TAX ADMINISTRATION AND ENFORCEMENT
A.
Tax Administration: Its general concepts
is the power of the Bureau of Internal
Revenue (BIR) to enforced and administer
taxes.
B.
Government
agencies
involved
in
tax
administration
the BIR and Bureau of Customs are tasked
to implement revenues laws as the case
may be.
C.
The Bureau of Internal Revenue
a. Composition Functions
- The Bureau of Internal Revenue shall have a
chief to be known as Commissioner of
Internal Revenue, hereinafter referred to as
the Commissioner and four (4) assistant
chiefs
to
be
known
as
Deputy
Commissioners. (Sec. 3, NIRC)
b. Powers and Duties
i. In general
-
SEC. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the
rules and regulations promulgated in accordance with
the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, except in
the following cases:
(a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document required
of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
2. Examination of Books of Accounts (Sec. 5,
NIRC)
the Bureau has the power to examine books
of accounts of every person (taxpayer)
engaged in a business
a.
The Bureau of Internal Revenue shall be
under the supervision and control of the
Department of Finance and its powers and
duties shall comprehend the assessment
and collection of all national internal
revenue taxes, fees, and charges, and the
enforcement of all forfeitures, penalties, and
fines connected therewith, including the
execution of judgments in all cases decided
in its favor by the Court of Tax Appeals and
the ordinary courts. The Bureau shall give
effect to and administer the supervisory and
police powers conferred to it by this Code or
other laws. (Sec. 2, NIRC)
b. What is “third-party verification
rule”?
- In ascertaining the correctness of any return, or
in making a return when none has been made, or
in determining the liability of any person for any
internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the
Commissioner is authorized to obtain on a regular
basis from any person other than the person
whose internal revenue tax liability is subject to
audit or investigation, or from any office or officer
of the national and local governments,
government agencies and instrumentalities,
including the Bangko Sentral ng Pilipinas and
government-owned or -controlled corporations,
any information such as, but not limited to, costs
and volume of production, receipts or sales and
gross incomes of taxpayers, and the names,
addresses,
and
financial
statements
of
corporations, mutual fund companies, insurance
companies, regional operating headquarters of
multinational
companies,
joint
accounts,
associations, joint ventures of consortia and
registered partnerships, and their members;
ii. Specific
1. Interpret tax laws and decide
cases (Sec.4, NIRC)
- The power to interpret the provisions of this
Code and other tax laws shall be under the
exclusive and original jurisdiction of the
Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments,
refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation
thereto, or other matters arising under this
Code or other laws or portions thereof
administered by the Bureau of Internal
Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.
a.
BIR Issuances
relevant thereto
and
-
c. Inquiry into bank deposits (Sec 6 {f}), NIRC)
General Rule:
rules
The power to issue regulations is
expressly conferred in the Tax
Code. Thus, the Secretary of
Finance, upon the recommendation
of
the
Commissioner,
shall
promulgate all needful rules and
regulations
for
the
effective
enforcement of the provisions of the
Tax Code. (see Sec.244, NIRC).
The rules and regulations of the
Bureau shall contain, among others,
provisions specifying, prescribing or
defining the time and manner of
canvassing revenue regions, form of
labels, conditions to be observed by
revenue officers respecting the
institutions and conduct of legal
actions. (see Sec.245, NIRC)
the Bureau has the power to issue rules and
issuances as the case may be but subject to
the following rule:
however before a tax official
could inquire into said books of
accounts a letter of authority is
required.
The Bureau of Internal Revenue has no
power to inquire into the bank deposits of a person
or taxpayer.
Exceptions:
Notwithstanding any contrary provision of
Republic Act No. 1405 and other general or special
laws, the Commissioner is hereby authorized to inquire
into the bank deposits of:
1) a decedent to determine his gross estate;
and
(2) any taxpayer who has filed an application
for compromise of his tax liability under Sec. 204 (A)
(2) of this Code by reason of financial incapacity to pay
his tax liability.
In case a taxpayer files an application to compromise
the payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax assessed,
his application shall not be considered unless and until he
waives in writing his privilege under Republic Act No. 1405 or
under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into the
bank deposits of the taxpayer.
Such limited power of the Commissioner does not
conflict with R.A 1405 or the Secrecy of Bank Deposits Law
because the provisions of the Tax Code granting this power are
an exception to the said legislation.
prescribed by law, or willfully or otherwise
files a false or fraudulent return or other
document, the Commissioner shall make or
amend the return from his own knowledge
and from such information as he can obtain
through testimony or otherwise, which shall
be prima facie correct and sufficient for all
legal purposes. (Sec. 6 {b}, NIRC)
If the bank has knowledge of the death of a person,
who maintained a bank deposit account either alone or jointly
with another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that the
transfer taxes imposed thereon have been paid. However the
administrator of the estate or any one of the heirs of the
decedent may, upon authorization by the Commissioner,
withdraw an amount not exceeding twenty thousand pesos
(P20, 000.00) without the certification. For this purpose all
withdrawal slips shall contain a statement to the effect that all of
the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under
oath by the said depositors.
ii. Rule on confidentiality of tax
returns and exceptions thereto
(Sec.71 and 270, NIRC)
- After the assessment shall have been
made, as provided in this Title, the returns,
together with any corrections thereof which
may have been made by the Commissioner,
shall be filed in the Office of the
Commissioner and shall constitute public
records and be open to inspection as such
upon the order of the President of the
Philippines, under rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
d. Summons persons, take testimony
In ascertaining the correctness of any return, or in
making a return when none has been made, or in determining
the liability of any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax compliance, the
Commissioner is authorized:
The Commissioner may, in each
year, cause to be prepared and published in
any newspaper the lists containing the names
and addresses of persons who have filed
income tax returns. (see Sec.71, NIRC)
1. To summon the person liable for tax or required to
file a return, or any officer or employee of such person, or any
person having possession, custody, or care of the books of
accounts and other accounting records containing entries
relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly
authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other
data, and to give testimony (Sec.5 {c}, NIRC)
Any internal revenue officer who is
or shall become interested, directly or
indirectly, in the manufacture, sale or
importation of any article subject to excise tax
under Title VI of this Code or in the
manufacture or repair or sale, of any die for
printing, or making of stamps, or labels shall
upon conviction for each act or omission, be
punished by a fine of not less than Five
thousand pesos (P5,000) but not more than
Ten thousand pesos (P10,000), or suffer
imprisonment of not less than two (2) years
and one (1) day but not more than four (4)
years, or both. (see Sec.270, NIRC)
2. To take such testimony of the person concerned,
under oath, as may be relevant or material to such inquiry
(Sec.5 {d}, NIRC)
- To summon the person liable for tax or required to file
a return, or any officer or employee of such person, or any
person having possession, custody, or care of the books of
accounts and other accounting records containing entries
relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly
authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other
data, and to give testimony.
b.
3. Power to assess and prescribe requirements for
tax administration
Power to examine returns (Sec. 6 {a},
NIRC)
- After a return has been filed as required
under the provisions of this Code, the
Commissioner or his duly authorized
representative
may
authorize
the
examination of any taxpayer and the
assessment of the correct amount of tax:
Provided, however; That failure to file a return
shall not prevent the Commissioner from
authorizing the examination of any taxpayer.
Any return, statement of declaration
filed in any office authorized to receive the
same shall not be withdrawn: Provided, That
within three (3) years from the date of such
filing, the same may be modified, changed,
or amended: Provided, further, That no
notice for audit or investigation of such
return, statement or declaration has in the
meantime been actually served upon the
taxpayer.
What is
Obtainable Rule”?
a.
i.
Amendment of Returns
When a report required by law as a
basis for the assessment of any national
internal revenue tax shall not be forthcoming
within the time fixed by laws or rules and
regulations or when there is reason to believe
that any such report is false, incomplete or
erroneous, the Commissioner shall assess
the proper tax on the best evidence
obtainable.
In case a person fails to file a
required return or other document at the time
Power to make a returns (Sec.6 {b},
NIRC)
-
“Best
Evidence
In case a person fails to file a required return
or other document at the time prescribed by
law, or willfully or otherwise files a false or
fraudulent return or other document, the
Commissioner shall make or amend the
return from his own knowledge and from
such information as he can obtain through
testimony or otherwise, which shall be prima
facie correct and sufficient for all legal
purposes.
c.
Power to conduct inventory taking,
surveillance and to issue presumptive
gross sales/receipts (see Sec.6 {c},
NIRC)
- The Commissioner may, at any time during the
taxable year, order inventory-taking of goods of any
taxpayer as a basis for determining his internal
revenue tax liabilities, or may place the business
operations of any person, natural or juridical, under
observation or surveillance if there is reason to believe
that such person is not declaring his correct income,
sales or receipts for internal revenue tax purposes. The
findings may be used as the basis for assessing the
taxes for the other months or quarters of the same or
different taxable years and such assessment shall be
deemed prima facie correct.
When it is found that a person has failed to
issue receipts and invoices in violation of the
requirements of Sections 113 and 237 of the Tax
Code, or when there is reason to believe that the books
of accounts or other records do not correctly reflect the
declarations made or to be made in a return required to
be filed under the provisions of this Code, the
Commissioner, after taking into account the sales,
receipts, income or other taxable base of other
persons engaged in similar businesses under similar
situations or circumstances or after considering other
relevant information may prescribe a minimum amount
of such gross receipts, sales and taxable base, and
such amount so prescribed shall be prima facie correct
for purposes of determining the internal revenue tax
liabilities of such person.
Individuals and general professional
partnerships and their representatives who
are
denied
accreditation
by
the
Commissioner and/or the national and
regional accreditation boards may appeal
such denial to the Secretary of Finance, who
shall rule on the appeal within sixty (60) days
from receipt of such appeal. Failure of the
Secretary of Finance to rule on the Appeal
within the prescribed period shall be deemed
as approval of the application for
accreditation of the appellant.
d.
-
-
Power to terminate tax period (see
Sec. 6 {d}), NIRC)
When it shall come to the knowledge of the
Commissioner that a taxpayer is retiring
from business subject to tax, or is intending
to leave the Philippines or to remove his
property therefore or to hide or conceal his
property, or is performing any act tending to
obstruct the proceedings for the collection of
the tax for the past or current quarter or year
or to render the same totally or partly
ineffective unless such proceedings are
begun immediately, the Commissioner shall
declare the tax period of such taxpayer
terminated at any time and shall send the
taxpayer a notice of such decision, together
with a request for the immediate payment of
the tax for the period so declared terminated
and the tax for the preceding year or
quarter, or such portion thereof as may be
unpaid, and said taxes shall be due and
payable immediately and shall be subject to
all the penalties hereafter prescribed,
unless paid within the time fixed in the
demand made by the Commissioner.
Commissioner shall create national and
regional accreditation boards, the members
of which shall serve for three (3) years, and
shall designate from among the senior
officials of the Bureau, one (1) chairman and
two (2) members for each board, subject to
such rules and regulations as the Secretary
of Finance shall promulgate upon the
recommendation of the Commissioner.
g.
Power
to
prescribe
procedural/documentary requirements
the BIR has the power to prescribe the
manner of filing of a returns
-
the BIR has the power to terminate tax
period under the following instances:





(a) The power to recommend the
promulgation of rules and regulations by the
Secretary of Finance;
when the taxpayer conceals his
properties with the intention to evade
taxes
when the taxpayer is leaving the
Philippines with the intention to evade
taxes
when the taxpayer is obstructing
proceedings for the collection of taxes
when the taxpayer is removing
properties with the intention of evading
taxes
when the taxpayer is retiring form
business
(b) The power to issue rulings of first
impression or to reverse, revoke or modify
any existing ruling of the Bureau;
(c) The power to compromise or abate, under
Sec. 204 (A) and (B) of this Code, any tax
liability:
Provided,
however,
That
assessments issued by the regional offices
involving basic deficiency taxes of Five
hundred thousand pesos (P500,000) or less,
and minor criminal violations, as may be
determined by rules and regulations to be
promulgated by the Secretary of finance,
upon recommendation of the Commissioner,
discovered by regional and district officials,
may be compromised by a regional
evaluation board which shall be composed of
the Regional Director as 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;
e. Power to fix real property values
(see Sec.6 {e}, NIRC)
-
The Commissioner is authorized to divide the
Philippines into different zones or areas and
shall, upon consultation with competent
appraisers both from the private and public
sectors, determine the fair market value of
real properties located in each zone or area.
For purposes of computing any internal
revenue tax, the value of the property shall be
whichever the higher is of:
(1) The fair market value as
determined by the Commissioner, or
(2) The fair market value as shown
in the schedule of values of the
Provincial and City Assessors.
f. Power to accredit tax agents (see Sec.6
{g}, NIRC)
The Commissioner shall accredit and
register, based on their professional
competence, integrity and moral fitness,
individuals and general professional
partnerships and their representatives who
prepare and file tax returns, statements,
reports, protests, and other papers with or
who appear before, the Bureau for
taxpayers. Within one hundred twenty (120)
days from January 1, 1998, the
h. Power to delegate (see Sec.7, NIRC)
The Commissioner may delegate the
powers vested in him under the pertinent
provisions of the Tax Code to any or such
subordinate officials with the rank
equivalent to a division chief or higher,
subject to such limitations and restrictions
as may be imposed under rules and
regulations to be promulgated by the
Secretary of finance, upon recommendation
of the Commissioner: Provided, however,
That the following powers of the
Commissioner shall not be delegated:
(d) The power to assign or reassign internal
revenue officers to establishments where
articles subject to excise tax are produced or
kept.
i.
Non-delegable powers in relation to
Section 16 of NIRC
-
the following are the powers which the
Bureau of Internal Revenue cannot
delegate:
a.
-
the power to compromise
as a general rule the power of the BIR to
compromise cannot be delegated to other
administrative agencies unless in the
following grounds:
1.
a reasonable doubt as to
the validity of the claim
2.
against the taxpayer
exists
financial inability to pay
(1) A reasonable doubt as to the validity of
the claim against the taxpayer exists; or
(2) The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.
The compromise settlement of any tax liability shall be
subject to the following minimum accounts:
a.
For cases of financial inability to pay, a
minimum compromise rate equivalent to ten
per cent (10%) of the basic tax assessed
b.
For other cases, a minimum compromise rate
equivalent to forty percent (40%) of the basic
tax assessed.
Where the basic tax involved exceeds One million
pesos (P 1,000,000.00) or where the settlement
offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the
Evaluation Board which shall be composed of the
Commissioner and the Deputy Commissioners.
All criminal violations may be compromised except
those
a.
b.
The compromise settlement of any tax
liability shall be subject to the following
minimum amounts:


Where the basic tax involved exceeds One million pesos
(P1,000.000) or where the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to
the approval of the Evaluation Board which shall be composed
of the Commissioner and the four (4) Deputy Commissioners.
those already filed in court
those involving fraud (see Sec.
204 {a}, NIRC)
(B) Abate or Cancel a Tax Liability, when:
(1) The tax or any portion thereof appears
to be unjustly or excessively assessed; or
(2) The administration and collection costs
involved do not justify the collection of the
amount due.
The taxpayer’s offer to compromise shall not
be considered, unless and until he waives in
writing his privilege under RA 1405 or under
other general or special laws, and such
waiver shall constitute the authority of the
Commissioner to inquire into his bank
deposits. (see Sec. 6 {f}, NIRC)
All criminal violations may be compromised
except: (a) those already filed in court, or (b)
those involving fraud.
b. power to abate
The BIR may abate or cancel tax liability
when:
a.
b.
the tax or any portion thereof
appears to be unjustly or
excessively assessed
the
administration
and
collection costs involved do not
justify the collection of the
amount due
The power to compromise or abate shall not be
delegated by the Commissioner, except in the
following cases;
assessments issued by the
regional offices involving basic
taxes of
P 500,000.00 or less
For cases of financial incapacity, a
minimum
compromise
rate
equivalent to ten percent (10%) of
the basic assessed tax; and
For other cases, a minimum
compromise rate equivalent to forty
percent (40%) of the basic assessed
tax.
D.
The rule on estoppel in relation to
administration
a. Against the government
tax
The error made by a tax official in the assessment of his tax
liabilities does not have the effect of relieving the taxpayer from
the obligation to pay the full amount of his tax liability, for taxes
are fixed by law and the government is never estopped to collect
the legitimate taxes because of the errors committed by its
agents. However, like other principles, the principle of estoppel
also admits exceptions in the interest of justice and fair play.
The Commissioner is precluded from adopting a position
inconsistent with one previously taken where in justice would
result therefore or where there has been a misrepresentation.
a.
b.
i.
Minor
criminal
violations.
These
cases
may
be
compromised by the regional
evaluation board. (see Sec.7,
NIRC)
Enforcement of
Sec.15, NIRC)
police
power
(see
The Commissioner, the Deputy Commissioners, the
Revenue Regional Directors, the Revenue District
Officers and other internal revenue officers shall have
authority to make arrests and seizures for the violation
of any penal law, rule or regulation administered by the
Bureau of Internal Revenue. Any person so arrested
shall be forthwith brought before a court, there to be
dealt with according to law.
j.
Authority to Abate and Compromise Tax
Liabilities (see Sec.6 {f}{2}, 204 in
relation to Rev. Regs.30-2002 as
amended by RR No.8-2004)
SEC. 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit Taxes. The Commissioner may -
Any mistakes committed by the
agents of the sovereign, namely government officials and
employees are their own and cannot bind the government,
which cannot be placed on estoppel on account of the mistakes
of its agents.
b. Against the taxpayer
E. Assessments and its governing principles
a. Definition
The notice and demand for payment of a tax liability
should not be confused with assessment relative to
real property taxation which refers to the listing and
evaluation of taxable real property.
b. What constitutes an assessment
i. CIR v. Pascor Realty, 29 June 1999
Neither the NIRC nor the revenue regulations
governing the protest of assessments provide a
specific definition of form of an assessment however
the NIRC defines the specific function and effects of an
assessment:



(A) Compromise the Payment of any Internal
Revenue Tax, when:
An assessment must be sent to and received by a
tax payer, and must demand payment of the taxes
described therein within a specific period.
Issuance of an assessment is vital in determining the
period of limitation regarding its proper issuance and
the period within which to protest.
An assessment is deemed made only when the
collector of Internal Revenue releases or mails or
sends such notice to the tax payer.


An assessment is not necessary before acriminal
charge can be filed.
Before an assessment is issued, there is by practice,
a pre-assessment notice sent to the tax payer.The
tax Payer is then given a chance to submit position
papers and documents to prove that the assessment
is unwarranted. If the commissioner is unsatisfied,
an assessment signed by him/her is then sent to the
tax payer informing the latter specifically and clearly
that an assessment has been made against him/her.
In contrast, the criminal charge need not go through
all this.
nature of its function, dedicated exclusively to the
study and consideration of tax problems and has
necessarily developed an expertise of the subject.
e. Instances where the running of the prescriptive
period is suspended (section 223)
i. Republic v. Hizon, 13 December 1999
Sec. 229 of the code mandates that a request for
reconsideration must be made within thirty (30) days
from the tax payer’s receipt of tax deficiency
assessment, otherwise the assessment becomes final,
unappealable and, therefore, demandable. The notice
of assessment for respondent’s tax deficiency was
issued by petitioner on July 18, 1986. On the other
hand,
respondent
made
her
request
for
reconsideration thereof only on November 3. 1992,
without stating when she received the notice of tax
assessment. She explained that she was constrained
to ask for a reconsideration in order to avoid the
harrrasment of BIR collectors. In all likelihood, she
must have been referring to the distraint and levy of her
properties by petitioner’s agents which took place of
January 12, 1989. Even assuming that she first
learned of the deficiency assessment on this date her
request for reconsideration was nonetheless filed late
since she made it more than 30 days thereafter.
Hence, her request for reconsideration did not
suspend the running for the prescriptive period
provided under section 223. Although the
commissioner acted on her request by eventually
denying it on August 11, 1994, this is of no moment
and does not distract from the fact that the assessment
had become demandable
ii. CIR v. Reyes, G.R. No. 159694, January 27, 2006
Tax payers shall be informed in writing of the law and
the facts on which the assessment and the
assessment is made; otherwise the assessment shall
be void. (2nd paragraph of section 228 is clear and
mandatory)
c. Kinds of Assessment
d. Statute of Limitation on Assessment of Internal
Revenue Taxes (Sections 203, 222, NIRC)
General rule (sec203)
Internal revenue taxes shall be assessed within three
years after the last day prescribed for the filing of the
return, and no proceeding in court without assessment
for the collection of sluch taxes shall begun after the
expiration of such period.
Exceptions (sec.222)
In the case of a false of fraudulent return with intent to
evade tax or of failure to file a return, the tax collection
may be filed without an assessment at any time within
ten years after the discovery of the falsity, fraud or
omission:
ii. BPI v. CIR, G.R. No. 139736, 17 October 2005
The court had consistently ruled in a number of cases
that a request for reconsideration by the tax payer
without a valid waiver of the prescriptive period for the
assessment and collection of tax, as required by the
tax code and implementing rules, will not suspend the
running thereof. (Exception: section 224)
If before the expiration of the time prescribed in the tax
codes for the assessment of the tax, both the
commissioner and the taxpayer have agreed in writing
to its assessment after such time, the tax may be
assessed within the period agreed upon.
Wherein the statute of limitations on assessment and
collection of taxes is considered suspended, when the
tax payer request for a reinvestigation which is granted
by the commissioner.
i. RMO 20-90, Philippine Journalist Inc., v. CIR, G.R.
No. 162852, 16 December 2004
Appellate Jurisdiction of the CTA is not limited to cases
which involve decisions of the CIR on matters relating
to assessments or refunds. The second part of the
provision covers other cases that arise out of the NIRC
or related laws and administered by the BIR. The
wording of the provision is clear and simple. It gives the
CTA the Jurisdiction to determine if the warrant of
distraint and levy issued by the BIR is valid and to rule
if the waiver of stature of limitations was validly
effected.
A waiver of the statute of limitations under the NIRC, to
a certain extent, is a derogation of the taxpayer’s right
to security against prolonged and unscrupulous
investigations and must therefore be carefully and
strictly construed. 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 CA.
It is an agreement between the taxpayer and the BIR
that the period to issue an assessment and collect the
taxes due id extended to a date certain.
The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription
unequivocally particularly where the language of the
document is equivocal. For the purpose of
safeguarding taxpayers from any unreasonable
examination, investigation or assessment, out tax law
provides a statute of limitation in collection of taxes.
Thus the law on prescription, being a remedial
measure should be liberally construed in order to
afford such protection/
ii. CIR v. CA and Carnation, G. R. No. 115712, 25
February 1999
Finality of findings of facts as a matter of principle, this
court will not set aside the conclusion reached by an
agency such as the CTA unless there has been an
abuse or improvident exercise of authority. By the very
f. Procedure in the process of assessment (Section
228)
i. Estate of the Late Juliana Diez Vda. De Gabriel v.
CIR, G.R. No. 155541, January 27, 2004
The rule that an assessment is deemed made for the
purpose of giving effect to such assessment when the
notice is released, mailed or sent to the taxpayer to
effectuate the assessment requires that the notice
must be sent to the taxpayer, and not merely to a
disinterested party. Although there is no specific
requirement that the taxpayer should receive that
notice within the said period, due process requires at
the very least that such notice actually be received.
When an estate is under administration, notice must be
sent to the administrator of the estate.
ii. CIR v. Reyes, G.R. No. 159694, January 27, 2006
The tax payers shall be informed in writing of the law
and facts on which the assessment is made otherwise
the assessment itself is void.
iii. CIR v. BPI, G.R. No. 134062, 17, April 2007
The inevitable conclusion is that BPI’s failure to protest
the assessments within the 30-day period provided in
the former section 270 meant that they became final
and unappealable. Thus, the CTA correctly dismissed
BPI’s appeal for lack of jurisdiction. BPI was, from then
on barred from disputing the correctness of the
assessments or invoking any defense that would
reopen the question of its liability on the merits. Not
only that. There arose a presumption of correctness
when BPI failed to protest the assessments: Tax
assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to
intent to evade and defeat a part or all of the tax.” In
plain words, for criminal prosecution to proceed before
assessment, there must be a prima facie showing of
willful attempt to evade taxes. There was willful attempt
to evade tax in Ungab because of the taxpayer’s failure
to declare in his income tax return “his income derived
from banana saplings.” In the mind of the trial court and
the Court of Appeals, Fortune’s situation is quite apart
factually since the registered wholesale price of the
goods. Approved by the BIR, is presumed to be the
actual wholesale price, therefore, not fraudulent and
unless and until the BIR has made a final
determination of what is supposed to be the correct
taxes, the taxpayer should not be placed in the crucible
of criminal prosecution. Herein lies a whale of
difference between Ungab and the case at bar.
prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an
assessment duly made by a BIR examiner and
approved by his superior offices will not be disturbed.
All presumptions are in favor of the correctness of tax
assessments.
iv. PNOC v. Court of Appeals, G.R. No., 109976, April
26, 2005
The defense of prescription of the period for the
assessment and collection of tax liabilities shall be
deemed waived when such defense was not properly
pleaded and the facts alleged and evidenced
submitted by the parties were not sufficient to support
a finding by the supreme court on the matter –
prescription, being a matter of defense, imposes the
burden on the taxpayer to prove that the full period of
the limitation has expired, and this requires him to
positively establish the date when the period started
running and when the same was fully accomplished.
g. Instances when pre-assessment is not required
(Section 228)
A preassessment notice shall not be required in the
following cases:

When any tax deficiency is the result of
mathematical error in the computation of the tax
as appearing on the face of the return.

When a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent.

When a taxpayer who opted to claim a refund or
tax credit of excess creditable withholding tax
for a taxable period was determined to have
carried over and automatically applied the same
amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of
the succeeding taxable year.

When the excise tax due on exciseable articles
has not been paid.

When the article locally purchased or imported
by an exempt person has been sold, traded, or
transferred to non-exempt persons.
iii. CIR v. Pascor Realty, 29 June 1999
The issuance of an assessment is vital in determining
the period of limitation regarding its proper issuance
and the period within which to protest it. Section 203 of
NIRC provides that internal revenue taxes must be
assessed within three years from the last day within
which to file the return. Section 222, on the other hand,
specifies a period of ten years in case a fraudulent
return with intent to evade was submitted or in case of
failure to file a return. Also, Section 228 of the same
law states that said assessment may be protested only
within thirty days from receipt thereof. Necessarily, the
taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion
would arise regarding the period within which t make
an assessment or to protest the same, or whether
interest and penalty may accrue thereon.
k. Are the procedures outlined in Section 228 of the NIRC
retroactive?
i. CIR v. Reyes, G.R. No. 159694, January 27, 2006
The general rule is that statutes are prospective.
However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under
the general rule against the retroactive operation of
statutes. Clearly, Section 228 provides for the
procedure in case an assessment is protested. The
provision does not create new or take away vested
rights. In both instances, it can surely be applied
retroactively. Moreover, RA 8424 does not state, either
expressly or by necessary implication, that pending
actions are excepted from the operation of section 228,
or that applying it to pending proceedings would impair
vested rights.
h. Governing principles concerning assessment
Injunction is not available to restrain the collection of
internal revenue taxes.
Exception: the Court of Appeals may issue injunctions
against administrative collection, when collection could
jeopardize the interest of the Government or taxpayer.
i. When do we reckon the period when the assessment
was made?
Internal revenue taxes shall be assessed within three
years after the last day prescribed by law for the filing
of the return.
In case where a return is filed beyond the three year
period shall be counted form the day the return was
filed.
j. Is assessment necessary before a taxpayer could be
prosecuted for violation of the NIRC?
i. Ungab v. Cusi, May 30, 1980
INTERNAL REVENUE TAX REMEDIES
Tax Remedies: Its general concepts
Importance: They exist to enhance the Government’s
tax collection efforts, they, too, come in as safeguards against
arbitrary action.
While taxes are the lifeblood of the
Government and should be collected without unnecessary
hindrance, such collection must nevertheless be made in
accordance with law as any arbitrariness will negate the very
reason or the Government itself.
Classification:
1.
Remedies in favor of the taxpayer
A. Administrative
(1) Before Payment
a. Filing of a petition or request for
reconsideration
or
reinvestigation
(Administrative Protest);
b. Entering into compromise
(2) After Payment
a. Filing of claim for tax refund; and
b. Filing of claim for tax credit
B.
Judicial
(1) Civil action
a. Appeal to the Court of Tax Appeals
b. Action to contest forfeiture of chattel; and
c. Action for Damages
(2) Criminal Action
Filing of complaint against erring Bureau of
Internal Revenue officials and employees
2.
Remedies available to the government
What is involved here is not collection of taxes where
the assessment of the commissioner of internal
revenue may be reviewed by the court of tax appeals,
but a criminal prosecution for violations of the NIRC
which is within the recognizance of the CFI. While
there can be no civil action to enforce collection before
the assessment procedures provided in the code have
been followed, there is no requirement for the precise
computation and assessment of the tax before there
can be a criminal prosecution under the code.
ii. CIR v. CA, G.R. No. 119322, 4 June 1996
Reading Ungab carefully, the pronouncement therein
that deficiency assessment is not necessary prior to
prosecution is pointedly and deliberately qualified by
the Court with following statement quoted form Guzik
v. U. S.: “the crime is complete when the violator has
knowingly and willfully filed a fraudulent return with
Applicability of the Doctrine Exhaustion of Administrative
Remedies
No civil or criminal action for the recovery of
taxes shall be filed in court without the
approval of the Commissioner. (Sec. 220,
NIRC)
Remedies Available to Taxpayers
Administrative actions taken during the 180-day period.
1. Grant of the Protest
2. Denial of Protest:
A. Direct Denial
The decision of the Commissioner or his duly rep shall (a) state
the facts, applicable law, rules and regulations or jurisprudence
on which his protest is based, otherwise the protest shall be
considered void and without force and effect, in which case the
same shall not be considered a decision a disputed assessment
and (b) that the same is his final decision. (sec. 3.1.5, RR 12-99)
A. Before Payment
1. Protest (Section 228, NIRC)
Protest is a vital document which is a formal
declaration of resistance of the taxpayer. It is a
repository of all arguments. It can be used in court in
case administrative remedies have been exhausted. It
is also the formal act of the taxpayer questioning the
official actuation of the CIR. This is equivalent to a
pleading. It may be a:
Request for reconsideration- a plea for the
re-evaluation of an assessment on the basis of existing
records without need of additional evidence. It may
involve a question of fact or law or both.
Request for reinvestigation- a plea for
reinvestigation of an assessment on the basis of
newly-discovered or additional evidence that a
taxpayer intends to present in the reinvestigation. It
may also involve question of fact or law or both.
Requirements of a valid protest
In writing;
Addressed to the CIR;
Must be accompanied by a waiver of the Statute of
Limitations in favor of the government;
4. States the Facts, applicable law rules and
regulations and jurisprudence on which his protest is
based; otherwise, his protest shall be considered
void and without force and effect on the event the
letter of protest submitted by the taxpayer is
accepted;
5. Contains the following:
1. Name of the taxpayer and address for the
immediate past three taxable years;
2. Nature of request whether reinvestigation or
reconsideration specifying newly discovered
evidence that he intends to present it is a
request for reinvestigation;
3. Taxable periods covered by the assessment;
4. Amounts and kind/s of tax involved, and
Assessment Notice Number;
5. Date of receipt of assessment notice or letter of demand;
6. Itemized statement of the findings to which the taxpayer
agrees, if any, as a basis for computing the tax due,
which amount should be paid immediately upon the filing
of the protest. For this purpose, the protest shall not be
deemed validly filed unless payment of the agreed
portion of the tax is paid first;
7. Itemized schedule of the adjustments with which the
taxpayer does not agree;
8. Statement of facts and/or law in support of the protest;
and
9. Documentary evidence as it may deem necessary and
relevant to support its protest to be submitted within sixty
(60) days from the filing of the protest. If the taxpayer fails
to comply with this requirement, the assessment shall
become final. (Revenue Regulation No. 12-85, dated
Nov. 27, 1985.)
1.
2.
3.
B.Indirect Denial
a. Commissioner did not rule on the taxpayer’s MR of the
assessment – it was only when respondent received summons
on the civil action for the collection of deficiency income tax that
the period to appeal commenced to run. (CIR vs. Union
Shipping
b. Referral by the Commissioner of request for reinvestigation to
the Solicitor General (Republic vs.Lim Tian Teng Sons)
c. Reiterating the demand for immediate payment of the
deficiency tax due to taxpayer’s continued refusal to execute
waiver (CIR vs. Ayala Securities Corp.)
d. Preliminary collection letter may serve as assessment notice
(United Int’l Pictures vs. CIR)
Acts of BIR Commissioner Considered as Denial of Protest
which serves as a Basis for Appeal to CTA:
1. Filing by the BIR of a civil suit for collection of the
deficiency tax (CIR v. Union Shipping Corp . 185 SCRA 547)
2. Indication to the taxpayer by the Commissioner in
clear and unequivocal language of his final denial. (CIR v. Union
Shipping Corp)
3. BIR demand letter reiterating his previous demand
to pay, sent to taxpayer after his protest of the assessment
(Surigao Electric Co. Inc. v. CTA, 57 SCRA 523)
4. The actual issuance of a warrant of distraint and levy
in certain cases cannot be considered as final decision on a
disputed settlement (CIR v. Union Shipping Corp)
b. Effect of protest filed out of time
The pendency of the taxpayer's appeal in the Court of Tax
Appeals and in the Supreme Court had the effect of temporarily
staying the hands of the said Commissioner. If the taxpayer's
stand that the pendency of the appeal did not stop the running of
the period because the Court of Tax Appeals did not have
jurisdiction over the case of taxes is upheld, taxpayers would be
encouraged to delay the payment of taxes in the hope of
ultimately avoiding the same. Under the circumstances, the
running of the prescriptive period was suspended. Deficiency
Percentage Taxes must be imposed.(PROTECTOR'S
SERVICES, INC., petitioner, vs. CA, G.R. No. 118176, 2000 Apr
12)
Remedies from a denial of protest
1. Motion for reconsideration
2. Appeal to the Court of Tax Appeals(RA 1125, as amended by
RA 9282)
2.
Compromise
B. After Payment
1. Refund (Section 229, NIRC)
The Legal Principle of quasi-contracts or solutio
indebiti (see Art. 2142 & 2154 of the Civil Code). The
Government is within the scope of the principle of solutio
indebiti. (CIR vs. Fireman’s Fund Insurance Co.)
a.
Must be strictly construed against taxpayer
Effect of a protest on the period to collect deficiency taxes:
The prescriptive period is arrested by the taxpayer's request for
re-examination or reinvestigation
even if he has not
previously waived it (CIR vs. Wyeth, G.R. No. 76281,Sep 30,
1991)
Failure of the BIR to act within the 180-day period.
If the Commissioner or his duly authorized representative fails to
act on the taxpayer’s protest within 180 days from the date of
submission by the taxpayer of the required documents in
support of his protest, the taxpayer may appeal to the CA within
30 days from the lapse of the 180-day period.
Grounds for filing a claim for refund:
Erroneously or illegally assessed or collected internal revenue
taxes;
Taxpayer pays under the mistake of fact, as for instance in a
case where he is not aware of the existing exemption in his favor
at the time payments were made.
A tax is illegally collected if payments are made under duress.
1.Penalties imposed without authority; and
2.Any sum alleged to have been excessive or in any manner
wrongfully collected.
The value of internal revenue stamps when they are returned in
good condition by the purchaser may also be redeemed.
b.
b.
Other Remedies
1.
Action to Contest Forfeiture of Chattel (Sec. 231)
Period within which to file a claim for refund
1.General Rule is two years from the date of payment
The two-year prescriptive period provided in Section 292 (now
Section 230 of the Tax Code should be computed from the time
of filing the Adjustment Return or Annual Income Tax Return
and final payment of income tax.(CIR vs. TMX SALES, G.R. No.
83736, 1992 Jan 15,)
The rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the
time it filed its final adjustment return is the fact that it was only
then that ACCRAIN could ascertain whether it made profits or
incurred losses in its business operations. The "date of
payment", therefore, in ACCRAIN's case was when its tax
liability, if any, fell due upon its filing of its final adjustment return.
(ACCRA vs CA, G.R. No. 96322, 1991 Dec 20)
The two-year period for prescription should be counted from the
date of payment of the tax, which for actions for refund of
corporate income tax should be computed from the time of
actual filing of the adjustment return or annual income tax return.
This is so because at that point, it can already be determined
whether there has been an overpayment by the taxpayer.
Moreover, under Sec. 49 (a) by the NIRC (now Sec. 56(a), 1997
NIRC), payment is made at the time the return is filed. (CIR V
CA, CTA, BPI, GR No. 117254. January 21, 1999)
There is some likelihood that the above rule could apply also to
individuals who are self employed (i.e., in business and
professional practice) as well as estates and trusts, which are
likewise required to file quarterly returns.
The prescriptive period of two years should commence to run
only from the time that the refund is ascertained, which can only
be determined after a final adjustment return is
accomplished.(CIR V PHILAMLIFE, 244 SCRA 446. May 29,
1995)
In case of seizure of personal property under claim for forfeiture,
the owner desiring to contest the validity of the forfeiture may
bring an action:
a.
Before sale or destruction of the property to
recover the property from the person seizing the property or in
possession thereof upon filing of the proper bond to enjoin the
sale.
b.
After the sale and within 6 months to recover
the net proceeds realized at the sale (see. Sec. 231, 1997
NIRC)
Action partakes the nature of an ordinary civil action for recovery
of personal property or the net proceeds of its sale which must
be brought in the ordinary courts and not the CTA
2.
Redemption of Property Sold (Sec. 214)
Remedies available to the Government
A.
No Injunction to restrain collection of taxes (
Sec. 218, NIRC)
G.R. No Court shall have the authority to grant an
injunction to restrain the collection of any national
internal revenue tax, fee, or charge imposed by the
NIRC.
EXC: CTA may enjoin the collection of Internal
Revenue taxes.
REQUISITES:
1. there is a pending case before the CTA (ancillary
remedy, not a main cause of action)
2. identify that the collection of tax is prejudicial
to the interest of either the TP or
government.
B.
Period within which the government could collect (
Secs. 203, 222, NIRC)
Assessment of Tax Liability

2. In case of Amended Returns
3. In case of taxpayers contemplating dissolution
c.
Who has the personality to file a claim for refund?

The duty of the withholding agent to withhold the corresponding
tax arises at the time of such accrual. The withholding
agent/corporation is then obliged to remit the tax to the
Government since it already and properly belongs to the
Government. If a withholding agent who is personally liable for
income tax withheld at source fails to pay said withholding tax,
an assessment for said deficiency withholding tax would,
therefore, be legal and proper. (FILIPINAS SYNTHETIC FIBER
CORP. V CA, GR No.113347. June 14, 1996)

Three (3)years from the following, whichever
comes later:
1. The last day prescribed by law for filing
the return
2. The day when the return was actually
filed
Ten (10) years after the discovery of the
falsity, fraud or omission in case of:
1. False or fraudulent return with intent to
evade tax, or
2. Failure to file a return
Within the period agreed upon, when both the
TP and the Commissioner have agreed in
writing, before the expiration of the period in
Sec. 203 for the assessment of the tax.
CASES:
d.
e.
f.
g.
1.
h.
Is setting-off of taxes against a pending claim for refund
allowed?
Is automatic application of excess tax credits allowed?
Effect of existing tax liability on a pending claim for refund
Period of validity of a tax refund/credit
Returns are not actionable documents for purposes of the rules
on civil procedure and evidence
Refund and Protest are mutually exclusive remedies
REPUBLIC V. HIZON, DEC. 13, 1999

Revenue Adm. Order No. 10-95 specifically
authorizes the Litigation and Prosecution
section of the Legal Division of regional
district offices to institute the necessary civil
and criminal actions for tax collection. As the
complaint filed in this case was signed by the
BIR’s Chief of Legal Division for Region 4 and
verified by the Regional Director, there was,
therefore, compliance with the law.

Sec. 7 of NIRC, authorizes the BIR
Commissioner to delegate the powers vested
in him under the pertinent provision of the
Code to any subordinate official with the rank
equivalent to a division chief or higher.
i.
Is the taxpayer entitled to claim interest on the refunded
tax?
General Rule: The Government cannot be required to pay
interest on taxes refunded to the taxpayer, unless:
1. The Commissioner acted with patent arbitrariness
Arbitrariness presupposes inexcusable or obstinate disregard of
legal provisions. (CIR vs. Victorias Milling Corp., Inc. L-19607,
Nov. 29, 1966.)
2. In case of Income Tax withheld on the wages of employees
Any excess of the taxes withheld over the tax due from the
taxpayer shall be returned or credited within 3 months from the
fifteenth (15th) day of April. Refund or credit after such time earn
interest at the rate of 6% per annum, starting after the lapse of
the 3-month period to the date the refund or credit is made (Sec
79 (c) (2) 1997 NIRC
CIR V. JAVIER, JULY 31, 1991

There was no actual intentional fraud in filing
the return. Private respondent’s notation on
the tax return was at most an error or mistake
of fact or law not constituting fraud,
an
invitation for investigation and private
respondent had literally” laid his cards on the
table.
PNOC V. CA, APRIL 26, 2005
C.
1.
OVERVIEW OF REMEDIES (SECTION 205)
Tax Lien (Sec 219, NIRC)


When a taxpayer neglects or refuses to pay
his internal revenue tax liability after demand,
the amount so demanded shall be a lien in
favor of the government from the time the
assessment was made by the Commissioner
until paid with interest, penalties, and costs
that may secure in addition thereto, upon all
property and rights to property belonging to
the taxpayer.

Lien shall not be valid against any mortgagee,
purchaser or judgment creditor until notice of
such lien shall be filed by the Commissioner
in the Register of Deeds of the province or city
where the property of the taxpayer is located.

A tax lien created in favor of the government
is superior to all other claims and
preferences, even to that of a private litigant
predicated on a court judgment.
Extinguishment of Tax Lien
1. Payment or remission of the tax
2. Prescription of the right of the government to assess or
collect.
3. Failure to file notice of such lien in the office of register
of Deeds, purchases or judgment creditor.
4. Destruction of the property subject to the lien.
NOTE: In Nos. 1 and 2, there is no more tax liability while under
nos. 3 and 4, the taxpayer is still liable.
CASE: CIR V. NLRC, NOV. 09, 1994

A tax lien created in favor of the government
is superior to all other claims and
preferences, even to that of a private litigant
predicated on a court judgment. The tax lien
attaches not only from the service of the
warrant of distraint of personal property but
from the time the tax became due and
payable.
2.
Compromise
 CIR may compromise both civil and criminal
liability of the taxpayer.
REQUISITES:
1. The taxpayer have a tax liability
2. There must be an offer by the taxpayer of
an amount to be paid by the taxpayer
3. There must be an acceptance by the
Commissioner or the taxpayer as the
case may be of the offer in the settlement
of the original claim
Grounds for compromise
1. A reasonable doubt as to the validity of the
claim against the taxpayer exists; or
2. The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax
Cases that may be compromised
1.
2.
3.
4.
5.
Delinquent accounts
Cases under administrative protest
Cases disputed before the courts
Cases for collection already filed in courts
Criminal violations except those already filed, and
those involving fraud.
Cases that cannot be compromised
1.
2.
3.
4.
5.
6.
Withholding tax cases
Criminal tax fraud cases
Criminal cases already filed in court
Delinquent accounts with duly approved schedule of
installment payments
Cases where reduction of payments had already been
granted.
cases already decided and are final and executory
Compromise of criminal violation

In criminal violations, the compromise

must be made prior to the filing of the information in
court.
All criminal violations may be compromised except:
1.
2.
those already filed in court; and
those involved in fraud.
Limitations:
1. Minimum compromise rate:
a. 10% of the basic tax assessed – in case of
financial incapacity.
b. 40% of basic tax assessed – other cases.
2. Subject to approval of the Evaluation Board
a. When
basic
tax
involved
exceeds
P1,000,000.00 or
b. Where settlement offered is less than the
prescribed minimum rates.
Delegation of Power to Compromise
General Rule: The power to compromise or abate shall not be
delegated by the commissioner.
Exception: The Regional Evaluation Board may compromise
the assessment issued by the regional offices involving basic
taxes of P 500,000.00 or less.
Remedy in case of failure to comply:
The CIR may either:
a. Enforce the compromise, or
b. Regard it as rescinded and insists upon the original demand.
3.
4.
5.
6.
Distraint and/or Levy
Civil Action
Criminal Action
Forfeiture

Implies a divestiture of property without
compensation, in consequence of a default
or offense.

It includes the idea of not only losing but also
having the property transferred to another
with out the consent of the owner and
wrongdoer.
Effect: Transfer the title to the specific thing from the
owner to the government.
When available:
a. No bidder for the real property exposed for
sale.
b. If highest bid is for an amount insufficient to
pay the taxes, penalties and costs.
With in two days thereafter, a return of the
proceeding is duly made.
How enforced:
a. In case of personal property – by seizure and
sale or destruction of the specific forfeited
property.
b. In case of real property – by a judgment of
condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may
require.
When forfeited property to be destroyed or sold:
a. To be destroyed – by order of the CIR when
the sale for consumption or use of the
following would be injurious to the public
health or prejudicial to the enforcement of the
law: (at least 20 days after seizure)
1. distilled spirits
2. liquors
3. cigars
4. cigarettes, and other manufactured
products of tobacco
5. playing cards
6. All apparatus used in or about the
illicit production of such articles.
b. To be sold or destroyed – depends upon the
discretion of CIR
1. All other articles subject to exercise
tax, (wine, automobile, mineral
products,
manufactured
oils,
miscellaneous
products,
non-essential items a petroleum
products) manufactured or removed
in violation of the Tax Code.
2. Dies for printing or making IR
stamps, labels and tags, in imitation
of or purport to be lawful stamps,
labels or tags.
1.
2.
Commissioner or his duly
authorized representative
Revenue District Officer (RDO)
Where to be sold:
a. Public sale: provided, there is notice given
not less than 20 days.
b. Private sale: provided, it is with the approval
of the Secretary of Finance.
Right of Redemption:
a. Personal entitled – taxpayer or anyone for
him
b. Time to redeem – within one (1) year from
forfeiture
c. Amount to be paid – full amount of the taxes
and penalties, plus interest and cost of the
sale
d. To whom paid – Commissioner or the
Revenue Collection Officer
e. Effect of failure to redeem – forfeiture shall
become absolute.
NOTE:
The Register of Deeds is duty bound to transfer the
title of property forfeited to the government with out
necessity of an order from a competent court.
7. Suspension of Business Operations
8. Enforcement of Administrative Fines
D.
ADMINISTRATIVE REMEDIES IN DETAIL (SECS.
206-217, NIRC)
A. DISTRAINT - Seizure by the government of personal
property, tangible or intangible, to enforce the payment of faces,
to be followed by its public sale, if the taxes are not voluntarily
paid.
KINDS
a. Actual – There is taking of possession of personal property
out of the taxpayer into that of the government. In case of
intangible property, taxpayer is also diverted of the power of
control over the property.
b. Constructive – The owner is merely prohibited from
disposing of his personal property.
Difference between Actual and Constructive Distraint
Actual
Constructive
Made on the property only of a May be made on the property
delinquent taxpayer.
of any taxpayer whether
delinquent or not
There is actual taking or Taxpayer is merely prohibited
possession of the property.
from
disposing
of
his
property.
Effected by having a list of the Effected by requiring the
distraint property or by service taxpayer to sign a receipt of
or warrant of distraint or the property or by leaving a
garnishment.
list of same
An
immediate
step
for Such immediate step is not
collection of taxes where necessary; tax due may not
amount due is definite.
be definite or it is being
questioned.
Requisites:
1. Taxpayer is delinquent in the payment of tax.
2. Subsequent demand for its payment.
3. Taxpayer must fail to pay delinquent tax at time
required.
4. Period with in to assess or collect has not yet
prescribed.
When remedy not available:
Where amount involved does not exceed P100.
In keeping with the provision on the abatement of the
collection of tax as the cost of same might even be more than
P100.
Procedure:
1. Service of warrant of distraint upon taxpayer or upon
person in possession of taxpayer’s personal property.
2. Posting of notice is not less than two places in the
municipality or city and notice to the taxpayer
specifying time and place of sale and the articles
distrained.
3. Sale at public auction to highest bidder
4. Disposition of proceeds of the sale.
Who may effect distraint
Amount Involved
In
excess
P1,000,000.00
P1,000,000.00
less
of
or
How Actual Distraint Effected
1. In case of Tangible Property:
a. Copy of an account of the property distrained,
signed by the officer, left either with the owner
or person from whom property was taken, at
the dwelling or place of business and with
someone of suitable age and discretion
b. Statement of the sum demanded.
c. Time and place of sale.
2.
In case of intangible property:
a. Stocks and other securities
Serving a copy of the warrant upon
taxpayer and upon president, manager,
treasurer or other responsible officer of the
issuing corporation, company or association.
b. Debts and credits
1. Leaving a copy of the warrant with the
person owing the debts or having in his
possession such credits or his agent.
2. Warrant shall be sufficient authority for
such person to pay CIR his credits or
debts.
c.
Bank Accounts – garnishment
1. Serve warrant upon taxpayer and
president, manager, treasurer or
responsible officer of the bank.
2. Bank shall turn over to CIR so much of
the bank accounts as may be sufficient.
How constructive Distraint Effected
1. Require taxpayer or person in possession to:
Sign a receipt covering property distrained
Obligate him to preserve the same properties.
Prohibit him from disposing the property from
disposing the property in any manner, with
out the authority of the CIR.
2. Where Taxpayer or person in possession refuses to
sign:
Officer shall prepare list of the property
distrained.
In the presence of two witnesses of sufficient
age and discretion, leave a copy in the
premises where property is located.
Grounds of Constructive Distraint
1. Taxpayer is retiring from any business subject to tax.
2. Taxpayer is intending to leave the Philippines; or
3. To remove his property there from.
4. Taxpayer hides or conceals his property.
5. Taxpayer acts tending to obstruct collection
proceedings.
NOTE:
1. Bank accounts may be distrained without violating the
confidential nature of bank accounts for no inquiry is
made. BIR simply seizes so much of the deposit with
out having to know how much the deposits are or
where the money or any part of it came from.
2. If at any time prior to the consummation of the sale, all
proper charges are paid to the officer conducting the
same, the goods distrained shall be restored to the
owner.
3. When the amount of the bid for the property under
distraint is not equal to the amount of the tax or is very
much less than the actual market value of articles, the
CIR or his deputy may purchase the distrained
property on behalf of the national government.
B. LEVY OF REAL PROPERTY - an act of seizure of
real property in order to enforce the payment of taxes. The
property may be sold at public sale, if after seizure the taxes are
not voluntarily paid.
NOTE: The requisites are the same as that of distraint.
Procedure:
1. International Revenue officer shall prepare a duly
authenticated certificate showing
a. Name of taxpayer
b. Amount of tax and
c. Penalty due.
enforceable throughout the Philippines
2. Officer shall write upon the certificate a description of
the property upon which levy is made.
3. Service of written notice to:
a. The taxpayer, and
b. RD where property is located.
4. Advertisement of the time and place of sale.
5. Sale at public auction to the highest bidder.
6. Disposition of proceeds of sale.
NOTE: The excess shall be turned over to owner.
Redemption of property sold or forfeited
a. Person entitled: Taxpayer or anyone for him
b. Time to redeem: one year from date of sale or
forfeiture
Begins from registration of the deed of sale or
declaration of forfeiture.
Cannot be extended by the courts.
c. Possession pending redemption: owner not
deprived of possession
d. Price: Amount of taxes, penalties and interest thereon
from date of delinquency to the date of sale together
with interest on said purchase price at 15% per annum
from date of purchase to date of redemption.
Difference between Distraint and Levy
Distraint
Levy
personal property
real property
forfeiture by government, not forfeiture
by
government
provided
authorized where there is no
bidder or the highest bid is not
sufficient to pay the taxes,
penalties and costs.
Taxpayer no given the right of Taxpayer
can
redeem
redemption
properties levied upon and
sold/forfeited
to
the
government.
1.
2.
Both are summary remedies for collection of taxes.
Both cannot be availed of where amount involved is
not more than P100.
NOTE:
1. It is the duty of the Register of Deeds concerned upon
registration of the declaration of forfeiture, to transfer
the title to the property with out of an order from a
competent court
2. The remedy of distraint or levy may be repeated if
necessary until the full amount, including all expenses,
is collected.
C. GARNISHMENT
Bank Accounts – garnishment
1. Serve warrant upon taxpayer and president, manager,
treasurer or responsible officer of the bank.
2. Bank shall turn over to CIR so much of the bank accounts as
may be sufficient.
E. JUDICIAL REMEDIES IN DETAIL (SEC 220, NIRC)
1. Period within which the action may be filed
Civil and Criminal Actions:
1. Brought in the name of the Government of the
Philippines.
2. Conducted by Legal Officer of BIR
3. Must be with the approval of the CIR, in case
of action, for recovery of taxes, or
enforcement of a fine, penalty or forfeiture.
A. CIVIL CASES (SECS 203,222,NIRC)
 Three (3)years from the following, whichever
comes later:
3. The last day prescribed by law for filing
the return
4. The day when the return was actually
filed
 Ten (10) years after the discovery of the
falsity, fraud or omission in case of:
3. False or fraudulent return with intent to
evade tax, or
4. Failure to file a return
 Within the period agreed upon, when both the
TP and the Commissioner have agreed in
writing, before the expiration of the period in
Sec. 203 for the assessment of the tax.
Where to File
1) Court of Tax Appeals- where the principal amount of taxes
and fees exclusive of charges and penalties claimed is one
million pesos and above
2) RTC, Mun. TC, Metro TC- where the principal amount of
taxes and fees, exclusive of charges and penalties claimed is
less thanP1,000,000.00 (Sec 7[c], RA 9282)
 The approval of the CIR is essential in civil
cases (Sec. 220). However under Sec. 7 of
NIRC, the Commissioner may delegate suchpower to
a Regional Director.

Actions instituted by the government to collect internal
revenue taxes in regular courts (RTC or MTCs,
depending on the amount involved). It includes filing by
the government with the probate court claims against
the deceased taxpayer.
 Resorted to when the tax liability becomes final and
unappealable, or when the decision of the
Commissioner becomes final or executory. When:

A tax is assessed and the assessment becomes final
and unappealable because the taxpayer
fails to file an administrative protest with the BIR within 30
days from the receipt of the
assessment.

When an administrative protest filed by the taxpayer
against the assessment is denied, in whole and in part
or Is not acted upon within 180 days from submission
of the documents, and

The taxpayer adversely affected by the decision or
inaction fails to file an appeal with the CTA within 30
days from receipt of said decision or from the lapse of
the180 day period.
B. CRIMINAL CASES ( TITLE X, NIRC; SEC. 281, NIRC)

All violations of any provision of the tax code shall
prescribe after five (5) years.
NOTE:

When should it commence: The five (5) year
prescriptive period shall begin to run from the
a. If known, day of the commission of the violation.
b. If not known, from the time of discovery and the
institution of judicial proceeding for its
investigation and punishment.

When is it interrupted:
a. When a proceeding is instituted against the guilty
person
b. When the offender is absent from the Philippines.

When should it run again: When the proceeding is
dismissed for reason not constituting jeopardy.
Where to file
1) Court of Tax Appeals- on criminal offenses arising from
violations of the NIRC or TCC and other laws administered by
the BIR and the BOC, where the principal amount of taxes and
fees, exclusive of charges and penalties claimed is
P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on criminal offenses arising from
violations of the NIRC or TCC and
other laws administered by the BIR and the BOC, where the
principal amount of taxes and fess
exclusive of charges and penalties claimed is less than
P1,000,000.00 or where there is no specified amount claimed
(Sec 7[b], RA 9282)
CASES:
REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval of filing of
civil and criminal actions)

Revenue Adm. Order No. 10-95 specifically authorizes
the Litigation and Prosecution section of the Legal
Division of regional district offices to institute the
necessary civil and criminal actions for tax collection.
As the complaint filed in this case was signed by the
BIR’s Chief of Legal Division for Region 4 and verified
by the Regional Director, there was, therefore,
compliance with the law.

Sec. 7 of NIRC, authorizes the BIR Commissioner to
delegate the powers vested in him under the pertinent
provision of the Code to any subordinate official with
the rank equivalent to a division chief or higher.

CIR V. LA SUERTE CIGAR, JULY 04, 1992 (re: participation of
the Office of the Solicitor General)

The institution or commencement before a proper
court of civil and criminal actions and proceedings
arising under the Tax Reform Act which "shall be
conducted by legal officers of the Bureau of Internal
Revenue" is not in dispute. An appeal from such
court, however, is not a matter of right. Section 220 of
the Tax Reform Act must not be understood as
overturning the long established procedure before this
Court in requiring the Solicitor General to represent the
interest of the Republic. This Court continues to
maintain that it is the Solicitor General who has the
primary responsibility to appear for the government in
appellate proceedings.

PNOC V. CA, APRIL 26, 2005

LIM V. CA, OCT. 18, 1990 ( re: prescription of criminal
actions, Sec, 281, NIRC)

should be filed 5 years from the (1) day of the
commission of the violation of the law, and if the same
shall be not known, from the (2) discovery thereof and
the institution of the judicial proceedings for its
investigation and punishment.
MARCOS II V. CA, JUNE 5, 1997 (re: enforcement of tax liability
during pendency of probate proceedings)

The BIR is authorized to collect estate tax deficiency
through the summary remedy of the levying upon and
sale of properties of a decedent, without the cognition
and authority of the court sitting in probate over the
supposed will of the deceased, because the collection
of estate tax is executive in character. As such the
estate tax is exempted from the application of the
statute of the non – claims, and this is justified by the
necessity of the government finding, immortalized in
the maxim that taxes are the lifeblood of the
government
E. EFFECTS OF FAILURE TO PAY THE TAX ON TIME:
ADDITIONS TO THE TAX (CHAPTER I, TITLE X, NIRC)
1. SURCHARGES- a civil penalty imposed by law as an
addition to the main tax required to be
paid. It is not a
criminal penalty but a civil administrative sanction provided
primarily as
safeguard
for the protection of the State
revenue and to reimburse the government for the
expenses
of investigation and the loss resulting from the taxpayer’s fraud.
A surcharge
added
to the main tax
is subject to
interest.
a. ORDINARY (SEC. 248A, NIRC)
Penalty: 25% of the amount due, in addition to the tax required
to be paid
a.
b.
c.
d.
Failure to file any return and to pay the tax
due thereon as required by the NIRC or rules.
Filing a return with an internal revenue officer
other than those with whom the return is
required to be fired. Not authorized officer.
Failure to pay the deficiency tax within the
time prescribed for its payment in the notice of
assessment.
Failure to pay the full or part of the amount of
tax shown on any return, or the full amount of
tax due for which no return is required to be
filed, on or before the date prescribed for its
payment.
b. FRAUD PENALTY (SEC. 248B, NIRC)
Classes of interest
1.
2.
3.
Deficiency interest
Delinquency interest
Interest on extended payment
Deficiency interest

Any deficiency in the tax due shall be subject to the
interest of 20% per annum which shall be assessed
and collected from the date prescribed for its payment
until the full payment thereof.
When delinquency interest imposed?

Delinquency interest is imposed in case of failure to
pay:
1. The amount of the tax due on any return required
to be filed; or
2. The amount of tax due for which no return is
required; or
3. A deficiency tax or any surcharge or interest
thereon on the issue date appearing in the notice
and demand of the Commissioner.

Rate is 20% per annum until the amount is fully paid
which interest shall form part of the tax.
Interest on Extended Payment.
1) any person who is qualified and elects to pay the tax on
installment but fails to pay the tax, or any installment, or any part
on or before the date prescribed; or
2) where the Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof,
3) from the date of notice and demand until it is paid.
Compromise Penalty
1. It is a certain amount of money which the taxpayer
pays to compromise a tax violation.
2. It is pain in lieu of a criminal prosecution.
3. Since it is voluntary in character, the same may be
collected only if the taxpayer is willing to pay them.
Failure to File Certain Information Returns (Sec. 250, NIRC)
A) Penalty: P 1,000 for each failure
B) The aggregate amount for all such failure shall not exceed P
25,000 during a calendar year
C) Upon notice and demand by the Commissioner
D) Unless it is shown that such failure is due to reasonable
cause and not to willful neglect.
In the case of each failure to file:
1) information return;
2) statement or list;
3) keep any record;
4) supply any information
E) required by this Code or by the Commissioner on the date
prescribed thereof.
LOCAL TAXATION
A. Local Taxation: General Concepts
1. Nature of Local Taxing Power
a.
“Each local government unit shall have the power
to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide,
consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue
exclusively to the local governments.”
Penalty: 50% of the amount due, in addition to the tax required
to be paid
a.
b.
In case of willful neglect to file the return
within the period prescribed by the NIRC or
rule.
In case a false or fraudulent return is willfully
made.
b.
CASE: CIR V. JAVIER, JULY 31, 1991

There was no actual intentional fraud in filing
the return. Private respondent’s notation on
the tax return was at most an error or mistake
of fact or law not constituting fraud,
an
invitation for investigation and private
respondent had literally” laid his cards on the
table.
2. INTEREST- This is an increment on any unpaid amount
of tax assessed at the rate of 20% per
annum
or
such
higher rate as may be prescribed by the regulations from the
date prescribed for payment until the amount is fully paid.
Constitutional Provision (Section 5, Article X)
Delegated Power
i. City of San Pablo Laguna vs. Reyes, March
25, 1999
“The power to tax is primarily vested in
Congress. However, in our jurisdiction, it
may be exercised by local legislative bodies,
no longer merely by virtue of a valid
delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of
the Constitution. The important legal effect
of Section 5 is that henceforth, in interpreting
statutory provisions on municipal fiscal
powers, doubts will have to resolved in favor
of municipal corporations.”
ii. Meralco vs. Province of
1999
charges pursuant to Article X, section 5 of the
1987 Constitution.
Laguna, May 5,
This paradigm shift results from the
realization that genuine development can be
achieved only by strengthening local
autonomy and promoting decentralization of
governance. For a long time, the country’s
highly centralized government structure has
bred a culture of dependence among local
government leaders upon the national
leadership. It has also “dampened the spirit of
initiative,
innovation
and
imaginative
resilience in matters of local development on
the part of local government leaders.” The
only way to shatter this culture of dependence
is to give the LGUs a wider role in the delivery
of basic services, and confer them sufficient
powers to generate their own sources for the
purpose. To achieve this goal, section 3 of
Article X of the 1987 Constitution mandates
Congress to enact a local government code
that will, consistent with the basic policy of
local autonomy, set the guidelines and
limitations to this grant of taxing powers.”
“Prefatorily, it might be well to recall that local
governments do not have the inherent power
to tax except to the extent that such power
might be delegated to them either by the
basic law or by statute. Presently, under
Article X of the 1987 Constitution, a general
delegation of that power has been given in
favor of local government units. The 1987
Constitution has a counterpart provision in
the 1973 Constitution, which did come out
with a similar delegation of revenue making
powers to local governments. Under the
regime of the 1935 Constitution no similar
delegation of tax powers was provided, and
local government units instead derived their
tax powers under a limited statutory authority.
Whereas, then, the delegation of tax powers
granted at that time by statute to local
governments was confined and defined
(outside of which the power was deemed
withheld), the present constitutional rule
(starting with the 1973 Constitution),
however, would broadly confer such tax
powers subject only to specific exceptions
that the law might prescribe. Under the now
prevailing Constitution, where there is neither
a grant nor a prohibition by statute, the tax
power must be deemed to exist although
Congress may provide statutory limitations
and guidelines. The basic rationale for the
current rule is to safeguard the viability and
self-sufficiency of local government units by
directly granting them general and broad tax
powers. Nevertheless, the fundamental law
did not intend the delegation to be absolute
and unconditional; the constitutional objective
obviously is to ensure that, while the local
government units are being strengthened and
made more autonomous, the legislature must
still see to it that (a) the taxpayer will not be
over-burdened or saddled with multiple and
unreasonable impositions; (b) each local
government unit will have its fair share of
available resources, (c) the resources of the
national government will not be unduly
disturbed; and (d) local taxation will be fair,
uniform, and just.”
-
“The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer
merely be virtue of a valid delegation as before,
but pursuant to direct authority conferred by
Section 5, Article X of the Constitution. Under the
latter, the exercise of the power may be subject to
such guidelines and limitations as the Congress
may provide which, however, must be consistent
with the basic policy of local autonomy.
Clearly then, while a new slant on the subject of
local taxation now prevails in the sense that the
former doctrine of local government units
delegated power to tax had been effectively
modified with Article X, Section 5 of the 1987
Constitution now in place, .the basic doctrine on
local taxation remains essentially the same. For as
the Court stressed in Mactan, "the power to tax is
[still] primarily vested in the Congress."
In net effect, the controversy presently before the
Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which
necessarily includes the power to exempt, and the
local government’s delegated power to tax under
the aegis of the 1987 Constitution.”
iii. Mactan Cebu International Airport Authority
vs. Marcos, September 11, 1996
“The taxing powers of local government units
cannot extend to the levy of, inter alia, “taxes,
fees and charges of any kind on the National
Government,
its
agencies
and
instrumentalities, and local government
units”; however, pursuant to Section 232,
provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the
real property tax except on, inter alia, “real
property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has
been granted, for consideration or otherwise,
to a taxable person,” as provided in item (a) of
the first paragraph of Section 234.”
iv.
2.
Fundamental Principles in the exercise of Local Taxing
Power (Sec. 130, LGC)
3.
Exercise of Local Taxing Power
B. Common Limitations on the Exercise of Local Taxing
Power
1.
The Principle of Preemption / Exclusionary Rule (Sec.
133, LGC)
If the national government elects to tax a particular
subject within a Local Government Unit, it is
impliedly withholding the power of LGU to tax the
same.
Adopted in the Philippines despite non-prohibition
of double taxation unless expressly allowed by
Congress.
2.
Cases:
a. Province of Bulacan vs. CA, November 27, 1998
A province may not levy excise taxes on articles
already taxed by the National Internal Revenue
Code. It is clearly apparent from Section 151 of
the National Internal Revenue Code levies a tax
on all quarry resources, regardless of origin,
whether extracted from public or private land.
Thus, a province may not ordinarily impose taxes
on stones, sand, gravel, earth and other quarry
resources, as the same are already taxed under
the National Internal Revenue Code.
The
NAPOCOR vs. City of Cabanatuan, April 9,
2003
“In recent years, the increasing social
challenges of the times expanded the scope
of state activity, and taxation has become a
tool to realize social justice and the equitable
distribution of wealth, economic progress and
the protection of local industries as well as
public welfare and similar objectives.
Taxation assumes even greater significance
with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer
vested exclusively on Congress; local
legislative bodies are now given direct
authority to levy taxes, fees and other
Extent of the Power of Congress in Local Taxation
City Govt. of Quezon City vs. Bayantel, March 6,
2006
BPC’s registration with the BOI on July 16, 1993
and end on July 15, 1999.
province can, however, impose a tax on stones,
sand, gravel, earth and other quarry resources
extracted from public land because it is expressly
empowered to do so under the Local Government
Code. As to stones, sand, gravel, earth and other
quarry resources extracted from private land,
however, it may not do so, because of the
limitation provided by Section 133 of the Code in
relation to Section 151 of the National Internal
Revenue Code.
b.
3.
Local Taxing Power cannot extend to:
-
Those already covered by the National
Internal Revenue Code, i.e. Income tax,
Transfer tax, VAT, percentage tax, Excise
Tax, Documentary Stamp Tax;
-
Those already covered by the Tariff and
Customs Code;
Duties upon products about to be
exported and goods passing
through territorial jurisdiction
cannot be taxed by LGUs.
-
Taxation of the National Government,
including its agencies and instrumentalities
as we as local government units;
-
Those subjects not within the ambit of real
taxation by reason of public policy, i.e.
Cooperatives registered under RA 6938
(CDA);
-
Those enjoying privileges as granted by the
Board of Investments (Investments Priorities
Plan);
Both pioneer and non-pioneer
enterprises enjoy such kind of
privileges under the Omnibus
Investments Code.
-
Taxes on agricultural or aquatic products sold
by marginal enterprises;
-
Taxes, fees, or charges for the registration of
motor vehicles and for the issuance of all
kinds of licenses or permits for the driving
thereof, except tricycles.
-
LTO vs. Butuan – Congress has no intention
to delegate issuance of permits to LGUs. The
intention of the law is to centralize issuance of
permits to drive motor vehicles including
tricycles is to monitor the operation of the
same. Section 133(l) is only for franchise
where to grant the same is within the
discretion of LGUs. The permit to drive is
issued by LTO.
First Philippine Industrial Corp. vs. CA, December
9, 1998 (Section 133j; Local Tax on Common
Carriers)
There is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business
tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
"Section 133. Common Limitations on the Taxing
Powers of Local Government Units. –
Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to
the levy of the following :
xxx
xxx
xxx
(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the
transportation of passengers or freight by hire and
common carriers by air, land or water, except as
provided in this Code."
It is clear that the legislative intent in excluding
from the taxing power of the local government unit
the imposition of business tax against common
carriers is to prevent a duplication of the so-called
"common carrier's tax."
Petitioner is already paying three (3%) percent
common carrier's tax on its gross sales/earnings
under the National Internal Revenue Code.[19] To
tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat
the purpose of the Local Government Code.
c.
d.
Palma Development Corp. vs. Municipality of
Malangas, October 16, 2003 (Sec. 133e)
By express language of Sections 153 and 155 of
RA No. 7160, local government units, through
their Sanggunian, may prescribe the terms and
conditions for the imposition of toll fees or charges
for the use of any public road, pier or wharf funded
and constructed by them. A service fee imposed
on vehicles using municipal roads leading to the
wharf is thus valid. However, Section 133(e) of
RA No. 7160 prohibits the imposition, in the guise
of wharfage, of fees -- as well as all other taxes or
charges in any form whatsoever -- on goods or
merchandise. It is therefore irrelevant if the fees
imposed are actually for police surveillance on the
goods, because any other form of imposition on
goods passing through the territorial jurisdiction of
the municipality is clearly prohibited by Section
133(e).
Batangas Power Corp. vs. Batangas City, April 28,
2004 (Section 133g)
Sec. 133 (g) of the LGC, which proscribes local
government units (LGUs) from levying taxes on
BOI-certified pioneer enterprises for a period of six
years from the date of registration, applies
specifically to taxes imposed by the local
government, like the business tax imposed by
Batangas City on BPC in the case at bar.
Reliance of BPC on the provision of Executive
Order No. 226,[18] specifically Section 1, Article
39, Title III, is clearly misplaced as the six-year tax
holiday provided therein which commences from
the date of commercial operation refers to income
taxes imposed by the national government on
BOI-registered pioneer firms. Clearly, it is the
provision of the Local Government Code that
should apply to the tax claim of Batangas City
against the BPC. The 6-year tax exemption of
BPC should thus commence from the date of
4.
Time of Payment (Section 167, LGC)
Unless otherwise provided in LGC, all local taxes, fees,
and charges shall be paid within the first twenty (20)
days of January or of each subsequent quarter, as the
case may be. The Sanggunian concerned may, for a
justifiable reason or cause, extend the time for
payment of such taxes, fees, or charges without
surcharges or penalties, but only for a period not
exceeding six (6) months.
5.
Surcharges, Interests and Penalties
C.
Residual Power to Tax (Sec. 186)
The power of LGU to tax even of not expressly
granted by the LGC provided that there is no
express prohibition.
D.
Specific Taxing Units
1. Provinces may tax:
i. Transfer of Real Property ownership
Onerous or gratuitous
Preemption rule is not applicable
½ of 1%
ii.
Printing and Publication
iii. Franchise Tax
Government franchise, whether primary or
secondary, i.e. public utility companies
If the franchise grants tax exemption and the
same was executed prior to 1991 LGC, it is
deemed revoked by reason of the law’s blanket
revocation.
At a rate not exceeding ½ of 1% of the Gross
Amount receipt of the preceding calendar year
-
iv.
Professional Tax
Those who have passed government licensure
examinations are the ones liable
Amount – not exceeding Php 300.00
Imposed by the city or province where the
taxpayer’s principal office is located
With employer-employee relationship – liability
to PTR depends on the extent of services
provided. If services provided is exclusive to the
employer, PTR is not necessary, otherwise, the
employee is liable.
could only qualify as a notice of collection if there is
an unmistakable demand for payment of back
taxes.
-
v.
 Who is entitled to the notice of assessment
1.
Sand and Gravel Tax
Imposed on extraction of sand, gravel and other
quarry resources
Not more than 10% of the FMV of what was
extracted
Case: Province of Bulacan vs. CA
-
vi.
-
vii.
Amusement Tax
As high as 30%
Applies to theaters, cinemas, concert halls,
boxing stadiums, circuses and other places of
amusements.
In the present case, the notice of
delinquency was sent by registered mail to the
permanent address of the registered owner in
Manila. In that notice, the city treasurer of Baguio
City directed him to settle the charges immediately
and to protect his interest in the property. Under the
circumstances, we hold that the notice sent by
registered mail adequately protected the rights of
the taxpayer, who was the registered owner of the
condominium unit.
For purposes of the real property tax, the
registered owner of the property is deemed the
taxpayer. Hence, only the registered owner is
entitled to a notice of tax delinquency and other
proceedings relative to the tax sale. Not being
registered owners of the property, petitioners
cannot claim to have been deprived of such notice.
In fact, they were not entitled to it.
Taxes on Delivery trucks
2.
Cities may tax those that may be taxed by a province
and a municipality. They may impose a tax rate which
is 50% higher than the rates being imposed by
provinces and municipalities.
3.
Municipalities
i. Business permit
ii. Community Taxes
iii. May levy taxes, fees, and charges not otherwise
levied by provinces (Sec. 142)
Talusan vs. Tayag, (April 04, 2001) - Cases
involving an auction sale of land for the collection of
delinquent taxes are in personam. Thus, notice by
publication, though sufficient in proceedings in rem,
does not as a rule satisfy the requirement of
proceedings in personam.
As such, mere
publication of the notice of delinquency would not
suffice, considering that the procedure in tax sales
is in personam. It was, therefore, still incumbent
upon the city treasurer to send the notice of tax
delinquency directly to the taxpayer in order to
protect the interests of the latter.
b.
JUDICIAL (Sec. 174, LGC)
REMEDIES IN LOCAL TAXATION
A.
REMEDIES OF THE GOVERNMENT
a.
ADMINISTRATIVE
1)
Local Government’s Lien (Sec 173, LGC)
2)
Assessment by the Local Treasurer
3)
Distraint of goods, chattels or effect and
other personal properties of whatever
character (Sec. 174 and 175, LGC)
4)
a.
Seizure
b.
Accounting of distrained goods
c.
Publication
d.
Release of distrained property upon
payment prior to sale
Civil Action in the court
2)
Filed by Local Treasurer
3)
Within 5 years from the date the
taxes, fees or charges became due
 Period within which to collect –
within 5 years from the date of
assessment by administrative or
judicial action
c.
OTHER PROVISIONS
 Accrual of the tax – (Sec. 166, LGC)
-
General rule: All local taxes, fees, and charges
shall accrue on the 1st day of January of each year.
-
Except:
e.
Procedure of sale
i.
Unless otherwise provided in the LGC,
f.
Disposition of proceeds
ii.
New taxes, fees or charges, or changes in the rates
thereof, shall accrue on the 1st day of the quarter
next following the effectivity of the ordinance
imposing such new levies or rates
Levy (Sec. 174 and 176,. LGC)
 Contents of assessment:
1.
1)
Meralco vs. Barlis (Feb. 1, 2002) - A notice of
assessment as provided for in the Real Property
Tax Code should effectively inform the taxpayer of
the value of a specific property, or proportion
thereof subject to tax, including the discovery,
listing, classification, and appraisal of properties.
The petitioner is also correct in pointing out that the
last paragraph of the said notices that inform the
taxpayer that in case payment has already been
made, the notices may be disregarded is an
indication that it is in fact a notice of collection. It
Time of payment – (Sec. 167, LGC)
-
General Rule: All local taxes, fees and charges
shall be paid within the first 20 days of January or of
each subsequent quarter, as the case may be.
-
Except:
i.
Unless otherwise provided by the LGC
ii.
The Sanggunian concerned may, for a justifiable
reason or cause, extend the time for payment of
such taxes, fees, or charges or penalties, but only
for a period not exceeding 6 months.
 Surcharges, Interests and Penalties – (Sec. 168,
LGC)
-
B.
Assessment Appeal within sixty (60) days
from the date of receipt of the written Notice
of Assessment, and if it is true that petitioner,
as alleged in their pleadings, was not
afforded the opportunity to appeal to the
board of assessment appeal, then they
could have availed of the provisions of
Section 252, of the same R.A. 7160 by
paying the real estate tax under protest.
Because of petitioner’s failure to avail of
either Sections 226 or 252 of R.A. 7160, they
failed to exhaust administrative remedies
provided for by law before bringing the case
to Court. Therefore the filing of this case
before this Court is premature, the same not
falling under the exception because the
issue involved is not a question of law but of
fact.
Sanggunian may impose:
i.
Surcharge – not exceeding 25% of the amount of
taxes, fees or charges not paid on time and
ii.
Interest – not exceeding 2% per month of the
unpaid taxes, fees or charges, including
surcharges, until such amount is fully paid, BUT in
no case shall the total interest on the unpaid
amount or portion thereof exceed 36 months.
REMEDIES OF THE TAXPAYER
a.
ADMINISTRATIVE
 Appeal to the Secretary of Justice; Re:
newly enacted tax ordinance (Sec. 187,
LGC) – Any question on the constitutionality
or legality of tax ordinances or revenue
measures; Within 30 days from its effectivity.
1.
2.
3.
Drilon vs. Lim, (August 4, 1994) - Section
187 authorizes the Secretary of Justice to
review only the constitutionality or legality of
the tax ordinance and, if warranted, to
revoke it on either or both of these grounds.
When he alters or modifies or sets aside a
tax ordinance, he is not also permitted to
substitute his own judgment for the judgment
of the local government that enacted the
measure. Secretary Drilon did set aside the
Manila Revenue Code, but he did not
replace it with his own version of what the
Code should be. He did not pronounce the
ordinance unwise or unreasonable as a
basis for its annulment. He did not say that in
his judgment it was a bad law. What he
found only was that it was illegal. All he did in
reviewing the said measure was determine if
the petitioners were performing their
functions is accordance with law, that is, with
the prescribed procedure for the enactment
of tax ordinances and the grant of powers to
the city government under the Local
Government Code. As we see it, that was an
act not of control but of mere supervision.
Hagonoy Market Vednors Assn. vs.
Municipality of Hagonoy. Bulacan,
(February 6, 2002) Sec. 187, LGC
requires that an appeal of a tax ordinance or
revenue measure should be made to the
Secretary of Justice within 30 days from
effectivity of the ordinance and even during
its pendency, the effectivity of the assailed
ordinance shall not be suspended. In the
case at bar, Municipal Ordinance No. 28
took effect in October 1996. Petitioner filed
its appeal only in December 1997, more
than a year after the effectivity of the
ordinance in 1996. Clearly, the Secretary of
Justice correctly dismissed it for being
time-barred. At this point, it is apropos to
state that the timeframe fixed by law for
parties to avail of their legal remedies before
competent court is not a "mere technicality"
that can be easily brushed aside. The
periods stated in the section are mandatory.
Ordinance No. 28 is a revenue measure
adopted by the municipality of Hagonoy to
fix and collect public market stall rentals.
Being its lifeblood, collection of revenues by
the government is of paramount importance.
The funds for the operation of its agencies
and provision of basic services to its
inhabitants are largely derived from its
revenues and collections. Thus, it is
essential that the validity of revenue
measures is not left uncertain for a
considerable length of time. Hence, the law
provided a time limit for an aggrieved party
to assail the legality of revenue measures
and tax ordinances.
Ty vs. Trampe, (December 1, 1995) –
Petitioners failed to appeal the assessment
of their properties to the Board of
 Appeal to the Board of Assessment
Appeals (Secs. 226 and 252, LGC) –
-
Sec. 226, LGC – Any owner or person who is
not satisfied with the action of the provincial,
city or municipal assessor in the assessment
of his property; Within 60 days from receipt
of the written notice of assessment; Appeal
to the BAA of the province or city by filing a
petition under oath and copies of the tax
declarations and affidavits or documents in
support of appeal.
-
Sec. 252 (d), LGC – In the event that the
protest is denied or upon the lapse of the
60-day period to decide, the taxpayer may
appeal to the BAA.
 Protest of the assessment (Sec. 226 and
252, LGC)
-
Pay under protest and such shall be
annotated in the tax receipt
-
Protest in writing must be filed within 30 days
from payment of the tax to the provincial, city
or municipal treasurer, who shall decide the
protest within 60 days from receipt.
-
The tax or a portion thereof paid under
protest shall be held in trust by the treasurer
concerned.
-
Protest decided in favor of taxpayer – the
amount or portion of the tax protested shall
be refunded to the protestant or applied as
tax credit against his existing or future tax
liability.
-
Protest denied or upon lapse of the period to
decide - appeal to the BAA.
 Claim for refund (Sec. 253, LGC)
-
When an assessment of basic real property
tax, or any other tax levied is found to be
illegal or erroneous and the tax is
accordingly reduced or adjusted,
-
The taxpayer may file a written claim for
refund or credit of taxes and interests
-
With the provincial or city treasurer
-
Within 2 years from the date the taxpayer is
entitled to such reduction or adjustment.
-
The provincial or city treasurer shall decide
the claim for refund or credit within 60 days
from receipt
-
In case the claim is denied, the taxpayer
may appeal to the BAA.
 Remedies from a denial of the protest
and refund
-
It should not only be the written claim before
the treasurer that must be filed in 2 years
but the taxpayer must also be able to file a
case in court before the expiration of the 2
year period.
-
b.
There is no appellate remedy from the denial
of the treasurer before the regular court but
an independent and original action for
refund.
JUDICIAL
 Questioning Tax Sale
REAL PROPERTY TAXATION
Real Property Tax, defined
A direct tax on ownership of lands and buildings or other
improvements thereon
Payable regardless of whether the property is used or
not,
although the value may vary in accordance with
such factor.
A.
Governing Law
Historical Background:
1. Commonwealth Act No. 470 – Old Assessment Law
- since 1920
2. Real Property Tax Code (Presidential Decree No.
464, as amended)
- June 1, 1974
3. Local Government Code (Republic Act No. 7160)
- January 1, 1992
- The changes however were only on the tax rate
ceilings and assessment
levels.
The Local Government Code covers the
administration, appraisal, assessment,
levy and collection of
Real Property Tax, i.e. tax on land and building and other
structures and improvements on it, including machineries.
(Subject to the definition given by Art. 415 of the New Civil
Code)
B.
Nature of Real Property Tax – National or Local?
 Hybrid of national and local tax
 Provisions of LGC are applied nationwide but
rates imposed are different per LGU
ordinance
The real property tax has been considered and held to be
national, despite the fact that in practice it is local in its
imposition and utilization.
Justice Vitug points out that: “The real property tax has
been considered and held to be a national, not a local tax in
Meralco Securities Industrial Corp v. CBAA, 114 SCRA 260.
The Court said that realty tax has always been imposed by the
national law-making body. The real estate tax is enforced
throughout the Philippines and not in a particular political
subdivision, although the bulk of the tax proceeds accrue to the
various local government units where the property is located.
Under the Local Government Code, local government units are
mandated to fix a uniform rate of basic real property tax
applicable to their respective localities, the proceeds of which
exclusively accrue to them. (See Secs. 233 and 271, LGC)”,
[Page 479, Tax Law and Jurisprudence, 2000 Edition by Justice
Vitug and Judge Acosta].
CHARACTERISTIC OF REAL PROPERTY TAX:
1. Direct tax on the ownership of real property
2. Ad Valorem tax. The value is based on the tax base
3. Proportion - the tax is calculated on the basis of a certain
percentage of the value
assessed
4. Indivisible single obligation
5. Local Tax
C.
Fundamental Principles Governing Appraisal and
Assessment of Real Property (Section 198, LGC)
1. Real property shall be appraised at its current and fair
market value.
2.
Real property shall be classified for assessment
purposes on the basis of its actual use.
3.
Real property shall be assessed on the basis of
a uniform standard within each local
government unit.
4.
The appraisal, assessment, and collection of
real property tax shall not be let to
any
private person; and
5.
The appraisal and assessment of real property
shall be equitable.
D.
Properties Covered (Sec. 232, LGC)
1. Land,
2. Buildings
3. Machinery and
4. Other improvements not otherwise exempted under
said code (Sec 232, LGC)
Machinery – embraces machines, equipment,
mechanical contrivances, instruments, appliances or
apparatus which may or may not be attached,
permanently or temporarily, to the real property. It
includes the physical facilities for production, the
installations and appurtenant service facilities, those
which are mobile, selfpowered or self-propelled, and
those not permanently attached to the real property
which are actually, directly, and exclusively used to
meet the needs of the particular industry, business or
activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing,
mining, logging, commercial, industrial or agricultural
purposes. (Sec. 199 [o], LGC)
Machinery which are of general purpose use
including but not limited to office equipment,
typewriters, telephone equipment, breakable or easily
damaged
containers
(glass
or
cartons),
microcomputers, facsimile machines, telex machine,
cash dispensers, furnitures and fixtures, freezers,
refrigerators, display cases or racks, fruit juice or
beverage automatic dispensing machines which are
not directly and exclusively used to meet the
needs of a particular industry, business or activity
shall not be considered within the definition of
machinery. (Sec. 290 [o], IRR of RA 7160)
Improvements include valuable additions made to a
property or an amelioration in its condition, amounting
to more than a mere repair or replacement of parts
involving capital expenditures and labor, which is
intended to enhance its value, beauty or utility or to
adopt it for new or further purposes.
Note: Although the term real property has not been
expressly defined in the LGC, early decisions of the Supreme
Court in Mindanao Bus Co. v City Assessor of Cagayan de
Oro, 6 SCRA `97; Board of Assessment Appeals v
Meralco, 119 PHIL 328; Manila
Electric Co. v Board of
Assessment Appeals,10 SCRA 68) seem to suggest that Art.
415 of the Civil Code could also be controlling, to wit:.
“Art. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds
adhered to the soil;
(2) Trees, plants, and growing fruits, while they are
attached to the land or form an integral part of an
immovable;
(3) Everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated
therefrom without breaking the material or
deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or
ornamentation, placed in buildings or on lands by the
owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the
tenements;
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry
or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the
needs of the said industry or works;
(6) Animal houses, pigeon-houses, beehives, fish
ponds or breeding places of similar nature, in case
their owner has placed them or preserves them with
the intention to have them permanently attached to the
land, and forming a permanent part of it; the animals in
these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter
thereof forms part of the bed, and waters either running
or stagnant;
(9) Docks and structures which, though floating, are
intended by their nature and object to remain at a fixed
place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and
other real rights over immovable property. “
In Caltex vs. CBAA, May 31, 1982:
Machinery and equipment, consisting of underground
tanks, elevated tanks, water tanks, gasoline pumps,
computing pumps, water pumps, car washer, car and
truck hoists, air compressors and similar articles,
installed by Caltex (Philippines) Inc. in its gasoline
stations, located on leased land, have been held to be
real property subject to the tax. (real properties which
have characteristics of permanency, the lease is for a
long period of time)
2001 BAR QUESTION: Under Article 415 of
the Civil Code, in order for machinery and
equipment to be considered real property, they
must be placed by the owner of the land and, in
addition, must tend to directly meet the needs
of the industry or works carried on by the
owner. Oil companies, such as Caltex and
Shell, install underground tanks in the gasoline
stations located in land leased by the oil
companies from others.
Are those
underground tanks, which were not placed
there by the owner of the land but by the lessee,
considered real property for purposes of real
property taxation under the LGC?
SUGGESTED ANSWER FROM UP LAW
CENTER:
Yes.
The underground tanks
although installed by the lessee, Shell and
Caltex, are considered as real property for
purposes of the imposition of real property
taxes. It is only for purposes of executing a
final judgment that these machinery and
equipment, installed by the lessee on a leased
land, would not be considered as real property.
But in the imposition of real property tax, the
underground tanks are taxable as necessary
fixtures of the gasoline station without which the
gasoline station would not be operational.
(Caltex v. CBAA, 114 SCRA 296).
SPECIAL CLASSES OF REAL PROPERTY (Sec. 216, LGC)
1. HOSPITALS
2. CULTURAL and SCIENTIFIC purposes
3. owned and used by LOCAL WATER DISTRICTS
4. GOCCs rendering essential public services in the
supply and distribution of
water and/or generation or
transmission of electric power.
E.
Properties Exempt
1. Section 234, LGC
a. Real property owned by the Republic of the
Philippines or any of its
political subdivisions
except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable
person;
- except: when beneficial use
thereof is granted to a taxable person
- cases of MIAA and MCAA:
GOCCs are not automatically exempt from
real property tax, depending on its charter
giving it exemption
- charter enacted after LGC so that
the exemption is not revoked
b.
Charitable
institutions,
churches,
parsonages, or convents appurtenant
thereto, mosques, non profit or religious
cemeteries, and all lands, buildings, and
improvements actually, directly and
exclusively
used
for
religious,
charitable, or educational purposes.
- traditional exemptees
c. All pieces of machinery and equipment that
are actually, directly, and exclusively used
by local water districts, and government –
owned or controlled corporations engaged in
the supply and distribution of water and/or
generation and transmission of electric
power.
d. All real property owned by duly registered
cooperatives as provided for under RA 6938,
and
e. Machinery and equipment used for
pollution
control
and
environmental
protection.
2. Section 238, LGC
Idle Lands Exempt From Tax:
By reason of:
a. force majeure
b. civil disturbance
c.
natural calamity
d. any cause which legally/physically
prevents the owner of the
property or person having legal interest therein
from
improving, utilizing, or
cultivating the same
What Are Considered as Idle Lands: (Sec. 237, LGC)
1. Agricultural lands – More than 1 hectare if more than
½ of which remain uncultivated or unimproved by the owner of
the property or person having legal interest therein.
Not Idle Lands:
� Agricultural lands planted to permanent or perennial
crops with at least 50 trees to a hectare
� Lands actually used for grazing purposes
2. Non-Agricultural Lands – More than 1,000 sq. m. in
area if more than ½ of which remain uncultivated or unimproved
by the owner of the property or person having legal interest
therein.
Proof of Tax Exemption:
Every person by or for whom real property is declared
who shall claim the exemption shall file with the provincial, city
or municipal assessor within 30 days from date of
declaration of real property sufficient documentary
evidence in support of such claim
(i.e. corporate charters,
title of ownership,articles of incorporation, contracts, affidavits,
etc.)
3. Constitutional Exemptions
- actually, directly, exclusively used for
religious,
educational
and
charitable
purposes are exempt from real property tax
Query:
To where does the exemption attach? To
the property or to the entity?
Case: X owns a parcel of land, leased by church.
May X claim exemption from Real Property Taxation?
Yes, exemption attaches on property as long as
exclusively used for religious purchases.
Case: School - not subject to Real Property Tax if
directly used for educational
purposes.
A. Has a mansion near the school where the
president of the school resides and where guests
may be accommodated - incidental, president has
to live near school
B. Near the school is a hospital where medical
students are trained - incidental to operation of the
school (Herrera vs. CBAA – use as trainee
students)
C. Near the school is a men’s dorm, a student
center
– exempt, incidental to operation of the school
D. Near the school is another school building
with 2 floors used as classrooms while 2 floors are
for commercial stores.
- incidental to operation of school (Bishop of Neva
Segovia Case – vegetable garden near convent is
incidental to convent operation)
- that part not used for educational purpose is
subject to real property tax
- As to the land, pro-rate according to use,
one-half taxed pursuant to Abra Valley College
Case
Note:
Incidental exemptions promulgated prior
to 1987 Constitution – meant, primarily used for
the purposes even if not solely.
CASES:
1. In MIAA v. Paranaque, July 20, 2006, the
Court declared the Airport Lands and
Buildings of the Manila International Airport
Authority exempt from the real estate tax
imposed by the City of Parañaque. The
Court declared void all the real estate tax
assessments issued by the City of Parañaque
on the Airport Lands and Buildings of the
MIAA, except for the portions that the MIAA
has leased to private parties. The Court
based its ruling under Section 2(10) and (13)
of the Introductory Provisions of the
Administrative Code, which governs the legal
relation and status of government units,
agencies and offices within the entire
government machinery, under which MIAA is
a government instrumentality and not a
government-owned or controlled corporation.
Under Section 133(o) of the Local
Government Code, MIAA as a government
instrumentality is not a taxable person
because it is not subject to "[t]axes, fees or
charges of any kind" by local governments.
The only exception is when MIAA leases its
real property to a "taxable person" as
provided in Section 234(a) of the Local
Government Code, in which case the specific
real property leased becomes subject to real
estate tax. Thus, only portions of the Airport
Lands and Buildings leased to taxable
persons like private parties are subject to real
estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the
Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public
dominion and thus owned by the State or the
Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed
by the State," which includes public airports
and seaports, as properties of public
dominion and owned by the Republic. As
properties of public dominion owned by the
Republic, there is no doubt that the Airport
Lands and Buildings are expressly exempt
from real estate tax under Section 234(a) of
the Local Government Code.
Furthermore, the Court made a distinction
between a GOCC and an instrumentality.
Thus:
Government-owned or controlled corporation
refers to any agency organized as a stock or
non-stock corporation, vested with functions
relating
to
public
needs
whether
governmental or proprietary in nature, and
owned by the Government directly or through
its instrumentalities either wholly, or, where
applicable as in the case of stock
corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x
A
government-owned
or
controlled
corporation must be "organized as a stock or
non-stock corporation." MIAA is not
organized as a stock or non-stock
corporation. MIAA is not a stock corporation
because it has no capital stock divided into
shares. MIAA has no stockholders or voting
shares.
MIAA is also not a non-stock corporation
because it has no members.
Since MIAA is neither a stock nor a non-stock
corporation, MIAA does not qualify as a
government-owned or controlled corporation.
Thus, for an entity to be considered as a
GOCC, it must either be organized as a stock
or non-stock corporation. Two requisites must
concur before one may be classified as a
stock corporation, namely: (1) that it has
capital stock divided into shares, and (2) that
it is authorized to distribute dividends and
allotments of surplus and profits to its
stockholders. If only one requisite is present,
it cannot be properly classified as a stock
corporation. As for non-stock corporations,
they must have members and must not
distribute any part of their income to said
members.
2. In Lung Center of the Philippines vs.
Quezon City, June 29, 2004, the Court held
that Lung Center of the Philipines, a
charitable institution does not lose its
character as such and its exemption from
taxes simply because it derives income from
paying patients, whether out-patient, or
confined in the hospital, or receives subsidies
from the government, so long as the money
received is devoted or used altogether to the
charitable object which it is intended to
achieve; and no money inures to the private
benefit of the persons managing or operating
the institution. However, those portions of its
real property that are leased to private entities
are not exempt from real property taxes as
these are not actually, directly and exclusively
used for charitable purposes.
“Under the 1973 and 1987 Constitutions
and Rep. Act No. 7160 in order to be entitled
to the exemption, the petitioner is burdened to
prove, by clear and unequivocal proof, that
(a) it is a charitable institution; and (b) its real
properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and
enjoyed to the exclusion of others; debarred
from participation or enjoyment; and
"exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively."
If real property is used for one or more
commercial purposes, it is not exclusively
used for the exempted purposes but is
subject to taxation. The words "dominant use"
or "principal use" cannot be substituted for the
words "used exclusively" without doing
violence to the Constitutions and the law.
Solely is synonymous with exclusively.
What is meant by actual, direct and
exclusive use of the property for charitable
purposes is the direct and immediate and
actual application of the property itself to the
purposes for which the charitable institution is
organized. It is not the use of the income from
the real property that is determinative of
whether the property is used for tax-exempt
purposes.
The petitioner failed to discharge its
burden to prove that the entirety of its real
property is actually, directly and exclusively
used for charitable purposes. While portions
of the hospital are used for the treatment of
patients and the dispensation of medical
services to them, whether paying or
non-paying, other portions thereof are being
leased to private individuals for their clinics
and a canteen. Further, a portion of the land
is being leased to a private individual for her
business enterprise under the business name
"Elliptical Orchids and Garden Center."
Accordingly, the Court held that the
portions of the land leased to private entities
as well as those parts of the hospital leased to
private individuals are not exempt from such
taxes. On the other hand, the portions of the
land occupied by the hospital and portions of
the hospital used for its patients, whether
paying or non-paying, are exempt from real
property taxes.”
Analysis:
Is Lung Center liable for Real Property Tax?
Yes.
a. exclusively used means solely
used for charitable purposes
b. exemption in its charter revoked
by new LGC
c. incidental exemption no longer
recognized
d. taxed on orchidarium, canteen,
private clinics
Query: are the older cases now not applicable so
that they are
now taxable?
not clear as to the extent of
Lung Center case as to
areas which used to be
considered as real property
tax exempted as incidental
If city decides to tax SLU
on its hospital, parking lot,
etc., use as ground that
they should be exempt due
to necessity, do not use the
word “incidental”
3. In LRTA vs. CBAA, October 12, 2000,
though the creation of the LRTA was impelled
by public service – to provide mass
transportation in MM- its operations
undeniably partakes of ordinary business. . .
Given that it is engage in a service-oriented
commercial endeavour, its carriage ways and
terminal stations are patrimonial property
subject to tax, notwithstanding its claim of
being a GOCC.
Under its charter, LRT is not exempt from
real property tax. Taxation is the rule and
exemption is the exception.
4. In DIGITEL vs. Province of Pangasinan,
February 23, 2007, the Court ruled that in
view of the unequivocal intent of Congress to
exempt from real property tax those real
properties actually, directly and exclusively
used by petitioner DIGITEL in the pursuit of its
franchise,
respondent
Province
of
Pangasinan can only levy real property tax on
the remaining real properties of the grantee
located within its territorial jurisdiction not part
of the above-stated classification.
Said
exemption, however, merely applies from the
time of the effectivity of petitioner DIGITEL’s
legislative franchise and not a moment
sooner.
5. In Philippine Fisheries Development
Authority vs. Court of Appeals, July 31, 2007,
the Court reversed the Court of Appeal’s
decision which held that petitioner Philippine
Fisheries Development Authority is liable to
pay real property taxes on the land and
buildings of the Iloilo Fishing Port Complex
which are owned by the Republic of the
Philippines but operated and governed by the
Authority.
The Court ruled that the Authority is not a
GOCC but an instrumentality of the national
government which is generally exempt from
payment of real property tax. However, said
exemption does not apply to the portions of
the IFPC which the Authority leased to private
entities. With respect to these properties,
the Authority is liable to pay real property tax.
The Authority should be classified as an
instrumentality of the national government.
As such, it is generally exempt from payment
of real property tax, except those portions
which have been leased to private entities.
F. May LGUs grant exemption? Yes
Power to Grant Local Exemptions (Sec. 192 LGC)
- LGUs, may through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary.
- Although powerless to grant RPT exemption, LGU in MM can
exempt the 5% ad valorem
tax on idle lands.
- LGUs (within and outside MM) may also grant condonation
which actually partake of
exemption.
G. Who are liable for the Real Property Taxes
1. Ownership vs. Use
Doctrine of Ownership
- owner is liable
Doctrine of Use
- property is exempt due to Use
(REC-religious,
educational,
charitable)
Actual Use of Property as Basis for Assessment
(Sec. 217, LGC)
Real property shall be classified, valued and
assessed on the basis of actual use
regardless
of
where located, whoever owns it, and whoever uses it.
Beneficial User May Be Liable if:
* he leased property from the
government
* he leased property from an exempt
owner
* use is not exempt from real
property tax
2. In Testate Estate of Concordia Lim vs. Manila, February
21, 1990, GSIS
foreclosed the property mortgaged by Lim
and for failure to redeem, owned by GSIS
for the years
1977 to 1978. In 1979, heirs of Lim repurchased the property.
Manila
sought to levy real property tax on heirs for back
taxes covering 1977 and 1978.
Who is lible for the back taxes?
a. not the heirs because they were not the owners nor
beneficial owners at the time
b. not GSIS because at the time it was exempt
c. beneficial users or those using the property for
commercial use must pay
however not made
liable since not impleaded
H.
Procedure in Real Property Taxation
In Lopez vs. City of Manila, February 19, 1999, the Court
discussed the steps to be followed for the mandatory conduct of
General Revision of Real Property assessments, pursuant to
the provision of Sec. 219, of R.A. No. 7160 which are as follows:
1. The preparation of Schedule of Fair Market Values.
2. The enactment of Ordinances:
a) levying an annual "ad valorem" tax on real property
and an additional tax
accruing to the SEF.
b) fixing the assessment levels to be applied to the
market values of real
properties;
c) providing necessary appropriation to defray
expenses incident to general
revision of real property
assessments; and
d) adopting the Schedule of Fair Market Values
prepared by the assessors.
The preparation of fair market values as a preliminary step in the
conduct of general revision was set forth in Section 212 of R.A.
7160, to wit: (1) The city or municipal assessor shall prepare a
schedule of fair market values for the different classes of real
property situated in their respective Local Government Units for
the enactment of an ordinance by the sanggunian concerned.
(2) The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or
municipality concerned or the posting in the provincial capitol or
other places as required by law.
The Court also laid down the procedure in computing the
real property tax. With the introduction of assessment levels,
tax rates could be maintained, although tax payments can be
made either higher or lower depending on their percentage
(assessment level) applied to the fair market value of property to
derive its assessed value which is subject to tax. Moreover,
classes and values of real properties can be given proper
consideration, like assigning lower assessment levels to
residential properties and higher levels to properties used in
business. The procedural steps in computing the real property
tax are as follows:
1) Ascertain the assessment level of the property
2) Multiply the market value by the applicable assessment
level of the property
3) Find the tax rate which corresponds to the class (use) of
the property and multiply the assessed
value
by
the
applicable tax rates.
The computation of real property tax is cited below:
Market Value
Pxxx
Multiplied by Assessment Level
(x %)
Assessed Value
Pxxx
Multiplied by Rate of Tax
(x %)
Real Property Tax
Pxx
1. Declaration of Real Properties – whose duty?
WHAT person claiming exemptions must file with assessor
sufficient
documentary evidence to support claim
WHEN within 30 days from the date of DECLARATION of
property
• IF required evidence is not submittedwithin 30 days, the
property will be listed as taxable in the roll
• IF proven to be tax-exempt, property will be dropped from
the roll
• NOTE: IF PROPERTY DECLARED FOR THE FIRST
TIME (Sec. 222)
If declared for 1st time, real property shall be assessed for
back taxes
a) for not more than ten (10) years prior to the date of
initial assessment
b) taxes shall be computed on the basis of applicable
schedule of values in force during the corresponding periods
*Assessor will compare the entry on file with the Registry of
Deeds and the assessment roll in his office.
c. building officials
Prior to construction of building, as required in procuring
building permit.
Permit transmitted by building officials to Registry of
Deeds.
d. Geodetic engineers - For lands surveyed
e. Notaries Public - For document notarization, must
furnish the assessors a copy
2. Valuation by Assessors
Assessment
- the act or process of determining the value of a property, or
proportion thereof subject to tax, including the discovery, listing,
classification, and appraisal of properties.
DECLARATION OF REAL PROPERTY
It shall be the responsibility of the owner,
administrator or their representatives to
declare, under oath, the true value of real
property, taxable or exempt, within 60 days
after the acquisition. The sworn declaration
shall be filed once every 3 years before June
30th of the year commencing 1992. The failure
or refusal to make that declaration within the
prescribed period would authorize the
provincial or city assessor to declare the
property in the name of the defaulting owner, if
known, or against an unknown owner as the
case may be, and to assess the property for
taxation. (Secs. 201-204 LGC).
In the case of Testate Estate of Concordia Lim V. City
of Manila, February 21, 1990, it
was held that the unpaid
tax attaches to the property and is chargeable against the
person who had actual or beneficial use and possession of
it regardless of whether or
not he is the owner. To impose
the real property tax on the subsequent owner who was
neither the owner nor the beneficial user of the property
during the designated periods would not only be contrary to
law but also unjust.
a. Owner or Administrator (Secs. 202-203, LGC)
When:
once every 3 years during the period from
January 1 to June 30
What: file a sworn declaration with the assessor
with description of the
property
� IF newly acquired property a. files with assessor within 60 DAYS from date of
transfer a
b. SWORN statement containing FMV and
description of property
� IF improvement on real property
a. file w/in 60 DAYS upon completion or occupation
(whichever is
earlier)
b. SWORN statement containing FMV and
description of property
b.
Provincial / City / Municipal Assessor (Sec.
204)
WHEN only when the person under Sec 202 refuses or
fails to make the
declaration
within
the
prescribed time. No oath by assessor is required
• NOTE: IF FILING FOR EXEMPTION (Sec. 206)
Appraisal
- the act or process of determining the value of property as of a
specific date for a specific purpose.
LISTING OF REAL PROPERTY IN THE ASSESSMENT
ROLLS
(Secs. 205, 207)
� Listing of all Real Property whether taxable or exempt within
the jurisdiction of LGU in the assessment roll.
o Undivided real property – in the name of the estate or heirs
or devisees
o Corporation, partnership and association – same as
individuals
o Owned by the Republic of the Philippines, its
instrumentalities, political subdivisions, beneficial use is
transferred to a taxable person – in the name of the
possessor
� All declarations shall be kept and filed under a uniform
classification system to be established by the provincial, city or
municipal assessor.
Steps in assessment of Real Property :
1. Listing of all properties subject to the tax; and
2. The valuation of such properties.
In Callanta vs. Ombudsman, January 30, 1998, where the
issue was whether officials and employees of the Office of the
City Assessor may reduce the new assessed values of real
properties upon requests of the affected property owners, the
Court ruled that forestall the practice of initially setting
unreasonably high reassessment values only to eventually
change them to unreasonably lower values upon "requests" of
property owners, the law gives no such authority to the city
assessor or his subalterns.. . Thus, petitioners' unauthorized
reduction of the assessed values ineluctably resulted in the local
government's deprivation of the corresponding revenues. Lost
or reduced revenues undeniably translate into damages or
injury within the contemplation of the law. The city government
of Cebu, therefore, had every legal right to feel aggrieved and to
institute the proceeding against petitioners.
3. Preparation of Schedule of Fair Market Values
APPRAISAL AND VALUATION OF REAL PROPERTY
(Sec 212-214, 224-225)
How to determine Fair Market Value:
For Land
1. Assessor of the province/city or municipality may summon the
owners of the properties to be affected and may take
depositions concerning the property, its ownership amount,
nature and value. (sec. 213,LGC)
2. Assessor prepares a schedule of FMV for different classes of
properties.
3. Sanggunian enacts an ordinance.
4. The schedule of FMV is published in a newspaper of general
circulation in the province city or municipality concerned or in the
absence thereof shall be posted in the provincial capitol city or
municipal hall places therein (Sec. 212, LGC)
Classification of Land for purposes of assessment - Sec
218, LGC
1. Commercial – land devoted principally for the object of profit
and is not classified as
agricultural,
industrial,
mineral,
timber, or residential land
2. Agricultural – land devoted principally to the planting of trees,
raising of crops,
livestock and poultry, dairying, salt
making, inland fishing and similar aquacultural activities, and
other agricultural activities
3. Residential – land principally devoted to habitation
4.Mineral- lands which minerals, metallic or non-metallic, exist in
sufficient quantity or
grade to justify the necessary
expenditures to extract and utilize such materials
5. Industrial-land devoted principally to industrial activity as
capital investment and is not classified
as
agricultural,
commercial, timber, mineral or residential land
6. Timberland
7. Special
- Classification of lands made by respective sanggunian in
accordance with zoning ordinances.
-It is based on actual use. Actual use refers to the purpose for
which the property is principally or predominantly
utilized by the person in possession thereof.
For Machinery
1. For Brand New machinery : FMV is acquisition cost
2. In all other cases:
FMV = Remaining economic life x Replacement cost
DETERMINE ASSESSED VALUE (Sec. 218)
Procedure
1. take the schedule of FMV (Fair Market Value)
2. Assessed value = FMV x Assessment level
3. Real Property Tax = Assessed value x Allowable Real
Property Tax rate
4.Enactment of a Real Property Tax Ordinance
Barangays cannot impose realty taxes.
Municipalities cannot fix real estate tax rates.
Procedure:
a.hearing and modification of prepared schedule
b.publication
c.adoption of the schedule
d.adoption of real property ordinance with assessment
levels
Coverage / Types of Real Property Tax:
1. Basic real property tax / Annual Ad Valorem Tax
For real property not specifically exempted
a.Provinces – not more than 1% of assessed value;
b.Cities, Municipalities in MM – not more than 2% of
assessed value
2. Special levies:
a. Special Education Fund (SEF)
- 1% additional real estate tax to finance the SEF
(Sec.236) – within MM area only
b. Additional Ad Valorem on the Lands
– not exceeding 5% of the assessed value of the property
(Sec. 236, LGC)
c. Special Assessments/ For Public Works
- on lands specially benefited by public works, projects or
improvements funded by the LGU
- May be imposed even by municipalities outside MM
provided:
- Special levy shall not exceed 60% of the actual cost
of such projects and improvements, including the costs of
acquiring land and such other real property in connection
therewith not apply to lands exempt from basic real property tax
and the remainder of the land have been donated to the local
government unit concerned for the
projects. (Sec. 240, LGC).
construction
of
said
Special Levy
Requirements for validity:
1. infrastructure project financed by government
whereby real property owners benefit from it
2.
not more than 60% of actual cost of project
3.
not less than five but not more than ten years
4.
thru an ordinance
a. nature of project
b. extent of project
c. cost spent
d. metes and bounds
What may be done:
i. levy ad valorem taxes (see above)
ii. Fix Assessment levels
Assessment level – is the percentage applied to the fair
market value to determine the taxable or taxation value of the
property.
In City Assessor of Cebu City vs. Association of Benevola
de Cebu, June 8, 2007, applying Secs. 215-216, of LGC, in line
with City Tax Ordinance LXX of Cebu City, the 10% special
assessment should be imposed for the Chong Hua Hospital
Medical Arts Center (CHHMAC) building which should be
classified as “special”. Sec. 216, LGC states that:
SEC. 216. Special Classes of Real
Property.––All lands, buildings, and
other improvements thereon actually,
directly and exclusively used for
hospitals,
cultural
or
scientific
purposes, and those owned and used
by local water districts, and
government-owned
or controlled
corporations
rendering
essential
public services in the supply and
distribution of water and/or generation
and transmission of electric power
shall be classified as special.
iii. Provide for appropriations
iv. Adopt Schedule of Fair Market Values
Fair Market Value and Assessed Value – What’s the difference?
Fair Market Value (FMV)
- price at which a property may be sold by a seller who
is not compelled to sell and bought by a buyer who is
not compelled to buy
Assessed Value or Assessment Value (AV)
- fair market value of the real property multiplied by the
assessment level. It is synonymous with taxable
value.
Payment of Tax
When:
January 1 of every year (Sec 246)
The tax shall constitute as superior lien (Sec. 246)
How:
a. basic real prop tax in 4 equal installments (Mar 31,Jun 30,Sep
30, Dec 31)
b. special levy - governed by ordinance
Interest for Late Payment
- two percent (2%) each month on unpaid amount until the
delinquent amt is paid.
- provided in no case shall the total interest exceed thirty-six
(36) months
Advance and Prompt Payment
a) advance payment - discount not exceeding 20% of annual tax
(Sec 251, LGC)
b) prompt payment - discount not exceeding 10% of annual tax
due(Art 342 IRR)
Collection of Tax (Sec.247, LGC)
The collection of the real property tax with interest thereon
and related expenses and the enforcement of the remedies
provided by the LGC or any applicable laws shall be the
responsibility of the city or municipal treasurer concerned.
The city or municipal treasurer my deputize the barangay
treasurer to collect all taxes on real property located in the
barangay provided the barangay treasurer is properly bonded.
Who Collects:
The provincial, city, municipal or barangay treasurer
Period Within Which To Collect (Sec 270):
Within five (5) yrs from the date they become due within ten (10)
yrs. from discovery of fraud, in case there is fraud or intent to
evade
Period of prescription shall be SUSPENDED when: (Sec
270, LGC)
1. local treasurer is legally prevented to collect tax
2. the owner of prop requests for reinvestigation and writes a
waiver before
expiration of period to collect
3. the owner of the property is out of the country or cannot be
located