the period agreed
upon to assess/collect the tax after the
regular 3-year period of prescription
should be indicated.
Waiver for collection of taxes: the amount of
the tax should be specifically indicated
CIR vs. Kudos Metal (GR No. 178087, May 5,
2010)
The SC ruled that the defects of the waiver
rendered it invalid and estoppel is not
applicable to the taxpayer.
The waiver was held to be invalid due to the
following reasons:
1. The accountant who executed the waiver
had no notarized written board authority
to sign the waiver;
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ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
2. There was no date of acceptance on the
waiver; and,
3. The fact of receipt of the taxpayer of the
waiver was not indicated in the original
copy of the waiver.
Moreover, the application of estoppel is
necessary to prevent the undue injury that the
government would suffer because of the
cancellation of petitioner's assessment of
respondent's tax liabilities.
II.
RCBC vs CIR, G.R. No. 170257, September 7,
2011
Estoppel is clearly applicable to the case at
bench. RCBC, 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 petitioner truly 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. RCBC’s subsequent
action effectively belies its insistence that the
waivers are invalid. The records show that on
December 6, 2000, upon receipt of the revised
assessment, RCBC immediately made payment
on the uncontested taxes. Thus, RCBC is
estopped from questioning the validity of the
waivers. To hold otherwise and allow a party to
gainsay its own act or deny rights which it had
previously recognized would run counter to the
principle of equity which this institution holds
dear.
CIR vs. Next Mobile, Inc. G.R. No. 212825,
December 29, 2015
The SC held that the waivers were invalid.
However, the taxpayer respondent is estopped
from questioning the validity of its Waivers.
While it is true that the Court has repeatedly held
that the doctrine of estoppel must be sparingly
applied as an exception to the statute of
limitations for assessment of taxes, the Court
finds that the application of the doctrine is justified
in this case. Verily, the application of estoppel in
this case would promote the administration of the
law,
prevent
injustice
and
avert
the
accomplishment of a wrong and undue
advantage.
Taxpayer executed five Waivers and delivered
them to petitioner, one after the other. It allowed
petitioner to rely on them and did not raise any
objection against their validity until petitioner
assessed taxes and penalties against it.
REMEDIES OF THE TAXPAYER
What are the remedies of the taxpayer?
(1) Administrative protest which is a
protest against the assessment and filed
before payment
(2) Claim refund from the Commissioner of
Revenue
A. PROTESTING AN ASSESSMENT
What are the exceptions to the issuance of PAN
prior to FAN?
c.
Where the finding for any deficiency tax
is the result of a mathematical error
appearing in the face of the return;
d. When a discrepancy has been
determined between the tax withheld and
the tax actually remitted by the
withholding agent;
e. When the taxpayer who opted to claim a
refund or tax credit of excess creditable
withholding tax for a taxable period was
determined to have been carried over
and automatically applied the same
amount against the estimated tax
liabilities for the taxable quarter or
quarters of the succeeding taxable year;
f. When the excise tax due on excisable
articles has not been paid;
g. When an article locally purchased or
imported by an exempt person has been
sold, traded or transferred to an nonexempt person.
What are the procedural steps in protesting an
assessment?
The procedural steps in
assessment are as follows:
protesting
an
(1) The issuance of the pre-assessment
notice of the BIR (PAN)
(2) Taxpayer is given 15 days from receipt of
the PAN to respond.
(3) If taxpayer fails to respond or the BIR
opines that the taxpayer ought to be
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ARELLANO UNIVERSITY SCHOOL OF LAW
TAX REVIEW
assessed for deficiency, the BIR will
issue the assessment notice
(4) The taxpayer may file an administrative
protest against the assessment within 30
days from receipt of the assessment. In
cases of reinvestigation, the taxpayer is
obliged to submit within 60 days from
filing the protest all relevant documents,
otherwise, the assessment becomes final
and unappealable.
(5) If the CIR’s representative denies the
protest, the taxpayer has the option:
a. Appeal the decision to the CTA
within 30 days from receipt of the
decision;
b. Request for reconsideration with
the CIR within 30 days from
receipt
of
the
decision
(administrative appeal)
i. If the protest was still
denied by the CIR,
appeal to the CTA within
30 days from receipt of
the decision
(6) If the protest or administrative appeals is
not acted upon by the CIR within 180
days from the filing of the protest, the
taxpayer may either:
a. Appeal to the CTA within 30 days
from the expiration of 180 days
b. Wait for the decision of the CIR
and then appeal such decision
with the CTA within 30 days after
receipt of the decision
Note: the “appeal or wait” are mutually exclusive
remedies
In the case of PAGCOR vs BIR, the SC held that
the taxpayer does not have the option to appeal
to the CIR in case the CIR’s representative does
not act on his protest.
What is the difference between request for
reinvestigation or reconsideration?
Request for reconsideration is a plea for reevaluation based on existing records without the
need for additional evidence. On the other hand,
request for reinvestigation refers to a plea for reevaluation of the assessment on the basis of
newly-discovered
evidence
or
additional
evidence.
Main difference: request for reinvestigation
effectively suspends the prescriptive period for
collection of the tax.
B. CLAIM FOR REFUND
What is the two-fold purpose of tax refund?
(1) To afford the collector an opportunity to
correct an action of a subordinate
(2) To notify the government that such taxes
have been questioned, and the notice
should then be borne in mind in
estimating the revenue available for
expenditure.
Under the tax code, apparently in recognition of
pervasive quasi-contract principle, a claim for tax
refund ma be based on the following:
(1) Erroneously or illegally assessed or
collected internal revenue tax;
(2) Penalties imposed without authority
(3) Any sum alleged to have been
excessively or in any manner wrongfully
collected.
Tax refund and tax credit distinguished:
In tax refund, there is an actual reimbursement of
the tax while in tax credit, the reimbursable
amount is applied against the sum that may be
due or collectible from the taxpayer.
Tax refunds cover: (1) erroneously or illegally
assessed or collected internal revenue taxes (2)
penalties imposed without authority and (3) any
sum alleged to have been excessive or in any
manner wrongfully collected.
What are the requirements for claims for refund?
(1) There must be a written claim for refund
filed by the taxpayer with the
commissioner;
(2) The claim must categorically demand for
reimbursement
(3) The claim for refund must be filed within
two years from the date of payment of the
tax or penalty regardless of any
supervening cause
The taxpayer need not await the final decision of
the administrative claim in order to resort to the
appropriate judicial claim.
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How should the two-year period be computed?
In the case of CIR vs Primetown, the Sec. 31 of
the Administrative Code repealed Article 13 of the
NCC in the computation of years.
Claims for refund for erroneously paid DST: The
liability for payment of DST falls due only upon
occurrence of a taxable transaction. It is only then
that payment may be considered for the purpose
of filing a claim for a refund or tax credit. In short,
the date of imprinting the documentary stamp on
the taxable document.
NOTE: IN CASE OF REFUND FOR
UNUTILIZED INPUT VAT SEC 112(A) OF THE
NIRC APPLIES
(1) File the judicial claim within 30 days after
the Commissioner denies the claim
within 90 days;
(2) File the judicial claim from the expiration
of the 90 day period in case the
Commissioner does not act upon the
administrative claim.
The 90-day mandatory period may extend
beyond the two-year prescriptive period.
What matters is that the administrative claim for
refund/tax credit of unutilized input VAT with the
BIR within the two year prescriptive period.
When does the claim for refund for unutilized
input VAT start?
In case of VAT, it is the close of the taxable
quarter where the relevant sales where made.
What are the requisites
unutilized/excess input VAT?
for
claiming
(1) The taxpayer-claimant
is a VAT registered
person
(2) The taxpayer-claimant
is engaged in zerorated or effectively
zero-rated sales
(3) There are creditable
input taxes due or paid
attributable to the
zero-rated
or
effectively-zero rated
sales;
(4) The input tax has not
been applied against
the output tax;
(5) The application and
claim for refund have
been filed within the
prescribed period.
Compliance with the 120-day waiting period is
mandatory and jurisdictional. What does this
mean?
It means that the taxpayer can file the appeal in
one or two ways:
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LOCAL GOVERNMENT TAXATION
What are the powers of the LGU?
(1) to create its own sources of revenue;
(2) to levy taxes, fees and charges
What are the fundamental principles that govern
the exercise of the taxing and revenue powers of
the LGU’s?
(1) Uniformity of each LGU;
(2) The taxes, fees, charges and other
impositions shall:
a. be equitable and based on the
taxpayer’s ability to pay;
b. be levied and collected only for a
public purpose;
c. not be unjust, oppressive or
confiscatory;
d. not be contrary to law, public
policy, national economic
policy or in restraint of trade;
(3) Collection shall not be let to private
persons;
(4) The revenue shall inure solely to the
benefit of the LGU levying the tax;
(5) Each LGU shall evolve a progressive
system of taxation.
LOCAL TAXING AUTHORITY
Who has the authority to tax in the local
government?
The power to tax in the LGU is vested in and
exercised by the Sanggunian and must be levied
upon pursuant to a valid ordinance.
What are the general limitations on the LGU’s
power to tax?
Under Section 186 of the LGC, the general
limitations are:
(1) Those already subject to tax under the
NIRC or other applicable laws cannot be
taxed again;
(2) Local taxes shall not be unjust,
oppressive, confiscatory, or contrary to
national policy; and,
(3) No ordinance can be enacted without any
prior public hearing conducted for that
purpose.
What are the specific instances where LGUs
cannot impose a tax?
(1) Income tax
a. Except when levied on banks
and other financial institutions
(2) Documentary Stamp Tax
(3) Taxes on estates, inheritance, legacies
or other acquisitions mortis causa;
(4) Custom duties, registration of vessel and
wharfage on wharves, tonnage dues, and
all other kinds of customs fees, charges
and dues
a. Except wharfage on wharves
constructed and maintained by
the LGU
(5) Taxes, fees and charges and other
impositions upon goods carried into or
out of, passing through the territorial
jurisdiction of the LGU in the guise of
charges for wharfage, tolls for bridges or
otherwise
(6) Taxes on agricultural products or aquatic
products when sold by marginal farmers
or fishermen;
(7) Taxes on business enterprises certified
by the BOI as pioneer or non-pioneer for
a period of six and 4 years
(8) Excise taxes on articles under the NIRC
and taxes, fees, or charges on petroleum
products
(9) Percentage tax or VAT on sales, barters,
or exchanges or similar transactions on
goods or services;
TAXING POWERS OF THE LGUS
General Rule: Only cities and municipalities can
impose business taxes
What about provinces?
Provinces can only levy taxes, fees and charges
enumerated in the LGC.
PROVINCES:
What kind of taxes can provinces impose?
They cannot impose business taxes, however,
they can impose:
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(1) Tax on transfer of real property
ownership
(2) Taxes on business of printing and
publication
(3) Franchise Tax
(4) Tax on sand gravel and other quarry
resources
(5) Professional Tax
(6) Amusement Tax
(7) Fixed Tax for every delivery truck or van
or
manufacturers
or
producers,
wholesale dealers, or retailers in, certain
products
3. Sales allocation in case factories and
plantations are in different locations:
a. 30% of sales – where the
principal office is located
b. 70 % of sales shall be distributed
as follows:
i. 60% taxable where the
factory is located; and
ii. 40% taxable where the
plantation is located
4. In case there are two or more factories
and plantations located in different
localities
a. 70% shall be prorated according
to the volume of production
MUNICIPALITIES AND CITIES
General Rule: Municipalities may levy taxes, fees
and charges not otherwise levied by provinces
Exception: Unless otherwise provided
In other words, stuff that provinces are already
taxing, the municipalities cannot, unless
otherwise provided under the LGC.
Cities may impose taxes which the province or
municipality may impose.
SITUS OF LOCAL TAXES
1. When sale was made in a certain
municipality or city
a. If there is a branch (or sales
office or warehouse) where the
sale was made, the sale shall be
recorded in the said branch and
the tax shall accrue and be paid
to the municipality or city where
the BRANCH IS LOCATED
b. If there is no branch (or sales
office or warehouse), the sale
shall be recorded in the principal
office and taxes shall accrue and
be paid in the municipality or city
where the principal office is
located.
2. If there is no branch (or sales office or
warehouse) and the company has a
factory, plants, plantations, project office:
a. 30% of sales – taxable where the
principal office is located
b. 70% of sales – taxable where the
plant or factory, plantation or
project office is located
EXEMPTION FROM LOCAL TAX
-
LGUs have the power to grant tax incentives
through ordinances
The distinction between local business taxes
and real property taxes in terms of the power
of the LGU to grant exemptions:
o For RPT, the LGUs cannot grant
exemptions in addition to those
stated in the LGC
o For local business taxes, the LGUs
are free to grant exemptions
Who has the authority to make exemptions?
The authority to make local business tax
exemptions rests with the Sanggunian. However,
this does not cover regulatory fees imposed by
the LGUs.
For tax exemptions:
(1) The tax exemptions should be conferred via
a tax exemption certificate
(2) The grant of the exemption must be through
an ordinance
(3) They may be granted in cases of natural
calamities, civil disturbances, general failure
of crops, or adverse economic conditions;
(4) An exemption or relief granted to a type or
kind of business shall apply to all the
businesses similarly situated;
(5) The exemption or reliefs are only to last for a
period not exceeding 12 months.
For tax incentives:
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(1) The tax incentive shall only be granted to new
investments in the locality and the ordinance shall
prescribe the terms and conditions thereof;
(2) The grant of such incentive shall be for a limited
period of 1 year
(3) The grant of tax incentives shall be by ordinance
passed prior to the first date of January of any
year;
(4) Any tax incentive granted to a type or kind of
business shall apply to all businesses similarly
situated.
Withdrawal of tax exemptions:
Tax exemption or incentives granted to, or
presently enjoyed by all persons, whether natural
or juridical, including GOCCs were withdrawn
upon the enactment of the LGC exept:
a.
b.
c.
d.
Unless provided by the LGC
Local water districts
Cooperative registered under RA 6938
Non-stock and non-profit hospitals and
educational institutions
PRESCRIPTIVE PERIODS AND TAXPAYER’S
REMEDIES IN LOCAL TAXATION
A. PRESCRIPTIVE PERIODS
a. For Assessment:
i. Within five (5) years from the
date they become due (compare
with National Taxes which has a
3 year period to assess)
ii. Within (10) years in case of fraud
or intent to evade the payment of
taxes, from the time of discovery
b. For Collection
i. Within (5) years from the date of
assessment by administrative or
judicial action
B. SUSPENSION OF PRESCRIPTIVE PERIOD IN
LOCAL TAXATION
a. When the treasurer is legally prevented
from making the assessment of collection
of the tax;
b. When the taxpayer requests for a
reinvestigation and executes a waiver in
writing before the expiration of the period
c. The taxpayer is out of the country or
otherwise cannot be located
C. REMEDIES OF THE TAXPAYER
What are the remedies of the taxpayer in local
taxation?
The taxpayer has three remedies under local
taxation:
(1) Question the newly enacted ordinance
(2) Protest against the assessment
(3) Claim for a refund or tax credit
a. QUESTION
ORDINANCE
THE
NEWLY
ENACTED
What is the procedure in questioning the legality
of a tax ordinance?
i.
ii.
iii.
Appeal within 30 days from effectivity of
the ordinance to the Secretary of
Justice;
Secretary of Justice must render a
decision within 60 days from receipt of
the appeal (but needs to be appealed
with the DOJ)
Within 30 days from the lapse of the 60
days without any action from the SOJ or
from receipt of the adverse decision,
taxpayer may go to RTC
b. PROTEST THE ASSESSMENT
What is the procedure in the protest of
assessment?
a. The treasurer issues an assessment
b. The taxpayer files a written protest with
the local treasurer within 60 days from
the time of its filing.
c. Treasurer has 60 days to decide on the
protest
d. In case the treasurer denies the protest,
the taxpayer has 30 days from receipt
of the denial or 30 days from the lapse
of the 60 day period to appeal the same
to the proper court of jurisdiction (RTC)
e. After, go to CTA within 30 days via:
a. Petition for review to the CTA
Division under Rule 42 (if RTC
acts original)
b. Petition for review to the CTA En
Banc under Rule 43 (if the RTC
acts in its appellate jurisdiction)
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Can injunctions be issued in the case of local
taxes?
Yes. The LGC does not specifically prohibit an
injunction enjoining the collection of taxes. The
rule is different compared to national taxes which
as a general rule, does not allow injunction)
Is payment under protest required in local taxes?
No. Compared with RPT, there is no requirement
of payment under protest in protesting an
assessment of local business taxes.
c.
CLAIM A REFUND OF TAX
CREDIT
What are the requirements in claiming refund or
tax credit in local taxes?
1.File a written claim to the treasurer
2. It must be filed within 2 years from date of
payment or when the taxpayer is entitled to a
refund or credit
REAL PROPERTY TAX
What are the principles for RPT?
a) Appraised at its current and fair market
value;
b) Classified for assessment purposes on
the basis of its actual use
c) Assessed on the basis of a uniform
classification within each LGU
What are the limitations in RPT?
(1) Not be let to any private person
(2) It must be equitable
REAL PROPERTY AND MACHINERY:
What consists real property for real property
purposes?
(1) The list of immovables in Article 415 of
the NCC;
(2) Definition of machinery under Sec.
199(o) clarified by DOF Local Finance
Circular 001-2002
Hence, if a property is not within the NCC but
under Sec. 199(o), they are still subject to RPT
What consists of machinery under Sec. 199(O)?
Machinery which are actually, directly and
exclusively used to meet the needs of the
particular industry, business or activity of an
enterprise.
Hence, if the machinery is only used in a general
purpose, it is not a real property.
What are the rules on machinery?
(1) As long as permanently attached to land
and buildings, subject to real property tax
(2) If not permanently attached:
a. If essential and principal element
of an industry, work or activity
without which such cannot
function: subject to real property
tax
b. If not, not subject to RPT
c. But machinery of non-stock nonprofit educational institutions
used actually, directly and
exclusively used for educational
purposes are not subject to RPT
APPRAISAL AND ASSESSMENT
(1) All real property shall be appraised at the
current and fair market value prevailing at
the locality where the property is situated.
This also implies that a local government
can only collect RPT falling within its
territorial jurisdiction
(2) FMV is the price which property may be
sold by a seller who is not compelled to
sell and bought by a buyer who is not
compelled to buy/
(3) Appraisal of machinery: for FMV of
brand-new machinery, the basis will be
the acquisition cost.
a. In all other cases, the basis will
be the book value, depreciation
having been taken into account
b. If machinery is imported, the
acquisition cost will include all
the charges necessary to bring
the thing into the Ph.
c. Specific to machinery, only a 5%
depreciation rate can be used.
ACTUAL USE IS THE BASIS REGARDLESS OF
THE OWNERSHIP OF THE PROPERTY
a. This is for assessment purposes only.
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b. Real property taxes attach to the property
and not its owner. It is thus chargeable
against the taxable person who had
actual or beneficial use and possession
of it, regardless of whether he or she is
the owner.
CLASSES OF REAL PROPERTY
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Residential
Agricultural
Commercial
Industrial
Mineral
Timberland
Special
IMPOSITION OF REAL PROPERTY TAX AND
SPECIAL LEVY
(3) Natural Calamity
(4) Any cause circumstance which physically
or legally prevents the owner of the
property or person having legal interest
therein from improving, utilizing or
cultivating the land.
SPECIAL LEVY
When are special levies imposed?
Special Levies are imposed when lands are
benefited by public works or projects or
improvements funded by the LGU concerned.
What are the limitations?
No special levy shall be imposed on lands exempt
from RPT.
What LGU’s are allowed to impose RPT?
Remainder of land portions of which were
donated to LGUs for the projects.
(1) Provinces
(2) Cities
(3) Municipalities within Metro Manila
Special levy imposed by province, city or
municipality should NOT exceed 60% of the total
cost of the government improvements.
What are the allowed rates of levy?
EXEMPTION FROM RPT:
A province can impose RPT rate not exceeding
1% of the assessed value of the property.
Note: The list is an exclusive one and local
government units cannot add on to the
exemptions:
A city or municipality within Metro Manila area,
not exceeding 2% of the assessed value of the
property.
TAX ON IDLE LANDS:
What are idle lands?
If agricultural, more than one hectare in area and
suitable for whatever and ½ of which is
uncultivated or unimproved.
Other than agricultural, more than 1,000 square
meters and ½ of which is uncultivated or
unutilized.
How are idle lands taxed?
Idle lands are taxed a rate not exceeding 5%, in
addition of the RPT
How may idle lands be exempt from such tax?
Idle lands may be exempt for such tax in case:
(1) Force majure
(2) Civil Disturbance;
(1) Real property owned by the Government
or any of its political subdivisions
a. Exception: when the real
property
owned
by
the
government is used by a private
person/ entity
(2) Charitable
institutions,
churches,
parsonages, or convents appurtenant
thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and
improvements, actually, directly and
exclusively used for religious, charitable
and educational purposes
(3) All machineries and equipment that are
actually, directly and exclusively used by
local water districts and GOCCs engaged
in the supply and distribution of water and
/ or generation and transmission of
electric power
(4) All real property owned and duly
registered cooperatives
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(5) Machinery and equipment used for
pollution control and environmental
protection
REMEDIES IN RPT
A. Question the assessment of the
assessor
a. If the taxpayer is not satisfied
with the assessment, the action
of the assessor may be appealed
to the Local Board of
Assessment Appeals (LBAA)
within 60 days from the date of
receipt of the assessment
b. LBAA has 120 days from
receipt of the appeal to decide
c. If still unsatisfied, appeal the
LBAA’s decision to the CBAA
within 30 days from receipt of the
LBAA’s decision
d. CBAA’s decision may be
appealed with the CTA en banc
within 30 days from receipt of the
decision. (Rule 43 as the CTA
reviews decision of the CBAA in
appellate)
B. Payment under Protest
a. Pay first and cause the
annotation “paid under protest”
b. Protest in within 30 days from
payment with the local treasurer
c. The treasurer has 60 days to
resolve it
d. In case of denial of the treasurer:
i. Appeal to the LBAA
within 60 days
ii. Appeal to the CBAA
within 30 days
iii. Appeal to the CTA En
Banc within 30 days
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