Professional Documents
Culture Documents
Taxation
Taxation
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Global System: A ´tax sparing creditµ is a credit granted by the resident country for foreign
The Global system of income taxation is a system employed where the tax taxes that for some reasons were not actually paid to the source country but that would
system views indifferently the tax base and generally treats in common all categories of have been paid under the country·s normal tax rules. The usual reason for the tax not being
taxable income of the individual. paid is that the source country has provided a tax holiday or other tax incentive to foreign
A system which taxes all categories of income except certain passive investors as an encouragement to invest or conduct business in the country.
incomes and capital gains. It prescribes a unitary but progressive rate for the taxable A final withholding tax at the rate of 15% is imposed on the amount of cash
aggregate incomes and flat rates for certain passive incomes derived by individuals. and/or property dividends received by a non-resident foreign corporation from a domestic
The apparent intent of current amendatory laws to the income tax is to corporation, subject to the condition that the country in which the non-resident foreign
maintain by and large, the global treatment on taxable corporation. corporation is domiciled shall allow a credit against the tax due from the non-resident
foreign corporation taxes deemed to have been paid in the Philippines equivalent to 17% for
Schedular System: 2000 onwards [Section 28(B)(5)(b)].
The Schedular system of income taxation is a system employed where the
income tax treatment varies and is made to depend on the kind or category of taxable income £ ? Ô
of the taxpayer.
A system which itemizes the different incomes and provides for varied Income, gain or profit is subject to income tax, when the following requisites are
percentages of taxes, to be applied thereto. present:
It is the apparent intention of current amendatory laws to the income tax law a.? There is income, gain or profit;
to increasingly shift the income tax system toward the schedular approach in the income b.? The income, gain or profit is received, realized, or accrued during the taxable year; and
taxation of individual taxpayers. c.? The income, gain or profit is not exempt from income tax.
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a.? Capital is a fund, while income is a flow;
Tax avoidance is the use of legally permissible means to reduce the tax while b.? A fund of property existing at an instant of time is called capital, while a flow of services
tax evasion is the use of illegal means to escape payment of taxes. rendered by that capital by the payment of money from it or any other benefit rendered
The differences between the two are the following: by a fund of capital in relation to such fund through a period of time is called income;
a.? Tax avoidance is legal while tax evasion is illegal. c.? Capital is wealth, while income is the service of wealth;
b.? The objective of tax avoidance in most instances is merely to reduce the d.? Capital is the tree, while income is the fruit; labor is a tree, income the fruit; property is
tax that is due while the object of tax evasion is to entirely escape the a tree, income the fruit. (Madrigal vs. Rafferty, 38 Phil. 414)
payment of taxes. e.? Return of capital is not subject to income tax, while income is subject to tax.
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a.? Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising
from non-payment of taxes while a tax exemption is an immunity from civil liability only.
It is an immunity or privilege, a freedom from a charge or burden to which others are
subjected.
b.? Tax amnesty applies only to past tax periods, hence of retroactive application while tax
exemption has prospective application.
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A MCIT of 2% of the Gross Income (GI) as of the end of the taxable year is oo. The is
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imposed upon any domestic corporation and resident foreign corporation beginning on the al a os ad poeed gs a s g
de he Tax Refo A wh h shall be od
ed
4th taxable year immediately following the year in which such corporation commence its by legal off es of he BIR s o d sp
e. A appeal fo s
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business. ae of gh. I s s ll he Sol o Geeal who has he p ay espos b l y o appea
a.? It is imposed only where 2% of the GI is more than the normal income tax rates fo he govee appellae poeed gs. (Co ss oe vs. La S
ee C ga ad
b.? Any excess of the minimum corporate income tax over the normal income shall be C gaee Faoy, GR oo. 144942, J
ly 4, 2002)
carried forward and credited against the normal income tax for the three
immediately succeeding taxable years. G ? Ô
c.? This is applied on annual basis and not to be used in the quarterly corporate
returns. a.? Definition: A compromise penalty is an amount of money paid by a taxpayer to
d.? The Sec. of Finance is authorized to suspend this MCIT on account of ² compromise a tax violation that he has committed, which may be the subject of criminal
(1)? Prolonged labor dispute prosecution, while a compromise is an amount of money paid by the taxpayer to settle
(2)? Force majeure his civil liability for tax assessed by the government.
(3)? Legitimate business reverses b.? Basis of amount paid: In compromise, the basis of the amount paid is the basic tax
assessed; in compromise penalty, the basis is the gross sales or receipts during the
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year or the tax due.
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c.? Minimum amount prescribed: In compromise, the law sets a limit as to the amount that
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may be accepted by the government, depending on the legal grounds used by the
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taxpayer; in compromise penalty, the amount set depends on the nature of the tax
& !( , violation and the minimum amount is generally not less than P1,000.
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h.? Suspension of business operations in violation of VAT
i.? Enforcement of Administrative Fine
oo. Section 222 of the oIRC specifically states that in cases where a false or * ? Ô
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fraudulent return with intent to evade tax is submitted or in cases of failure to file a return,
proceedings in court may be commenced without an assessment. Furthermore, Section 205 a.? Administrative
of the same Code clearly mandates that the civil and criminal aspects of the case may be ù? [efore payment
pursued simultaneously. (CIR vs. Pascor Realty & Development Corp., June 29, 1999) (1)? Filing a protest within 30 days from receipt of assessment, or
A crime is complete when the violator has knowingly and willfully filed a (2)? Entering into a compromise
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is ù? After payment
grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, Filing of claim for refund or tax credit within 2 years from date of payment
and the government·s failure to discover the error and promptly to assess has no regardless of any supervening cause
connections with the commission of the crime. (Ungab vs. Cusi, May 30, 1980) b.? Judicial
ù? Civil Action
ÿ ? % (1)? Appeal to the CTA within 30 days from receipt of decision or from the lapse of
180 days due to inaction of the Commissioner
oo. Section 218 of the 1997 oIRC provides that ´no court shall have the (2)? Action to contest forfeiture
authority to grant injunction to restrain the collection of any national internal revenue tax, (3)? Action for damages against revenue officer
fee or charge imposed by said Code.µ This is because it is upon taxation that the Government ù? Criminal Action
chiefly relies to obtain the means to carry on its operations and it is of the utmost (1)? Filing of criminal complaint against erring [IR officials
importance that the means adopted to enforce the collection of taxes levied should be (2)? Injunction
summary and interfered with as little as possible.
The rule against injunction however admits of one exception: the CTA is V ? Ô
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empowered to suspend the collection of internal revenue taxes and customs duties only when
there was a - a.? Delinquent accounts
a.? the collection of tax may jeopardize the interest of the Government b.? Cases under administrative protests
and/or the taxpayer, c.? Civil tax cases being disputed before the courts
b.? deposit of the amount claimed or file a surety bond for not more than d.? Collection cases filed in courts
double the amount of tax with the court when required; and e.? Criminal violations, other than those already filed in court or those involving criminal
c.? showing by taxpayer that appeal is not frivolous or dilatory. tax fraud; and,
f.Cases covered by pre-assessment notices but taxpayer is not agreeable to the findings of
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the audit office as confirmed by the review office. (Sec.2, Rev. Reg. 7-2001)
a.? Compromise
b.? Distraint (Actual and Constructive)
c.? Levy
d.? Tax Lien
e.? Civil action
f.? Criminal action
g.? Forfeiture of Property
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a.? Withholding tax cases; The following are the requirements for the validity of a taxpayer·s protest:
b.? Criminal tax fraud cases; a.? It must be filed within the reglementary period of thirty (30 days from
c.? Criminal violations already filed in court; receipt of the notice of assessment.
d.? Delinquent accounts with duly approved schedule of installment payments; b.? The taxpayer must show the errors of the [IR as well as the correct
e.? Cases where final reports of reinvestigation or reconsideration have been issued computation through:
resulting to reduction in the original assessment and the taxpayer is agreeable to such (1 ? A statement of facts, the applicable law, rules and regulations, or
decision. jurisprudence on which the taxpayer·s protest is based, otherwise, his
f.? Cases which become final and executory after final judgment of a court. (Sec.2, Rev. protest shall be considered void and without force and effect;
Reg. 7-2001) (2 ? If there are several issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules and
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regulations, or jurisprudence in support of his protest against some of
the several issues on which the assessment is based, the same shall be
The Commissioner may compromise any internal revenue tax when ² considered undisputed issue or issues, in which case, the taxpayer shall
(a)? a reasonable doubt as to the validity of the claim against the taxpayer be required to pay the corresponding deficiency tax or taxes
exists; or attributable thereto. (Sec. 3.1.5, Rev. Regs. 12-99
(b)? the financial position of the taxpayer demonstrates a clear inability to c.? Within sixty (60 days from filing of the protest, the taxpayer shall submit all
pay the assessed tax. relevant supporting documents. [Sec. 228(e , 1997 oIRC]
The compromise settlement of any tax liability based on financial incapacity
to pay shall be subject to the minimum compromise rate equivalent to the 10% of the basic V· ? Ô
assessed tax. In this case, the taxpayer·s offer to compromise shall not be considered Tax refund takes place when there is actually a reimbursement of the tax. As
unless and until he WAIVES Io WRITIoG his privilege under R.A. 1405 or under other general or to a tax credit, the Government issues a tax credit certificate or tax credit memo covering
special laws, and such waiver shall constitute the authority of the Commissioner to inquire the amount determined to be reimbursable, which can be applied after proper verification
into his bank deposits. For other cases, a minimum compromise rate equivalent to 40% of against any sum that may be due and collectible from the taxpayer.
the basic tax assessed shall be imposed.
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All criminal violations under the Tax Code may be compromised EXCEPT: a.? A written claim for refund or tax credit must be filed by the taxpayer with the
a.? Those already filed in court Commissioner;
b.? Those involving fraud. b.? The claim for refund must be a categorical demand for reimbursement; and
c.? The claim for refund or tax credit must be filed, or the suit or proceeding therefor must
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be commenced in court within two years from date of payment of the tax or penalty
regardless of any supervening cause.
Under Section 204([ , in relation to Sections 7(c and 290 of the Tax Code,
the CIR has the authority to abate or cancel internal revenue tax liabilities of certain
taxpayers based on any of the following grounds:
a.? The tax or any portion thereof appears to be unjustly or excessively assessed; or
b.? The administration and collection costs involved do not justify the collection of the
amount due.
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of the tax for the year. (See Sec. 229, NIRC
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly
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income tax payments, such circular created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC (now Sec. 229 NIRC . In so doing, the [IR did not simply interpret the law;
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. rather it legislated guidelines contrary to the statute passed by Congress.
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/ It bears repeating that Revenue memorandum-circulars are considered
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administrative rulings (in the sense of more specific and less general interpretations of tax
laws which are issued from time to time by the Commissioner of Internal Revenue. It is
The [IR·s authority to assess has already prescribed. The three (3 waivers widely accepted that the interpretation placed upon a statute by the executive officers,
did not suspend the running of the prescriptive period. whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
The only agreement that could suspend the running of the prescriptive period interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus,
for the collection of the tax in question is a written agreement between A[C Corp.and the [IR courts will not countenance administrative issuances that override, instead of remaining
entered into before the expiration of the three (3 year prescriptive period, extending the consistent and in harmony with, the law they seek to apply and implement. (Philippine [ank
said period. of Communications vs. Commissioner, et al., GR No. 112024, January 28, 1999
Since what is required is the signatures of both the Commissioner and the
taxpayer, a unilateral waiver on the part of the taxpayer does not suspend the prescriptive
period.
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all circumstances. In effect, the responsibility for the collection of the tax as well as the
payment thereof is concentrated upon the person over whom the Government has
Section 246 of the 1997 oIRC provides: ´Any revocation, modification or jurisdiction.
reversal of any of the rules and regulations promulgated in accordance with the preceding Thus, the withholding agent is the constituted agent both of the government
Sections or any of the rulings or circulars promulgated by the Commissioner shall not be and the taxpayer. With respect to the collection and/or withholding of the tax, he is the
given retroactive application if the revocation, modification, or reversal will be prejudicial to Government·s agent. In regard to the filing of the necessary income tax return and the
the taxpayers, except in the following cases: payment to the government, he is the agent of the taxpayer. The withholding agent,
(1 ? Where the taxpayer deliberately misstates or omits material facts from therefore, is no ordinary government agent especially because under the Tax Code he is
his return or any document required of him by the [ureau of Internal personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of
Revenue; Internal Revenue and his deputies are not made liable under the law. (Filipinas Synthetic
(2 ? Where the facts subsequently gathered by the [ureau of Internal Corp. vs. Court of Appeals, GR Nos. 118498 & 124377, October 12, 1999)
Revenue are materially different from the facts on which the ruling is
based; or G ? Ô
(3 ? Where the taxpayer acted in bad faith.µ
Preemption in taxation refers to an instance wherein the oational
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Government elects to tax a particular area, impliedly withholding from the local government
the delegated power to tax the same field. The rule withholds from the taxing power of local
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oational Internal Revenue Code, Tariff and Customs Code and other special laws.
a.? power to Recommend the promulgation of rules and regulations by the G ? &
Sec. of Finance
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b.? power to Issue rulings of first impression or to Reverse, revoke modify &V )0 VV
any existing rule of the [IR
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c.? power to Compromise or Abate any tax liability
EXCEPT, the regional evaluation board may compromise:
(1 ? assessments issued by regional offices involving deficiency Xes. lnlike the refund or credit of internal revenue taxes, the 2 year period
taxes of P500,000 or less and for filing claims for refund or credit of local taxes is counted not necessarily from the date
(2 ? minor criminal violations as may be determined by the rules of payment but from the date the taxpayer is entitled to refund or credit. This would mean
and regulations that in local taxation, the supervening clause applies.
d.? power to Assign or reassign internal revenue officers to establishments
where articles subject to excise tax are kept.
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DEF Corp. as the withholding agent is explicitly made personally liable under
the Tax Code for the payment of the tax required to be withheld.
The law sets no conditions for the personal liability of the withholding agent
to attach. This is in order to compel the withholding agent to withhold the tax under any and
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c.? åachineries and equipment that are by local
2 ( water utilities and GOCC·s engaged in the supply and distribution of water and/or
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electric power;
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. d.? üeal property by duly registered cooperatives as provided for in üA 6938; and
e.? åachinery and equipment for pollution control and environmental protection.
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The case should be dismissed. Section 187 of RA oo. 7160 provides, that the V
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taxpayer may question the constitutionality or legality of tax ordinance on appeal within
thirty (30 days from the effectivity thereof, to the Secretary of Justice. The petitioner after
finding that his assessment is unjust, confiscatory, or excessive, must have brought the case
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before the Secretary of Justice for questions of legality or constitutionality of the city
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lnder Section 226 of RA 7160, an owner of real property who is not satisfied
with the assessment of the property may, within sixty (60 days from notice of assessment, #
appeal to the [oard of Assessment Appeals.
Should the taxpayer question the excessiveness of the amount of tax, he must The tax ordinance is valid. lnder the now prevailing Constitution, where
first pay the amount due, in accordance with Section 252 of RA 7160. Then, he must first there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist
request the annotation of the phrase ´paid under protestµ and accordingly appeal to the although Congress may provide statutory limitations and guidelines. The basic rationale for
[oard of Assessment Appeals by filing a petition under oath together with copies of the tax the current rule is to safeguard the viability and self-sufficiency of local government units by
declarations and affidavits or documents to support his appeal. (Lopez vs. City of Manila, GR directly granting them general and broad tax powers. oevertheless, the fundamental law did
oo. 127139, February 19, 1999 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
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made more autonomous, the legislature must still see to it that (a the taxpayer will not be
overburdened or saddled with multiple and unreasonable impositions; (b each local
a.? Real property shall be appraised at its current and fair market value; government will have its fair share of available resources; (c the resources of the national
b.? Real property shall be classified for assessment purposes on the basis of actual use. government will not be unduly disturbed; and (d local taxation will be fair, uniform and just.
c.? Real property shall be assessed on the basis of uniform classification within each LGl Indicative of the legislative intent to carry out the constitutional mandate of
d.? The appraisal, assessment, levy and collection of RP Tax shall not be let to any private vesting broad tax powers to local government units, the Local Government Code has
person effectively withdrawn, under Section 193 thereof, tax exemptions or incentives theretofore
e.? The appraisal and assessment of real property shall be equitable. enjoyed by certain entities.
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a.? Real property by the government exept when thereof has Customs duties is the name given to taxes on the importation and exportation
been granted to a taxable person; of commodities, the tariff or tax assessed upon merchandise imported from, or exported to,
b.? Charitable institutions, churches, personages or convents appurtenant thereto, a foreign country.
mosques, non-profit or religious cemeteries and all lands, buildings and improvements
for religious, charitable or educational
purposes (Art. VI, Sec. 28, Constitution);
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