Taxation 2
Taxation 2
TRANSFER TAXES
Transfer taxes are excise taxes imposed upon the privilege of gratuitously transmitting ones property to another. There are two types of transfer taxes: donors tax and estate tax. Donors Tax Imposed upon privilege to give Transfer is the living Estate Tax Imposed upon the privilege to transmit property to heirs Transfer is from the deceased, through his/her estate, to the living Transfer takes place only between natural persons
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Transfer may take place between natural and juridical persons I. ESTATE TAX
PRINCIPLES Definition It is a graduated tax imposed upon the privilege of the decedent to transmit property at death and is based on the entire net estate. It is not a direct tax on the property transmitted or transferred although its amount is based thereon. Applicable Law It is a well-settled rule that estate taxation is governed by the statute in force at the time of the death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. (Section 3, RR 22003) Transfers Affected 1. Transfers Mortis Causa - Gratuitous transfers mortis causa or after death are the usual objects of the estate tax. Such transfers are either testate or intestate. 2. Transfers Inter Vivos - Generally, gratuitous transfers inter vivos attract donors tax. However, certain transfers inter vivos are treated as testamentary dispositions and are accordingly included in the computation of the gross estate in order to arrive at the proper estate tax liability. These transfers are the following: a. Transfers in contemplation of death (Sec. 85B) The term in contemplation of death does not refer to the general expectation of death which all entertain. The transfers referred to are those impelled by the thought of death (i.e., the motivating factor or controlling motive is the thought of death), regardless of whether the transferor was near the possibility of death or not. In ascertaining such intent, the following are considered: o The age of the decedent at the time the transfers were made; b.
The decedents health, as he knew it, at or before the time of the transfers; The interval between the transfers and the decedents death; The amount of the property transferred in proportion to the amount of property retained; The nature and disposition of the decedent, e.g., whether peaceful or gloomy, sanguine or morbid, optimistic or pessimistic; The existence of a general testamentary scheme of which the transfers were part; The relationship of the donee or donees to the decedent, i.e. whether they were the natural objects of their bounty; The existence of a desire on the part of the decedent to escape the burden of managing property by transferring the property to others; The existence of a long established giftmaking policy on the part of the decedent; The existence of a desire on the part of the decedent to vicariously enjoy the enjoyment of the donees of the property transferred; and The existence of the desire by the decedent of avoiding estate taxes by means of making inter vivos transfers of property. (Source: Nolledo, The NIRC Annotated)
Transfer with retention or reservation of certain rights (Sec. 85B) This contemplates those cases where the owner transfers his property during life but still retains the economic benefits the possession or enjoyment of the property, or the power to designate the persons who may exercise such rights. By reason of the restriction or encumbrance, the transferee is incapable of freely enjoying or disposing of the property until the transferors death, that the transfer may be regarded as having been intended to take effect in possession or enjoyment at the transferors death. ILLUSTRATION: X transfers his property to Y in naked ownership and to Z in usufruct throughout Zs lifetime subject to the condition that if Z predeceases X, the property shall return to X. If X dies during Zs life, the value of the reversionary interest of X at death is includible in his gross estate (see Articles 756-757 of the Civil Code). The transfer is taxable as intended to take effect at or after death because the possibility of reversion to X makes Zs interest conditional as long as X lives. NOTE: Transfer with retention or reservation of certain rights is grouped by the Tax Code under transfer in contemplation of death. Revocable transfers (Sec. 85C) A revocable transfer is one where the transferor has reserved the right to alter, amend or revoke such transfer, regardless of whether or not the power is actually exercised during his lifetime, and whether or not the power should be exercised by him
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Transfers for insufficient consideration (Sec. 85G) These are transfers that are not bona fide sales of property for an adequate and full consideration in money or moneys worth. The following rules apply: If bona fide sale no value shall be included in the gross estate If not a bona fide sale - the excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate. If inter vivos transfer is proven fictitious total value of the property at the time of death included in the gross estate; e.g. Case A 1,500 2,000 800 1,200 Case B 2,000 2,500 2,000 0 Case C 2,500 2,000 0 2,000
FMV, transfer FMV, death Consideration Received Value Included in the Gross Estate
Transfers Exempted and Properties Excluded 1. Acquisitions and transfers expressly declared as exempt: (Sec. 87) a. Merger of the usufruct in the owner of the naked title b. Transmission or delivery of the inheritance or legacy by the fiduciary heirs or legatee to the fiduciary c. Transmission from the first heirs, legatees or donees in favor of another beneficiary in accordance with the desire of the testator d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the income of which inures to the benefit of any individual, provided that not more than 30% of the said bequests, devises, legacies or transfers shall be used for administrative purposes 2. Proceeds of: A life insurance policy taken out by the decedent upon his own life, when beneficiary is OTHER THAN the estate, executor or administrator, and designation is IRREVOCABLE (Sec. 85E) Thus, proceeds are INCLUDED in the gross estate: When beneficiary is the estate, executor or administrator, whether designation is revocable or irrevocable
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Death benefits received from the SSS, accruing by reason of death (RA 1161, as amended) Amounts received from the Philippine and the U.S. Governments from the damages suffered during the last war (RA 227) Benefits received by beneficiaries residing in the Philippines under laws administered by the U.S. Veterans Administration (RA 360) Properties held in trust by the decedent Transfers by way of bona fide sales Separate or exclusive property of the surviving spouse is not deemed part of the gross estate of the decedent spouse. (Sec. 85, NIRC) Net estates which are not in excess of P200,000 are exempt from estate tax. (Sec. 84, NIRC)
CASE LAW: Collector v. Lara, 102 Phil 813 As a rule, personal property is taxable at the domicile of the owner under the doctrine of mobilia sequuntur personam; nevertheless, when he, during his lifetime, extended his activities with respect to his interests so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains. His property in the Philippines enjoys the protection of the government so that the right to collect the estate tax cannot be questioned. Q: What are the intangible properties which are considered by law as situated in the Philippines? Franchise which must be exercised in the Philippines Obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines Shares or rights in any partnership, business or industry established in the Philippines Q: What is the reciprocity rule? (Sec. 104, NIRC) There is reciprocity if the foreign country of which the decedent was a citizen and resident at the time of his death: did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or allowed a similar exemption from transfer tax in respect of intangible personal property owned by citizens of the Philippines not residing in that country NOTE: For the reciprocity rule to apply, there must be TOTAL reciprocity. If any of the two states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of any character, reciprocity does not work. [For instance,] in the Philippines, both estate and inheritance taxes are imposed on the estate while in California only inheritance tax is imposed. The reciprocity rule may not, therefore, be availed of. There cannot be partial reciprocity. It has to be total or none at all. (CIR v. Fisher, 110 Phil 686) Reciprocity in exemption does not require the foreign country to possess international personality in the traditional sense (i.e., compliance with the requisites of statehood). Thus, Tangier, Morroco (Collector v. CamposRueda, 42 SCRA 23) and California, a state in the American Union (Collector v. de Lara, 102 Phil 813) were held to be foreign countries within the meaning of Section 104.
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GROSS ESTATE Composition The gross estate of a decedent shall be composed of the following properties and interest therein at the time of his death: Citizens and Resident Aliens all properties, real or personal, tangible or intangible, wherever situated Non-resident Aliens only properties situated in the Philippines provided that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC Q: What is residence for estate tax purposes? The term residence and domicile are synonymous and are used interchangeably without distinction. (Collector v. Lara, 102 Phil 813; Velilla v. Posadas, 62 Phil 624). For purposes of estate taxation, residence refers to the permanent home, the place to which whenever absent, for business or pleasure, one intends to return, and depends on facts and circumstances, in the sense that they disclose intent. (Corre v. Tan Corre, 100 Phil 321) It is, therefore, not necessarily the actual place of residence. Q: What is the situs of intangible personal property? The general rule is that the situs is at the domicile or residence of the owner. The principle, however, is not controlling when:
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Q: What are NOT deductible as funeral expenses? o Expenses incurred AFTER INTERMENT, such as for prayers, masses, entertainment, or the like o Any portion of the funeral and burial expenses BORNE or DEFRAYED by RELATIVES and FRIENDS of the deceased ILLUSTRATIONS: o If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed as deduction; o If the expenses actually incurred amount to P90,000 and five percent (5%) of the gross estate is P70,000, only P70,000 will be allowed as deduction; o If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is P215,000, the maximum amount that may be deducted is only P200,000; o If five percent (5%) of the gross estate is P 100,000 and the total amount incurred is P150,000 where P20,000 thereof is still unpaid, the only amount that can be claimed as deduction for funeral expenses is P100,000. The entire P50,000 excess amount consisting of P30,000 paid amount and P20,000 unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted from the gross estate as CLAIMS AGAINST THE ESTATE. b) Judicial expenses of testamentary and intestate proceedings (86-A1) Expenses allowed as a deduction under this heading are those incurred in the inventorytaking of the assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. These deductible items are expenses incurred DURING THE SETTLEMENT OF THE ESTATE BUT NOT BEYOND THE LAST DAY PRESCRIBED BY LAW, or the extension thereof, FOR THE FILING OF THE ESTATE TAX RETURN (RR 2-2003, Sec. 6-A2)
Decedents interest Value to be included in the gross estate is the extent of the interest therein of the decedent at the time of his death DEDUCTIONS 1. Expenses, losses, indebtedness and taxes a. Funeral expenses (86-A1) The allowable deduction may either be the actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to 5% of the gross estate, whichever is lower, but in no case to exceed P200,000. NOTE: The unpaid portion of the funeral expenses incurred which is in excess of the P200,000 threshold is NOT allowed to be claimed as a deduction under claims against the estate (see 1(c) below). (Section 6(A)(1) of RR 02-2003)
Q: What are examples of funeral expenses? (RR 2-2003, Sec. 6-A1) o The MOURNING APPAREL of the surviving spouse and unmarried minor children of the deceased, bought and used on the occasion of the burial o Expenses for the deceaseds wake, including food and drinks o PUBLICATION CHARGES for death notices o TELECOMMUNICATIONS EXPENSES incurred in informing relatives of the deceased
Q: What are examples of judicial expenses? o Fees of executor or administrator o Attorneys fees o Court fees o Accountants fees o Appraisers fees o Clerk hire o Costs of preserving and distributing the estate
CASE LAW: Commissioner v. Court of Appeals, 328 SCRA 666 o Expenses incurred in the extrajudicial settlement of the estate should be allowed as a deduction from the gross estate. It is sufficient that the expense be a necessary contribution toward the settlement of the case. The notarial fee paid for the extrajudicial settlement is deductible since such settlement effected a distribution of [Pajonars] estate to his lawful heirs. o Attorneys fees to be deductible from the gross estate must be essential to the collection of assets, payment of debts or the distribution of property to the persons entitled to it. c) Claims against the estate (86-A1) Claims debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. These may arise out of contract, tort or operation of law. Requisites for deductibility (RR 2-2003, Sec. 6-A3): 1) must be a PERSONAL OBLIGATION of the deceased existing at the time of his death (except unpaid funeral expenses and unpaid medical expenses, which are classified into their own separate categories) 2) liability must have been contracted in GOOD FAITH and for adequate and full consideration in money or moneys worth 3) the claim must be a debt or claim which is VALID IN LAW and ENFORCEABLE IN COURT 4) indebtedness must NOT have been CONDONED by the creditor or the action to collect from the decedent must not have prescribed. Q: What are the substantiation requirements? The duly-notarized debt instrument, If the claim arose out of a debt instrument A statement showing the disposition of the proceeds of the loan, if the indebtedness was incurred within 3 years before the death of the decedent. Claims against insolvent persons (86A1) These shall be deductible from the gross estate, provided that the value of the decedents interest in the claim is included in the value of the gross estate. Unpaid mortgages, losses and taxes(86-A1 and RR 2-2003, Sec. 6-A5) UNPAID MORTGAGES shall be deductible from gross estate, subject to the following conditions:
LOSSES deductible from the gross estate if ALL of the following conditions are satisfied: o The losses were INCURRED DURING the SETTLEMENT of the estate o The losses arose from FIRES, STORMS, SHIPWRECK or OTHER CASUALTIES, or from ROBBERY, THEFT or EMBEZZLEMENT o The losses are NOT COMPENSATED BY INSURANCE or otherwise o The losses are not claimed as a deduction for income tax purposes in an income tax return o The losses were incurred NOT LATER THAN THE LAST DAY FOR PAYMENT OF THE ESTATE TAX TAXES shall be deductible from the gross estate if: o They have accrued as of the death of the decedent o They were unpaid as of the time of death NOTE: This deduction DOES NOT include income tax upon income received after death, or property taxes not accrued before his death, or the estate tax due from the transmission of his estate.
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Property previously taxed (vanishing deductions) (86-A2) Vanishing deduction or deduction of property previously taxed is a deduction allowed on the property left behind by the decedent which he had acquired previously by inheritance or donation. Previously, a transfer tax had already been imposed on the property, either the estate tax if the property was acquired by inheritance or the donors tax if the same was acquired by donation. Now that the recipient of the inheritance or donation has died, the same property will again be subjected to a transfer tax, the estate tax. Thus, to minimize the effects of a double tax on the same property within a short period of time, i.e. five (5) years, the law allows a deduction to be claimed on the said property. Example: Mr. A died in December 2003. In March 2003, Mr. B (Mr. As father) died and left Mr. A some properties as inheritance. May vanishing deductions be claimed as deductions in computing Mr. As net taxable estate? YES, vanishing deductions shall be allowed if the following conditions are met (REQUISITES FOR DEDUCTIBILITY): 1) Death the present decedent (Mr. A) died within five years from the receipt of the
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* excluding family home, medical expenses, standard deduction and amounts received under RA 4917 800/3200 x 600,000 equals 150,000. This will be deducted from P800,000, which gives a balance of P650,000 Finally, the remaining balance shall be multiplied by the corresponding percentage: If received by inheritance or gift: within one (1) year prior to the death of the present decedent More than one year but not more than two years prior to the death of the decedent More than two years but not more than three years prior to the death of the decedent More than three years but not more than four years prior to the death of the decedent More than four years but not more than five years prior to the death of the decedent
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40%
20%
Since Mr. A received the inheritance in March 2003 (within 1 year from his death in December 2003), the balance of P650,000 shall be multiplied by 100%. Thus, the allowable vanishing deduction is P650,000
The amount of all the BEQUESTS, LEGACIES, DEVISES or TRANSFERS to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes shall be deductible from gross estate. The whole amount or value of the property is deductible provided such amount or value had been included in the gross estate. 4. Family home Q: What is a family home? It is the dwelling house, including the land on which it is situated, where the husband and wife, or a head or the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed to be constituted on the house and lot from the time it is actually occupied as s family residence and
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5. Standard deduction (86-A5) An amount equivalent to One million pesos (P1,000,000) shall be deducted from the gross estate without need of substantiation.
6. Medical expenses (86-A6) All medical expenses (cost of medicine, hospital bills, doctors fees, etc.) incurred (whether paid or unpaid) shall be allowed as a deduction against gross estate, subject to the following conditions: The expenses were incurred by the decedent within one (1) year prior to his death The expenses are duly substantiated with receipts PROVIDED, that in no case shall the deductible medical expenses exceed Five Hundred Thousand Pesos (P500,000). Any amount of medical expenses incurred within one year from death in excess of P500,000 CANNOT be claimed as a deduction under Claims against the estate. (RR 2-2003, Sec. 6-F) 7. Amounts received by heirs under R.A. 4917 (86-A7)
NOTE: No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 of the Code the value at the time of the decedents death of that part of his gross estate not situated in the Philippines. (Section 86, NIRC) Tax Rates Applicable: If the net estate is: BUT NOT OVER P 200,000 P 200,000 500,000 2,000,000 5,000,000 10,000,000 500,000 2,000,000 5,000,000 10,000,000 And Over THE TAX SHALL BE Exempt 0 P 15,000 135,000 465,000 1,215,000 OF THE EXCESS OVER P 200,000 500,000 2,000,000 5,000,000 10,000,000
OVER
PLUS
Any amount received by the heirs from the decedents employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917 PROVIDED that such amount is included in the gross estate of the decedent. QUICK GLANCE: Resident or citizen decedent Non-resident decedent alien
Tax Credit for Estate Taxes (86-E) Q: What is a tax credit? It is a remedy against international double taxation. To minimize the onerous effect of taxing the same property twice, tax credit against Philippine estate tax is allowed for estate taxes paid to foreign countries.
1,400 P 4,400
Solution Limitation B: Net estate in all foreign countries. = Tax credit Net Estate Worldwide x Phil. estate tax
The result after applying the formula above is compared to the tax actually paid in total to foreign countries. The lower of the two amounts will be added to get the total tax credit allowed under Limitation B. Amount Allowed (Whichever is Lower) 450/1500 x 15,000 Total foreign income taxes paid Tax credit allowed under Limitation B P 4,500 6,400 P 4,500
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ILLUSTRATION: Assume: Net Estate Philippines (reduced by all allowable deductions, except standard deduction) Country G Net Estate Country H Net Estate Tax paid/incurred: Philippines Country G Country H P 1,050,000
Compare the tax credit allowed under Limitation A and Limitation B. The lower of the two amounts is the final allowable tax credit. In this case, the amount computed under Limitation A (4,400) is lower, thus it becomes the final allowable tax credit. If there is only one foreign country involved, both Limitations will yield the same answer. To get the tax credit allowable, use the formula in Limitation A. The resulting amount will be compared to the actual tax paid to the foreign country. The lower amount will be the final allowable tax credit. (Source: Reyes, Income Tax Law and Accounting) COMPLIANCE REQUIREMENTS Person Liable for Payment of Estate Tax Q: Who is liable to pay the estate tax? The estate, through the executor or administrator, shall have the primary obligation to pay the estate tax. Such payment shall be made before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. HOWEVER, the heirs or beneficiaries have subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The
Net taxable estate is P500,000 (1,050,000 + 300,000 + 150,000 1,000,000 standard deduction). The Philippine estate tax on P500,000 is P15,000 Solution Limitation A: To get tax credit per country under Limitation A, this formula is followed: Net Estate in a Particular Country = Tax credit Net Estate Worldwide x Phil. estate tax
The result after applying the formula above is compared to the tax actually paid for each foreign country. The lower of the two amounts for each foreign country will be added to get the total tax credit allowed under Limitation A. Amount Allowed (Whichever
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OBLIGATIONS OF EXECUTOR, ADMINISTRATOR, OFFICERS, OTHERS 1. Executor or Administrator When the gross estate is more than P20,000, the executor, administrator or any of the legal heirs shall: b) give a written notice of death to the BIR within two months after the decedents death OR after the executor or administrator shall have qualified c) file the estate tax return within the time prescribed by law d) pay the estate tax within the time prescribed by law If the executor or administrator makes a written application to the Commissioner for determination of the amount of estate tax and discharge from personal liability therfor, the Commissioner shall notify the executor or administrator of the amount of the tax. Upon payment of the tax, the executor or administrator shall be DISCHARGED from PERSONAL LIABILITY for any deficiency in the tax thereafter found to be due, and shall be entitled to a receipt or writing showing such discharge. (92) Judge 6.
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ILLUSTRATIONS o Decedent is an unmarried head of a family a. Real and personal properties P5,000,000
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NOTE: Although the family home is valued at P2 million, the maximum allowable deduction for the family home is P1million only. Medical expenses are not included in the deductions referred under Section 86(A)(1) of the Code but are treated as a special item of deduction under Section 86(A)(6) of the same Code. b) Real and personal properties P5,000,000 Family home 800,000 Gross estate P5,800,000 Less: Deductions Ordinary deductions Funeral expenses 200,000 Other deductions (1,500,000) Special deductions Family Home P 800,000 Standard deduction 1,000,000 Medical expenses 500,000 (2,300,000) Net taxable estate P2,000,000 NOTE: Deduction for family home is allowed for P800,000 only (declared value of the family home). o Decedent is a married man with a surviving spouse Family home is exclusive property Conjugal properties Real and personal properties P5,000,000 Exclusive properties Family home P2,000,000 Other exclusive properties 2,500,000 4,500,000
P3,750,000
P 1,300,000
Conjugal properties Family home P2,000,000 Other real properties 5,000,000 P7,000,000 Exclusive properties 2,000,000 Gross estate P9,000,000 Less: Deductions Ordinary deductions Conjugal deductions Funeral expenses 200,000 Other deductions 1,300,000
P2,250,000
(1,500,000) Special deductions Family Home P1,000,000 Standard deduction 1,000,000 Medical expenses 500,000 (2,500,000) Net estate P5,000,000 Less: Share of Surviving Spouse of net conjugal estate ((7,000,000 1,500,000)/2) (2,750,000) Net taxable estate Family home is conjugal property, valued at P1500000 Conjugal properties Family home P1,500,000
subjected to the donors tax, a gift or donation must first satisfy the following REQUISITES: 1. 2. 3. 4. The donor must have CAPACITY There must be an INTENT TO DONATE There must be DELIVERY, either actual or constructive The donee must ACCEPT the donation
Q: What are the kinds of donations? 1. Donations inter vivos a donation made between living persons, which is perfected the moment the donor knows of the acceptance of the gift by the donee1; subject to donors tax 2. Donations mortis causa a donation which takes effect upon the death of the donor; subject to estate tax
Q: What are considered donations for tax purposes? 1. Sales, exchanges and other transfers of property for less than an adequate and full consideration in money or moneys worth 2. Condonation or remission of debt where the debtor did not render service in favor of the creditor Noteworthy, the element of donative intent is conclusively presumed in transfers of property for less than an adequate or full consideration in money or moneys worth. In this case, the difference between the fair market value of the gift or donation and the actual value received shall constitute the gift. However, real property considered capital assets under the Tax Code are excepted from this rule. (Section 100 in relation to Section 24(d)) In other words, the difference between fair market value and actual value received in transfers of real property considered capital assets for less than an adequate or full consideration in money or moneys worth shall not be subject to donors tax. This is because under Section 24(d), the fair market value itself, if higher than the gross selling price, is the base for computing the capital gains tax imposed upon the sale of such capital assets. Thus, what the seller avoids in the payment of the donors tax, it pays for in the capital gains tax.
Q: What is the applicable law? The law in force at the time of the perfection/completion of the donation shall govern the imposition of the donors tax. (Section 11, RR 2-2003) NOTE: Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes shall be governed by the Election Code, as amended. (Sec. 99(C), NIRC)
In the case of donations of immovable property, they must be made in a public document specifying therein the property donated. The acceptance may be made in the same Deed of Donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.
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Q: What are the intangible properties which are considered by law as situated in the Philippines? 1. Franchise which must be exercised in the Philippines 2. Obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines Shares or rights in any partnership, business or industry established in the Philippines 2.
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Q: What is the rule on reciprocity? (Section 104, NIRC) There is reciprocity if the foreign country of which the decedent was a citizen and resident at the time of his death: 1. did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or 2. allowed a similar exemption from transfer tax in respect of intangible personal property owned by citizens of the Philippines not residing in that country
This rule applies to the transmission by gift of intangible personal property located or with a situs within the Philippines of a nonresident alien. (See page 4 for the relevant notes on reciprocity) EXEMPTIONS Exemptions are not to be treated as exclusions from the gross gifts of the donor. They partake the nature
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Q: What is the meaning of net gifts? Net Gift shall mean the net economic benefit from the transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is measured by deducting from the fair market value of the property the amount of the mortgage assumed. (Section 11, RR 2-2003) COMPUTATION How is donors tax computed? This general formula shall be followed: Gross gifts made Less: Deductions from the gross gifts Net gifts made Multiplied by applicable rate Donors tax on the net gifts
2% 4% 6% 8% 10 % 12 % 15 %
Note: A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, a donation to him shall not be considered as a donation made to a stranger. OBJECT OF TAXATION The donors tax shall be imposed whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible. The computation of the donors tax is on a cumulative basis over a period of one calendar year Illustrations: 1. Donation to son by parents on account of marriage (P100,000): Husband Net Taxable Gift = P50,000 10,000 = P40,000 Tax Due = None, since P40,000 is below the P100,000 threshold Wife same as above
If there were several gifts made during the year, this formula is followed: Gross gifts made on this date Less: Deductions from the gross gifts Net gifts made on this date Add: all prior net gifts during the year Aggregate net gifts Multiplied by applicable rate Donors tax on the aggregate net gifts Less: donors tax paid on prior net gifts Donors tax due on the net gifts to date
RATES OF TAX
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VALUATION If the gift is made in property, the fair market value at that time will be considered the amount of gift. In case of real property, the taxable base is the fair market value as determined by the Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the latest schedule of values of the provincial and city assessor (Market Value per Tax Declaration), whichever is higher. If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration If there is an improvement, the value of improvement is the construction cost per building permit and/or occupancy permit plus 10% per year after year of construction, or the market value per latest tax declaration.
TAX CREDIT A situation may arise when the property given as a gift is located in a foreign country and the donor may be subject to donors tax twice on the same property: first, by the Philippine government and second, by the foreign government where the property is situated. The remedy of claiming a tax credit is, therefore, aimed at minimizing the burdensome effect of double taxation by allowing the taxpayer to deduct his foreign tax from his Philippine tax, subject to the limitations provided by law. Q: Who may claim tax credit? Tax credit for donors tax may be claimed only by a resident citizen, non-resident citizen and resident alien.
Corre spond ing Donor s Tax (refer to sched ule) Tax Due / Payab le
P124,00 0
January Donation P2,000,000 March Donation 1,000,000 August Donation 500,000 Total P3,500,000 P254,000
P124,00 0
Donors Tax P 204,000 Less: Tax Previously Paid 124,000 Tax Due P 80,000
Donors Tax P 254,000 Less: Tax Previously Paid (124,000 + 80,000) 204,000 Tax Due P 50,000
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calendar year; The name of the donee; Relationship of the donor to the donee; and Such further information as the Commissioner may require.
Q: What are the limitations on the tax credit? 1. PHILIPPINE NET GIFT (foreign country) X DONORS TAX ENTIRE NET GIFTS 2. NET GIFT (all foreign countries)X PHILIPPINE DONORS TAX
Q: When and where should the Donors Tax Return be filed? The donors tax return shall be filed within thirty (30) days after the date the gift is made or completed and the tax due thereon shall be paid at the same time that the return is filed. Unless the Commissioner otherwise permits, the return shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of the city or municipality where the
VALUE-ADDED TAX2
I. CONCEPT Value added tax (VAT) is a percentage tax imposed at every stage of the distribution process on the sale, barter, or exchange (including any other transaction deemed by law as sale), or lease of goods or properties, and on the performance of service in the course of trade or business, or on the importation of goods, whether for business or non-business purposes. It is a business tax levied on certain transactions involving a wide range of goods, properties, and services, such tax being payable by the seller, lessor, or transferor. The tax is so-called because it is imposed on the value not previously subjected to VAT (De Leon, The National Internal Revenue Code Annotated, 2000 edition) The multi-stage VAT has been around since January 1, 1988 when it has been enacted under Executive Order (EO) No. 273. Under this system, the VAT is imposed on the sale and distribution process, and culminating in sale to the final customer. (Acosta and Vitug, Tax Law and Jurisprudence, 2001 edition) The taxpayer (the seller) determines his tax liability by computing the tax on the gross selling price or gross receipt (this is called the output tax), and subtracting or crediting the earlier VAT on the purchase or importation of goods or on the sale of service (called the input tax) against the tax due on his own sale. The following computation shows of the basic formula for the the VAT Payable:
xxx xxx xxx xxx
RR 16-20053: The seller is the one statutorily liable for the payment of the tax but the amount of the tax may be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA No. 9337. It is a business tax/percentage tax. Because it is a business tax, it is also an excise tax, or a tax on the privilege of engaging in the business of selling goods or services, or in the importation of goods. Constitutionality of VAT
ABAKADA Guro Party List, et. al. v Ermita The assailed provisions of RA 9337 are those that say that the President, upon the recommendation of the Sec. of Finance, shall raise the rate of VAT to 12% when VAT as a percentage of the GDP of the previous year exceeds 2 4/5% and when the deficit as a percentage of the previous years GDP exceeds 1 %. This is NOT an undue delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increased rate under the law is contingent. No discretion would be exercised by the President. The word shall is used in the common proviso. It is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress.4 This is also not to nullify the Presidents control over the Sec. of Finance. Here, the Sec. of Finance is NOT acting as the alter ego of the President, but is acting as the agent of the legislative department. Reasons for the two conditions before VAT rate is increased to 12%: The first condition, that is if VAT/GDP is less than 2.8%, means that the government has weak or no capability of implementing the VAT or that the VAT is not effective in the function of the tax collection. There would be no value in increasing it to 12% because such action would be ineffectual. The second condition, that is when the deficit/GDP is 1.5% or less, means that the fiscal condition of government has reached a relatively sound position or is towards the direction of a balanced budget position. Thus, there would be no need to increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate. Another assailed provision is Sec. 8 amending Sec. 110(B), which imposes a limitation on the amount of input tax (70% of the output tax) that may be
Gross taxable sales/receipts Less: Sales returns Sales allowances Sales discounts Net sales Multiply with the VAT rate Output tax (12% of Net sales) Input tax carried over from previous Domestic purchases Importations Total Input tax (12% of Total) Total Input tax
xxx (xxx)
VAT payable (Output tax less input tax) xxx (All amounts in the formula must be NET of VAT)
II.
NATURE & CHARACTERISTICS It is an indirect tax, the amount of which may be shifted to or passed on the buyer, transferee, or lessee of the goods, properties or services. (Sec. 105)
Revenue Regulations (RR) No. 4-2007 dated February 7, 2007 introduced recent changes to RR No. 16-2005. A sample of which reads as: SEC. 4.106-1. VAT on Sale of Goods or Properties. VAT is imposed and collected on every sale, barter or exchange, or transactions deemed sale of taxable goods or properties at the rate of twelve percent (12%) (starting February 1, 2006) of the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged, or deemed sold in the Philippines. 4 The rate was indeed increased to 12%, effective Feb. 1, 2006, as per Revenue Memorandum (RMC) No. 7-06, dated January 31, 2006
This, however, is not accurate. The option to apply for tax credit certificate or refund is available to the VAT taxpayer only in case his VAT registration is cancelled, unless he is subject to VAT zero-rate.
Sec. 106. Value-added Tax on Sale of Goods or Properties. Rate and Base of Tax There shall be levied, assessed, and collected on every sale, barter or exchange of goods, or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged, such tax to be paid by the seller or transferor: Provided, That the President, upon the recommendation of the Sec. of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to 12%, after any of the following conditions has been satisfied: Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds 2 4/5%; or National government deficit as a percentage of GP of the previous year exceeds 1 %. (1) The term goods or properties shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include: (a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; (b) The right or the privilege to use patent, copyright, design, or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; (c) The right or the privilege to use in the
RR 16-2005: Transactions deemed sale (pls refer to Sec. 106), some notes: (1) For example, when a VAT-registered person withdraws goods from his business for his personal use (2) Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of retained earnings on or after Jan. 1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or FMV at the time of the distribution, whichever is applicable. (3) Consigned goods returned by the consignee within the 60-day period are not deemed sold; (4) Retirement from or cessation of business with respect to ALL goods on hand, whether capital goods, stock-in-trade, supplies or materials, as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor. Examples are change of ownership of the business (e.g. when a sole proprietorship incorporates, or the proprietor sells his entire business) and dissolution of a partnership and creation of a new partnership which takes over the business. Change or Cessation of Status as VAT-registered Person
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For transactions deemed sale, the output tax shall be based on the market value of the goods deemed sold as of the time of the occurrence of the transactions. However, in case of retirement or cessation of business, the tax base shall be the acquisition cost or the current market price of the goods or properties, whichever is LOWER. ii. IMPORTATION OF GOODS
Sec. 107. Value-Added Tax on Importation of Goods. (A) In General. - There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: Provided, further, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). (B) Transfer of Goods by Tax-exempt Persons. - In the case of tax free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-
Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies; services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include: (1) The lease or the use of or the right or privilege to use any copyright, patent, design or model plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
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By sea
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International 8.
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Sale of electricity by generation, transmission, and distribution companies shall be subject to 12% VAT, EXCEPT sale of power or fuel generated through renewable sources of energy, such as, but not limited to, biomass, solar, wind hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels, which shall be subject to 0% rate of VAT (zero-rated). The universal charge passed on and collected by distribution companies and electric cooperatives shall be excluded from the computation of gross receipts.
A zero-rated sale by a VAT-registered person is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund. (RR 16-2005)6 i. SALE OF GOODS OR PROPERTIES
Sec. 106 xxx. (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. - The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas,(BSP); (2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws; and
6 Thus, the benefit of being zero-rated vis--vis being exempt is that enterprises which enjoy zero-rating of transactions can avail of input taxes on purchases of goods, properties, or services (as either tax credit or refund, there being no output tax against which input tax can be credited). In mathematical terms, the enterprises enjoy 100% of their input taxes. On the other hand, exempt enterprises cannot avail of these input taxes; instead, these input taxes form part of cost/expense. Thus, the net benefit these enterprises get from their exempt transactions is 35% (in the case of corporations), or to the extent that they can be used as deductions from income in the computation of income tax payable (subject to rules in income taxation).
There is therefore a 65% difference (100% in the case of zero-rated transactions, less 35% in exempt transactions). [Editors note]
Commissioner of Internal Revenue vs. Seagate Technology (Philippines) February 11, 2005 The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of Seagates transactions (subject to zero-rating, as an entity registered with the PEZA). The scope of such regulations is not within the statutory authority x x x granted by the legislature. A mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do any more than interpret the latter. The courts will not countenance one that overrides the statute it seeks to apply and implement. Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our VAT law requires an additional application to be made for such taxpayers transactions to be considered effectively zero-rated. An effectively zerorated transaction does not and cannot become exempt simply because an application therefor was not made or, if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or agents who, without fluid
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Foreign Currency Denominated Sale - sale to a nonresident of goods, except those mentioned in Sections 149 and 150 (automobiles and non-essential goods like jewelry, perfume, and yachts), assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency AND accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government paid for in convertible foreign currency AND accounted for in accordance with the rules and regulations of the BSP shall also be considered export sales. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. Example: a) sales to enterprises duly registered & accredited with the i) Subic Bay Metropolitan Authority, ii) Philippine Economic Zone Authority (PEZA), b) international agreements to which the Phil. is signatory, such as i. Asian Development Bank (ADB), ii. International Rice Research Institute (IRRI) RMC 74-99: Tax Treatment of Sales of Goods and Services Made by Suppliers from Western Territory to a PEZA registered enterprise and Sale Transactions made by PEZA registered enterprises Within and Without the Zone The Phil VAT law adheres to the Cross Border Doctrine, which basically means that no VAT shall be imposed to form part of the cost of goods destined for consumption OUTSIDE of the territorial border of the taxing authority. Hence, actual export of goods and services from the Phil to a foreign country must be free from VAT. Conversely, those destined for use or consumption WITHIN the Phil shall be imposed with the 10% VAT.
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Those considered export sales under the Omnibus Investment Code of 1987, and other special laws (ex. Bases Conversion & Development Act of 1992) Under Omnibus Investment Code: a) Phil. port FOB value of export products exported directly by a registered export producer b) Net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same (only when actually exported by the latter) The following shall be considered constructively exported: a) sales to bonded manufacturing warehouses of export-oriented manufacturers b) sales to export processing zones c) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the BIR and Bureau of Customs d) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products, whether paid for in foreign currency or not. Provided that export sales of registered export traders may include commission income, and that exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee, and provided finally that sales by a VAT-registered supplier
Sec. 108. xxx (amendments introduced by RA 9337 indicated) (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate. (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); [NO CHANGE] (2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); [AMENDED. THIS NOW READS: Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)] (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; [NO CHANGE] (4) Services rendered to vessels engaged exclusively in international shipping; and [AMENDED. THIS NOW READS: Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof] (5) Services performed by subcontractors and/or contractors in processing, converting, of manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. [NO CHANGE] [RA 9337 ALSO ADDS THESE TWO: (6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and (7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.] RR 4-2007: The term effectively zero-rated sales of services shall refer to the local sale of services by a
NOTE: Any sale of goods, property or services made by a VAT registered supplier from the Customs Territory* to any registered enterprise operating in the ecozone, REGARDLESS of the class or type of the latters PEZA registration, is actually qualified and thus LEGALLY ENTITLED TO THE 0% VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated SUBJECT TO 0% VAT. means the national Customs Territory territory of the Phil OUTSIDE of the proclaimed boundaries of the ECOZONES. B. Tax Treatment of Sales Made by a VAT-Exempt Supplier from the Customs Territory to a PEZA registered enterprise Sale of goods, property and services by VAT-Exempt supplier from the Customs Territory to a PEZA registered enterprise shall be treated EXEMPT FROM VAT, regardless of whether or not the PEZA registered buyer is subject to taxes under the NIRC or enjoying the 5% special tax regime. C. Tax Treatment of Sales Made by a PEZA Registered Enterprise 1) Sale of Goods by a PEZA registered enterprise to a buyer from the Customs Territory (ie domestic sales) -- this case shall be treated as a technical IMPORTATION made by the buyer. Such buyer shall be treated as an IMPORTER thereof and shall be imposed with the corresponding VAT. 2) Sale of Services by a PEZA registered enterprise to a buyer from the Customs Territory this is NOT embraced by the 5% special tax regime, hence, such seller shall be SUBJECT TO 10% VAT. 3) Sale of Goods by a PEZA registered enterprise to Another PEZA registered enterprise (ie Intra-ECOZONE Sales of Goods) this shall be EXEMPT from VAT. Sale of Services by ECOZONE enterprise, to Another ECOZONE enterprise (IntraECOZONE enterprise Sale of Service) (a) if PEZA registered seller is subject to 5% special tax regime EXEMPT from VAT
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SEC. 114. Return and Payment of Value-Added Tax. xxx. (C) Withholding of Value-Added Tax. - The Government or any of its political subdivisions, instrumentalities or agencies, including governmentowned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the valueadded tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be considered as the withholding agent. The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made. (RA 9337) NOTE: This 5% final VAT withheld by the government is an innovation of RA 9337. RR 16-2005: The 5% final VAT shall represent the net VAT payable of the seller. The remaining 5% (or 7%, with the raise of VAT to 12%) effectively accounts for the standard input VAT, in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. (This means that where the 5% final VAT applies, the basic formula of output tax less input tax does not apply. ) Should actual input VAT exceed 7% of the gross payments, the excess may form part of the sellers expense or cost. On the other hand, if actual input VAT is less than 7% of gross payment, the difference must be closed to expense or cost, in effect reducing it. However, 12% shall be withheld with respect to the following: 1) Lease or use of properties or property rights owned by non-residents 2) Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents; and 3) Other services rendered in the Philippines by nonresidents. V. TRANSACTIONS EXEMPT FROM VAT
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SEC. 109. Exempt Transactions. 1) SUBJECT TO THE PROVISIONS OF SUBSECTION (2) HEREOF, The following shall be exempt from the value-added tax: (a) Sale of nonfood agricultural products; marine and forest products in their original state by the primary producer or the owner
(S) SALE, IMPORTATION OR LEASE OF PASSENGER OR CARGO VESSELS AND AIRCRAFT, INCLUDING ENGINE, EQUIPMENT AND SPARE PARTS THEREOF FOR DOMESTIC OR INTERNATIONAL TRANSPORT OPERATIONS; (T) IMPORTATION OF FUEL, GOODS, AND SUPPLIES BY PERSONS ENGAGED IN INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATIONS; (U) Services of banks, non-bank financial intermediaries performing quasi-banking functions and other non-bank financial intermediaries; and (z) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Five hundred fifty thousand pesos (P550,000) ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,0000: Provided, That not later than January 31st of the calendar year subsequent to the effectivity of Republic Act No. 8241 and each calendar year thereafter, the amount of Five hundred fifty thousand pesos (550,000) JANUARY 31, 2009 AND EVERY THREE (3) YEARS THEREAFTER, THE AMOUNT HEREIN STATED shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO). [AMENDED] The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or properties or services which are otherwise not subject to VAT, but who issues a VAT invoice or receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, be liable to the tax imposed in Section 106 or 108 without the benefit of input tax credit, and such tax shall also be recognized as input tax credit to the purchaser under Section 110, all of this Code. [DELETED] (2) A VAT-REGISTERED PERSON MAY ELECT THAT SUBSECTION (1) NOT APPLY TO ITS SALE OF GOODS OR PROPERTIES OR SERVICES: PROVIDED, THAT AN ELECTION MADE UNDER THIS SUBSECTION SHALL BE IRREVOCABLE FOR A PERIOD OF THREE (3) YEARS FROM THE QUARTER THE ELECTION WAS MADE. [ADDED BY RA 9337]
Notes on exempt transactions (from RR 16-2005): VAT-exempt transactions refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT.
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Sale of Goods VAT Base = gross selling price or gross value in money of the goods sold or exchanged Gross selling price shall include: charges for packaging, delivery & insurance excise taxes if goods are subject to excise tax
For transactions deemed sale, the output tax shall be based on the market value of the goods deemed sold as of the time of the occurrence of the transactions. However, in case of retirement or cessation of business, the tax base shall be the acquisition cost or the current market price of the goods or properties, whichever is LOWER. In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual market value shall be the tax base. b) Sale of Services VAT Base = Gross Receipts Gross receipts means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding VAT. occurs when the Constructive receipt money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. Examples: 1) deposit in banks which are made available to the seller of services without restrictions
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Reimbursable expenses may be EXCLUDED from the tax base IF the ff. conditions are complied with: 1) the expenses are supported by invoices/receipts in the name of the customer 2) the expenses are paid or will be paid to a 3rd party 3) there is no mark-up on the amounts billed, and 4) the reimbursable expenses should NOT be included in the Sellers VAT Invoice or if so included, these should be clearly indicated in the VAT Invoice as reimbursable expenses. c) Importation of Goods VAT Base = total value (used by Bureau of Customs in determining tariff and customs duties) + customs duties + excise tax (if any) + other charges In case the valuation used by Bureau of Customs in computing customs duties is by volume or quantity, the LANDED COST* shall be the tax base. *LANDED COST = invoice amount + customs duties + freight + insurance + other charges + excise tax (if any) NOTE: The VAT on importation shall be paid by the importer PRIOR to the release of such goods from customs custody. (RR 16-2005) VII. INPUT TAXES
(amendments introduced by RA 9337 indicated, text in ALL CAPS added by RA 9337) SEC. 110. Tax Credits. (A) Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this
As amended by RA 9361. RA 9337, effective July 1, 2005, amended this subsection to read as follows: If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, That the input
tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided, however, That any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. HOWEVER, this was again amended by Congress through RA 9361 passed on Nov. 21, 2006. RR 22007, dated January 11, 2007, provides that this regulation enforcing the amendment introduced by RA 9361 shall take effect immediately and shall apply to the quarterly VAT returns to be filed after the effectivity of RA 9361 (which is 15 days after its publication) except VAT returns covering taxable quarters ending earlier than December 2006.
The following were its input taxes (or passed on by its VAT suppliers): Input tax on taxable goods (12%) P5,000.00 Input tax on zero-rated sales 3,000.00
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P20,000.00 = P10,000.00
(xxx) xxx
Total creditable input tax for the month (P5,000+ P3,000 +P10,000) P18,000.00 B. The input tax attributable to sales to government for the month shall be computed as follows: Input tax on sale to gov't. P4,000.00 Ratable portion of the input tax not directly attributable to any activity, computed as follows: Taxable sales to government Total Sales P100,000.00 400,000.00 X P20,000.00 X Amount of input tax not directly attributable = P5,000.00
VAT Payable (Excess Output)t or Excess Input Tax. (a) If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. Illustration: For a given taxable quarter ABC Corp. has output VAT of 100 and input VAT of 80. Since output tax exceeds the input tax for such taxable quarter, all of the input tax may be utilized to offset against the output tax. Thus, the net VAT payable is 100 minus 80 = 20. (b) If the input tax inclusive of input tax carried over from the previous quarter EXCEEDS the output tax, the EXCESS input tax shall be carried over to the succeeding quarter or quarters; Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or applied for a tax credit certificate which may be used in the payment of internal revenue taxes, subject to the limitations as may be provided for by law, as well as, other implementing rules. Illustration: For a given taxable quarter XYZ Corp. has output VAT of 100 and input VAT of 110. 100-110 = -10. Since input tax exceeds the output tax for such taxable quarter, the unutilized input tax amounting to 10 is carried over to the succeeding month. Transitional/Presumptive Input Tax Credits. (a) Transitional Input Tax Credits on Beginning Inventories Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of P1.5M in any 12month period, or who voluntarily register even if their turnover does not exceed P1.5M (except franchise grantees of radio and television broadcasting whose threshold is P10M) shall be entitled to a transitional input tax on the inventory on hand. The transitional input tax shall be 2% of the value of the beginning inventory on hand OR actual VAT paid on such, goods, materials and supplies, whichever is HIGHER, which amount shall be creditable against the output tax of
Total input tax attributable to sales P9,000.00 to government (P4,000 + P5,000) - These amounts are not available for input tax credit but may be recognized as cost or expense. That is because as far as sales to government are concerned, there is a VAT that is finally withheld (at 5%). C. The input tax attributable to VAT-exempt sales for the month shall be computed as follows: Input tax on VAT-exempt sales P2,000.00 Ratable portion of the input tax not directly attributable to any activity, computed below: VAT-exempt sales Total Sales P100,000.00 X 400,000.00 X Amount of input tax not directly attributable = P5,000.00
P20,000.00
Total input tax attributable to P7,000.00 VAT-exempt sales (P2,000+ P5,000) - These amounts are not available for input tax credit but may be recognized as cost or expense.
Remember, this does NOT include input tax attributable to exempt sales, and input tax attributable to sales subject to final withholding VAT
RR 16-2005: Substantiation of Input Tax Credits (a) Input taxes must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: (1) For the importation of goods import entry or other equivalent document showing actual payment of VAT on the imported goods. (2) For the domestic purchase of goods and properties invoice showing the information required under Secs. 113 and 237 of the Tax Code. (3) For the purchase of real property public instrument i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller. (4) For the purchase of services official receipt showing the information required under Secs. 113 and 237 of the Tax Code. A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the information required under Secs. 113 and 237 of the Tax Code. (b) Transitional input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to the BIR. (c) Input tax on "deemed sale" transactions shall be substantiated with the invoice required (please refer to the table on page 46). (d) Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a copy of the Monthly Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor. (e) Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT. IX. INVOICING REQUIREMENTS
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. - A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.
X.
ACCOUNTING REQUIREMENTS
Invoicing and Accounting SEC. 113. Requirements for VAT-Registered Persons. xxx (C) Accounting Rquirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance. ...xxx. RR 16-2005: A subsidiary record in ledger form shall be maintained for the acquisition, purchase or importation of depreciable assets or capital goods which shall contain, among others, information on the total input tax thereon as well as the monthly input tax claimed in VAT declaration or return.
Invoicing and Recording Deemed Sale Transactions. Transaction Invoicing Requirement Transfer, use or Memorandum entry in consumption not in the the subsidiary sales course of business of journal to record goods or properties withdrawal of goods for originally intended for personal use sale or for use in the course of business Distribution or transfer to Invoice, at the time of shareholders/investors or the transaction, which creditors should include all the info prescribed in Sec. 113(B) Consignment of goods if Invoice, at the time of
XI.
Added by RA 9337: SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. xxx (D) Consequence of Issuing Erroneous Vat Invoice or Vat Official Receipt. (1) If a person who is not a VAT-registered person issues an invoice or receipt
XV. ENFORCEMENT MEASURES RR 16-2005: Administrative and Penal Provisions. (a) Suspension of business operations. In addition to other administrative and penal sanctions provided for in the Tax Code and implementing regulations, the Commissioner of Internal Revenue or his duly authorized representative may order suspension or closure of a business establishment for a period of not less than five (5) days for any of the following violations: (1) Failure to issue receipts and invoices. (2) Failure to file VAT return as required under the provisions of Sec. 114 of the Tax Code. (3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the taxable quarter. (4) Failure of any person to register as required under the provisions of Sec. 236 of the Tax Code. (b) Surcharge, interest and other penalties. The interest on unpaid amount of tax, civil penalties and criminal penalties imposed in Title XI of the Tax Code shall also apply to violations of the provisions of Title IV of the Tax Code. XVI. BAR EXAM QUESTIONS ON VAT
1998 BAR EXAM State whether the following transactions are a) VAT exempt, b) subject to VAT at 10% or c) subject to VAT at 0%: 1. 2. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez Services rendered by Jakes Construction Company, a contractor to the World Health Organization in the renovation of its offices in Manila Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers Sale of RTW by Celys Boutique, a Filipino dress designer, in her dress shop and other outlets Fees for lodging paid by students to BahayBahayan Dormitory, a private entity operating a student dorm (monthly fee of P1,500)
3. 4. 5.
SUGGESTED ANSWERS: 1. VAT Exempt. Sale of agri products, such as fresh veggies, in their original state, of a kind generally used as, or producing foods for human consumption is exempt from VAT. (106c) 2. VAT at 0%. Since Jakes Construction has rendered services to the WHO which is an entity exempted from taxation under
PERCENTAGE TAXES
TAX ON PERSONS EXEMPT FROM VAT 3% of gross quarterly sales or receipts. Q: Who are liable? GENERAL RULE: Any person who are exempt from VAT (gross annual sales and receipts does not exceed P1.5M) and who is not a VAT-registered person. EXCEPTION: Cooperatives shall be exempt from the 3% GRT. Those earning LESS THAN P100,000 which is neither covered by percentage tax nor by VAT. TAX ON DOMESTIC CARRIERS AND KEEPERS OF GARAGES 3% of quarterly gross receipts Gross receipts of common carriers derived from INCOMING and OUTGOING freight is NOT subject to local taxes under the Local Govt Code. Q: Who are covered? 1. Cars for rent or hire driven by lessee; 2. Transportation contractors, including persons who transport passengers for hire; 3. Other domestic carriers by LAND; 4. Keepers of garages. EXCEPT: 1. Owners of bancas 2. Owners of animal-drawn two-wheeled vehicles Minimum quarterly gross receipts: Jeepneys Manila and other cities Provincial Public Utility Bus Not exceeding 30 passengers > 30 but not > 50 passengers Exceeding 50 passengers Taxis Manila and other cities Provincial Car for hire (with chauffeur) Car for hire (w/o chauffeur) P2,400 P1,200 P3,600 P6,000 P7,200 P3,600 P2,400 P3,000 P1,800
3.
4.
5.
TAX ON INTERNATIONAL CARRIERS 3% of their quarterly gross receipts. To be subject to this percentage tax, they MUST BE DOING BUSINESS IN THE PHILIPPINES. Q: Who are liable? 1. International air carriers 2. International shipping carriers 3. Amendment introduced by RA 9337 (July 2005):
Common carrier By land By sea Transporting Persons Goods/cargo Whether transporting persons or goods/cargo Kind carrier Domestic Domestic Domestic of Tax Liability 3%, Sec. 117 12% VAT Domestic trip 12% VAT International trip zero-rated 3%, Sec. 118 Domestic flight 12% VAT
By air
International Domestic
International
TAX ON FRANCHISES Q: Who are liable? 1. Radio and broadcasting companies whose annual gross receipts of the preceding year does not exceed P10M 3% of gross receipts derived from business covered by law granting the franchise. Note: The franchisee has the option to register as VAT taxpayer and pay the VAT instead. However, once option is exercised, it is IRREVOCABLE. 2. Electric, gas and water utilities 2% of gross receipts derived from business covered by the law granting the franchise. * Under RA 9337, electric companies are now subject to VAT and not percentage tax. OVERSEAS COMMUNICATIONS TAX 10% of the amount paid for the services. Levied upon EVERY overseas dispatch, message or conversation TRANSMITTED FROM THE PHILIPPINES by: telephone telegraph telewriter exchange wireless other communication equipment services.
Quasi-banking Activities refer to the borrowing of funds from 20 or more personal or corporate lenders at any one time through the issuance, endorsement or acceptance of debt instruments of any kind other than deposits for the borrowers own account, or through issuance of certificates of assignment or similar instruments for purposes of relending or purchasing receivables and other similar obligations. HOWEVER, if borrowing of funds if for LIMITED PURPOSE of financing their own needs or the needs of their agents or dealers, it shall not be considered as performing quasi banking functions. RATES: 1. interest, commissions, discounts from lending activities and financial leasing bases on remaining maturities of instruments: - maturity period is 5yrs or less 5% - maturity period is more than 5yrs 1% 2. dividends and equity shares in net income of subsidiaries 0% 3. royalties, rentals of property (real/personal), profits from exchange and all other items treated as gross income under sec. 32 7% 4. net trading gains on foreign currency, debt securities, derivatives and other similar financial instruments 7% [Note: rates in #s 3 & 4 are as amended by RA 9337] COMPUTING FOR THE NET TRADING GAINS: The figure to be reported in the monthly percentage tax return shall be the CUMMULATIVE TOTAL of the net trading gain/loss since the first month of the applicable taxable year LESS the figures already reflected in the previous months of the same year. The net trading loss may only be deducted from the net trading gain and not from any other items of gross receipt to arrive at the total gross receipts tax due. The net trading loss cannot be deducted on net trading gain earned on any taxable year other than the year it was incurred and may not be carried over to the succeeding taxable year. RULE ON PRETERMINATION: In case the maturity period of an instrument is shortened by pretermination, the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and applying the correct rate of tax. Illustration (from RR 09-04): Mr. A executede on Nov. 10, 2003 a long-term loan from Bank B in the amount of P5M payable within 10yrs with the first installment due on or before Nov. 10, 2004 and the succeeding yearly installment on the same date of the subsequent years. Assume that on Nov. 10, 2008, the loan was preterminated and the interest paid and other fees received from 2004 up to 2008, amounting to P100T annually, were received and declared by Bank B correctly and the applicable gross receipts taxes were paid as follows: Year Remaining Interest Tax GRT
Q: Who are liable? It shall be payable by the person paying for the services rendered to the person rendering the service, who will in turn pay the taxes at the end of the quarter. Q: Who are exempted? 1. Government and any of its political subdivisions and instrumentalities; 2. Diplomatic services (any embassy and consular offices of a foreign govt) 3. International Organizations (if bases in the Phils. and enjoying privileges, exemptions and immunities pursuant to an international agreement) 4. News services (which deals EXCLUSIVELY with the collection of news and dissemination to the public) TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASIBANKING FUNCTIONS tax on gross receipts derived from sources within the Philippines by all banks and nonbank financial intermediaries
Definitions (from RR 09-04): Non-bank Financial Intermediaries refer to persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others.
In 2008, upon pretermination, the loan agreement shall be reclassified and correct gross receipts tax, including prior years, shall be computed on the basis of the new category as shown: Remaining Interest Maturity 2004 4 100,000 2005 3 100,000 2006 2 100,000 2007 1 100,000 2008 <1 100,000 GROSS RECEIPTS TAX Less: GRT previously paid GRT AS RECOMPUTED Year Tax Rate 5% 5% 5% 5% 5% GRT 5,000 5,000 5,000 5,000 5,000 25,000 9,000 16,000
Q: Who are liable? GENERAL RULE: Every person, company or corporation DOING LIFE INSURANCE BUSINESS OF ANY SORT IN THE PHILIPPINES. Purely cooperative companies or EXCEPTION: associations. Cooperative companies or associations are such as are comducted by the members thereof with the money collected from among themselves and solely for their own protection and NOT for profit. PREMIUMS NOT INCLUDED IN THE TAXABLE RECEIPTS: 1. Premiums refunded within 6 months after payment on account of rejection of risks or returned for other reason to a person insured. 2. Premiums paid upon reinsurance by a company that has already paid the tax. 3. Premiums collected or received by any branch of a domestic corporation, firm or association doing business OUTSIDE the Phils. on account of any life insurance of the insured who is a NON-RESIDENT, if any tax on such premiums is imposed by the foreign country where the branch is established. 4. Premiums collected or received on account of any reinsurance, if the insured of personal insurance, RESIDES OUTSIDE THE PHILS., if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected. 5. Portions of premiums collected or received by insurance companies on VARIABLE CONTRACTS in excess of the amounts necessary to insure the lives of variable contract owners. Variable Contracts (as defined by PD612)benefits under the contract vary as to reflect investment results of any segregated portfolios of investments. CASE LAW: CIR v. Insular Life Assurance (CA GR SP 46516) MUTUALIZED LIFE INSURANCE COMPANY is not subject to premium tax or DST on policies as cooperatives. If a mutualized life insurance company satisfies all the elements of cooperative [1. managed by members; 2. operated with money collected from members; 3. has for its main purpose the mutual protection of members and not for profit] as defined in Sec. 123, it shall not be subject to premiums tax. TAX ON AGENTS COMPANIES OF FOREIGN INSURANCE
CASE LAW: China Bank v. CTA (GR 146749, June 10, 3003) The 20% withholding tax on interest income shall form part of the gross receipts in computing gross receipts tax on banks. Gross Receipts is commonly understood as the entire receipts without any deductions. Deducting any amount will change its meaning to net receipts. GRT is collected based on gross receipts which cover all receipts without deductions. TAX ON OTHER INTERMEDIARIES NON-BANK FINANCE
tax on gross receipts derived by other nonbank finance intermediaries, DOING BUSINESS IN THE PHILIPPINES, from: interest commissions discounts from lending activities financial leasing tax is based on the remaining maturities of the instruments from which receipts are derived maturity period is 5 yrs or less 5% maturity period is more than 5 yrs 3% [Note: The same rule on pretermination applies.] CASE LAW: CIR v. Lhuiller (GR 15094, July 15, 2003) The SC has ruled that pawnshops, although are engaged in the business of lending money, are not subject to percentage tax since they are not lending investors. They are subject to different tax treatments, thus, the 5% percentage tax only applies to lending investors and not to pawnshops. However, RR 10-2004 has subsequently classified pawnshops as under NON-BANK FINANCIAL INTERMEDIARIES, thus are now subject to 5% gross receipts tax. The revenue regulation also required pawnshops to register, from VAT taxpayers, as percentage taxpayers. TAX ON LIFE INSURANCE PREMIUMS
Q: Who are liable? GENERAL RULE: Tax shall be levied upon every FIRE, MARINE OR MISCELLANEOUS INSURANCE AGENT authorized to procure policies of insurance as he may have previously been legally authorized to transact on risks located in the Phils FOR COMPANIES NOT AUTHORIZED TO TRANSACT BUSINESS IN THE PHILS. EXCEPTION: Premiums paid on reinsurance.
AMUSEMENT TAXES Q: Who are liable? The proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks. Rates: 1. 2. 3. 4. return should be filed and tax paid within 20 days after the end of every quarter B.
18% for cockpits 18% for cabarets, night or day clubs 10% for boxing exhibitions 15% for professional basketball games in lieu of all other percentage taxes 5. 30% for Jai-Alai and racetracks (whether or not they charge for admissions) EXEMPTION: If boxing exhibition is a World or Oriental Championship in any division featuring at least 1 Filipino contender and promoted by a Filipino or by a corporation with at least 60% Filipino equity.
Through IPO covers sale, barter, exchage of shares of stock of CLOSELY HELD CORPORATIONS tax shall be paid by the issuing corporation in the primary offering or by the seller in the secondary offering tax base is the GSP/GVM levied in accordance with the proportion of shares sold, bartered, exchanged or disposed, to the total outstanding shares after the listing in the local stock exchange: - up to 25% of all shares 4% GSP/GVM - >25% but not over 33.33% 2% GSP/GVM - over 33.33% 1% GSP/GVM
Closely Held Corporationany corporation at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals. Rules to be applied to determine whether the corporation is closely held: 1. Stock owned directly or indirectly by corporations, partnerships, estates or trusts shall be considered as actually owned by its stockholders, partners or beneficiaries in proportion to their shares as individuals. 2. An individual is considered the constructive owner of the stock owned by members of his family (includes only brothers and sisters whole/half-blood, spouse, ancestors and lineal descendants) 3. A person having an option to acquire stock is considered the actual owner of such stock C. Return on Capital Gains realized from sale of Shares of Stocks 1. return on capital gains realized from sale of shares of stock listed and traded in the local stock exchange it is the duty of every stockbroker who effected the sale to collect the tax and remit it to the BIR within 5 banking days from date of collection and to submit to the secretary of the stock exchange a true and complete return 2. return on public offerings of shares of stocks the corporate issuer shall file the return and pay the tax within 30days from the date of listing of the shares in the local stock exchange.
Tax Base: GROSS RECEIPTS it embraces all the receipts of the proprietor, lessee or operator of the amusement place; including income from TV, radio and motion picture rights. RMC 08-88 transferred the EXCLUSIVE JURISDICTION to levy tax on gross receipts from ADMISSIONS to places of amusement to the local government. TAX ON WINNINGS Q: Who are liable? 1. every person who wins in horse races 2. owners of winning race horses Rates: a. 10% of winnings or dividends (bases on the actual amount paid to winner for every winning ticket AFTER deducting the cost of the ticket) b. 4% of winnings from double, forecast/quinella and trifecta bets c. 10% of prizes, in case of owners of race horses tax shall be WITHHELD by the operator, manager or person in charge of the horse races before paying the dividends or prizes return shall be filed and tax paid within 20 days from the date tax was deducted and withheld
TAX ON SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING (IPO) A. Through the Local Stock Exchange
[Note: Both IPOs and sales of stock through the local exchange are EXEMPT from capital gains tax and from regular individual or corporate income tax. Also, such tax is not deductible from income tax.] PAYMENT OF PERCENTAGE TAXES Q: When to file return and pay?
EXCISE TAX
Goods Subject to Excise Tax (Sec. 129, NIRC) Goods manufactured or produced in the Philippines for domestic sale or consumption or other disposition Things imported NOTE: Excise tax is imposed in addition to VAT. The tax attaches even on articles illicitly made, or the production of which is prohibited or punished by law.
Q: Where to file? At the option of the person liable, he may file a separate return for each branch or place of business, or a consolidated return with authorized agent bank, Revenue District Office, Collection Agent or City/Mun. Treasurer where the business or principal place of business is located. The Commissioner may prescribe rules and regulations altering the time and manner of payment prescribed herein. The Commissioner may prescribe a minimum amount of gross receipts where it is found that a person: 1. has failed to issue receipts or invoices 2. does not file a return, or 3. if records of the books of accounts do not correctly reflect the declarations in the return.
Two Classifications of Excise Tax: Specific tax- tax is based on weight or volume capacity or other physical unit of measurement Ad valorem tax - tax is based on selling price or other specified value of the good Purpose and justification of excise taxes: 1. To curtail consumption of certain commodities, excessive or indiscriminate use of which is considered harmful to the individual or community. Taxes of this kind are sumptuary in nature and are exemplified by the taxes on alcoholic beverages and tobacco products 2. To protect a domestic industry the products of which face competition from similar imported articles To distribute the tax burden in proportion to the benefit derived from a particular government service. Examples are the excise taxes on gasoline, lubricating oils and denatured alcohol for motive power, and To raise revenue
3.
4.
When Excise Taxes Accrue As to domestic products They accrue or attach as soon as the articles are produced, or come into existence as in the case of distilled spirits (Sec. 141) and manufactured and other fuel oils (Sec. 148) As to imported articles They accrue as soon as the articles are brought into the Philippine jurisdiction with the intention to unload them here.
Filing of Return and Payment of Excise Tax on DOMESTIC Products (Sec. 130) (A) Persons liable to file a return, filing of return on removal and payment of tax 1. Person Liable to File a Return such person shall file a separate return for each place of production setting forth, among others: o Description and quantity or volume of products removed o Applicable tax base o Tax due
2.
Time of Filing of Return and Payment of Tax GENERALLY: return shall be filed and excise tax shall be paid by the manufacturer or producer before removal of the domestic products from place of production unless otherwise specifically allowed HOWEVER, IN CASE OF: nonmetallic mineral or mineral products and quarry sources due and payable upon removal of such products from locality where mined and extracted locally produced or extracted metallic mineral or mineral products: o file return and pay tax within 15 days after end of the calendar quarter when such products were removed subject to conditions prescribed by rules and regulations to be promulgated by Secretary of Finance, upon recommendation of the Commissioner o taxpayer shall file bond amount of excise tax due IMPORTED mineral or mineral products, whether metallic or nonmetallic paid before their removal from customs duty Place of Filing of Return and Payment of Tax (GENERAL RULE) any authorized agent bank or Revenue Collector Officer, or duly authorized City or Municipal Treasurer Exceptions (TO GENERAL RULE SET OUT ABOVE) IN GENERAL: Sec of Finance, upon recommendation of Commissioner, may by rules and regulations prescribe: a. b. time of filing the return at intervals for a particular class or classes of taxpayer manner and time of payment under a tax prepayment, advance deposit and other similar schemes IN THE SPECIFIC CASES of: minerals, mineral products or quarry resources where the place of extraction is different from the place of processing or production, or metallic minerals processed abroad,
3.
4.
c.
importation done by government-owned and operated duty free shop like DFP, PROVIDED such products are labeled tax and duty free and not for resale if such products are eventually introduced to Philippine customs territory, then such articles shall be deemed imported into Phil and be subject to all import and excise taxes HOWEVER, removal and transfer from one Freeport to another Freeport shall not be deemed an introduction to Phil territory. cigar, cigarettes, distilled spirits and wines in duty free shops which are NOT LABELED AS REQUIRED, as well as those articles obtained from duty free shops and subsequently FOUND IN NON DUTY FREE SHOPS FOR RESALE confiscated and perpetrator punished tax due on any such goods, products, machinery, equipment and other similar articles shall constitute a lien on the article itself which shall be superior to all other liens (B) Rate and Basis of the Excise Tax on Imported Articles Unless otherwise specified, imported articles shall be subject to the same rate and basis of excise taxes applicable to locally manufactured articles Exemption / Conditional Tax-Free Removal of Certain Articles a. denatured wine/spirits for treatment of tobacco leaf b. domestic denatured alcohol rendered unfit for oral intake, but VAT should be paid c. petroleum products sold to: international carriers (Philippine or foreign carriers) on their use or consumption outside the Philippines, provided there is reciprocity exempt entities covered by tax treaties, conventions, international agreements, provided there is reciprocity entities which are by law exempted from direct & indirect taxes d. removal of spirits under bond for rectification e. removal of fermented liquors to bonded warehouse f. removal of damaged liquors g. removal of tobacco products entirely unfit for chewing/smoking Tax on Alcohol Products Definition a. distilled spirits substance known as ethyl alcohol, ethanol or spirits of wine including whiskey, brandy, rum, gin and vodka, from whatever source, by whatever process produced
2.
Sec. 141 Distilled Spirits (Rates of tax as per RR 3-2006) P11.65/ proof liter produced from sap of nipa, coconut, cassava, camote buri palm or juice, syrup or sugar cane provided, materials are produced commercially in the country where they are processed produced in a pot still or similar primary distilling apparatus distiller not producing >100L/day, containing <50% alcohol
if produced from raw materials other than those above, tax is in accordance with the net retail price (NRP) (excluding VAT + excise tax) per 750 ml bottle: P126.00/ NRP < P250 proof liter P252.00/ proof liter P504.00/ proof liter NRP: P250 P675 NRP >P675
Medicinal preparations, flavoring extracts, other preparations except toilet preparations, wherein distilled products form chief ingredient same tax as chief ingredient tax shall proportionally increase for any strength of spirit taxed over proof spirits. Tax shall attach as soon as it is in existence whether it is subsequently separated as pure or impure spirits or transformed into any other substance either in the process of original production or by any subsequent process.
Sec. 142 Wines (Rates of tax as per RR 3-2006) P145.60 sparkling wines/champagne regardless of proof if NRP <P500/bottle P436.80 sparkling wines/champagne regardless of proof if NRP >P500 P17.47 still wines 14% of alcohol by vol or less P34.94 still wines 14% - 25% of alcohol by vol Fortified wines containing more than 25% of alcohol by volume natural wines to which distilled spirits are added to increase their alcoholic strength taxed as distilled spirits
PENAL PROVISIONS: Brewer or importer who knowingly misdeclares or misrepresents in his sworn statement any pertinent data or information summary cancellation or withdrawal of his permit. Corporation, association or partnership fined treble the amount of deficiency taxes + surcharges + interest person liable for acts or omissions prohibited under this section criminally liable and penalized under Sec 254 those who willfully abet or aid in the commission of such act or omission liable same as principal offender not citizen of Phil deported after service of sentence Tax on Tobacco Products Definition a. cigar all rolls of tobacco or any substitute wrapped in leaf tobacco b. cigarette all rolls of finely-cut leaf tobacco or any substitute wrapped in paper or any other material Sec. 144 Tobacco Products (Rates of tax as per RR 3-2006) P1.00/kg tobacco twisted by hand or reduced into a condition to be consumed in any manner other than the ordinary mode of drying and curling those prepared or partially prepared with or without use of any machine or instruments or without being pressed or sweetened fine-cut shorts and refused, scraps, clippings, cutting, stems and sweepings of tobacco P0.79/kg specially prepared for chewing so as to be unsuitable for use in any other manner Sec. 145 Cigars and Cigarettes (Rates of tax as per RR 3-2006) 10% of NRP cigars NRP (excluding excise tax and VAT) < P500 P50 + 15% of NRP in excess of P500 P2.00/pack cigars NRP (excluding excise tax and VAT) > P500 cigarettes packed by hand
cigarettes packed by machine NRP <P5 PENAL PROVISIONS: Brewer or importer who knowingly misdeclares or misrepresents in his sworn statement any pertinent data or information summary cancellation or withdrawal of his permit. Corporation, association or partnership fined treble the amount of deficiency taxes + surcharges + interest person liable for acts or omissions prohibited under this section criminally liable and penalized under Sec 254 those who willfully abet or aid in the commission of such act or omission liable same as principal offender not citizen of Phil deported after service of sentence Tax on Petroleum Products Sec. 148 Manufactured Oils and other Fuels (Rates of tax 1997 NIRC, as amended by RA 9337 [2005])
P4.50/Kg or L Lubricating oil and greases (kg), and additives for lubricating oil and greases (L) P0.05/L Processed Gas
P3.50/kg waxes and petrolatum P0.50/L P4.35/L P0.00/L denatured alcohol for motive power naphtha, regular gasoline and similar products of distillation other
naphtha, used either as raw material in the production of petrochemical products or as replacement fuel for natural-gas-fired-combined cycle power plant leaded premium gasoline unleaded premium gas aviation turbo jet fuel kerosene kerosene used as aviation fuel diesel fuel oil and similar oils with same generating power liquefied petroleum gas asphalt bunker fuel oil and similar oils with same generating power
imported cars NOT for sale, tax shall be based on total landed value + transaction value + customs duty + other charges cars used exclusively in Freeport zones are exempt Non Essential Goods
Tax on Mineral Products Sec. 151 Mineral Products P10/ metric ton coal and coke 2% MV non metallic minerals and quarry resources 2% locally extracted natural gas and liquefied natural gas 2% MV gold and chromite copper and other metallic minerals: 1% MV 1st 3 years after effectivity of RA 7729 1 % MV 4th-5th years 2% 6th year and thereafter indigenous petroleum:
b)
c)
NOTE: Wherever one party to the taxable document enjoys exemption from the tax imposed, the other party who is not exempt will be the one directly liable to file Documentary Stamp Tax Declaration and pay the applicable stamp tax. Q: What are the implications of failure to stamp taxable documents? The untaxed document will not be recorded, nor will it or any copy thereof or any record of transfer of the same be admitted or used in evidence in court until the requisite stamp or stamps have been affixed thereto and cancelled No notary public or other officer authorized to administer oaths will add his jurat or acknowledgment to any document subject to Documentary Stamp Tax unless the proper documentary stamps are affixed thereto and cancelled
Par value of shares of stocks actual consideration for issuance of shares of stocks the
Actual value represented by each share Par value of such due-bills, certificate of obligation or stocks
25% of the DST paid upon the original issue of said stock 1.50
Par value of such bonds, debentures or Certificate of Stocks Face value of such certificate / memorandum
0.50 1.50
1.00 Shall be of a proportional amount in accordance with the ration of its term in number of days to 365 days .30
of
any
such
debt
Bills of exchange (between points within the Philippines) and drafts Bills of Exchange or order drawn in foreign country but payable in the Philippines Foreign Bills of Exchange
9
Face value of the bill of exchange or draft Face value of such bill of exchange or order or the equivalent of such value, if expressed in foreign currency Face value of such bill of exchange
.30
.30
When are shares considered issued? Upon the acquisition of the stockholder of the attributes of ownership over the shares (the right to vote, the right to receive dividends, the right to dispose, etc., notwithstanding that restrictions on the exercise of any of these rights may be imposed by the Corporations Articles and/or by-laws, the SEC, stockholder agreement, court order, etc.) which acquisition of such attributes of ownership shall be manifested by the acceptance by the Corporation of the stockholders subscription to its shares of stock. The delivery of the certificates of stock to the stockholders is NOT essential for the DST to accrue. [RR 13-2004] What is the basis of DST? The entire shares of stock subscribed are considered issued for purposes of DST, even if not fully paid. [RR 13-2004]
10
When is a sale or exchange of shares taxable? There must be actual or constructive transfer of beneficial ownership of shares of stock from one person to another. This may be manifested by: a) the clear exercise of attributes of ownership over such stocks by the transferee, or b) by an actual entry of a change in the name appearing in the certificate of stock or in the stock and transfer book of the corporation or by any entry indicating transfer of beneficial ownership in any form of registry including those of a duly authorized scripless registry, such as those maintained for or by the Philippine Stock Exchange. [RR 13-2004]
Each Receipt P1.00 cost of ticket and Additional P0.10 on every P1.00 or fraction thereof if cost of ticket exceeds P1.00 >P100 not > P1000 >P1000 Each Proxy Each Document First 2,000 For every P1,000 or fractional part thereof in excess of the first P2,000 for each year of the term of the contract or agreement First 5,000 On each P5,000 or fractional part thereof in excess of 5,000 First 1,000 For each additional P1,000 or fractional part thereof in excess of P1,000 1,000 below tons and
Bills of Lading or Receipts (except charter party) Proxies Powers of Attorney Lease and other Hiring agreements of memorandum or contract for hire, use or rent of any land or tenements or portions thereof Mortgages Pledges of lands, estate, or property and Deeds of Trust Deed of Sale, instrument or writing and Conveyances of Real Property (except grants, patents or original certificate of the government) Charter parties and Similar Instruments
20.00 10.00
15.00 15.00
Consideration or Fair Market Value, whichever is higher (if government is a party, basis shall be the consideration)
1,001 tons
to
10,000
P500.00 for the first 6 months PlusP50 each month or fraction thereof in excess of 6 months
Tonnage contract
and
duration
of
the
P1,000
for
the
Assignment or transfer of any mortgage, lease or policy of insurance Renewal of any agreement/ contract
f.
g.
h.
i.
j.
k.
l.
m.
c.
n.
d.
One-Transaction Rule: Where only one instrument was prepared, made signed and executed to cover a loan agreement/promissory note, pledge/mortgage, the documentary stamp tax shall be paid and computed on the full amount of the loan or credit granted. In this regard, the instrument shall be treated as covering only one taxable transaction, subject to the higher documentary stamp tax. (RR 9-94, Sec. 8) Payment of Documentary Stamp Tax (Sec 200) WHERE: filed and paid at authorized agent bank within territorial jurisdiction of Revenue District Officer which had jurisdiction over residence or principal place of business of taxpayer
REMEDIES
STAGES IN BIR AUDIT (Framework of discussion) EXAMINATION
EXCEPTION: Tax may be paid thru purchase and actual affixture or imprinting the stamp thru documentary stamp metering machine as prescribed by the pertinent rules and regulations. WHEN: 5 days after close of the month when the taxable document was made, signed issued, transferred or accepted. (RR 6-01) [Note: 10-day rule provided in Sec. 200(B) of the NIRC no longer applicable) Applicability Documents: of DST Law on Electronic
Audit Stage/Issuance of Letter of Authority Pre-Assessment Stage Formal Assessment Stage Collection Letter/Warrants Compromise and Abatement
I.
The DST rates shall be applicable on all documents not otherwise expressly exempted by the law, notwithstanding that they are in electronic form. As provided for in RA 8792 (Electronic Commerce Act), electronic documents are the functional equivalent of a written document under existing laws, and the issuance thereof is therefore tantamount to the issuance of a written document, and therefore subject to DST. (RR 13-04, Sec. 10)
(Issuance
of
Letter
of
Powers of the Commissioner Relative to the Audit Process 1. Authority to EXAMINE RETURNS and DETERMINE TAX DUE (5) the Commissioner may authorize the examination of any taxpayer and the assessment of the correct amount of tax, WON a return has been filed by such taxpayer. NOTE: Any return filed with the Commissioner shall not be withdrawn, BUT the taxpayer may MODIFY, CHANGE or AMEND such return within three (3) years from the date of filing, provided that no notice for audit or investigation of such return has been actually served on the taxpayer. Authority to conduct INVENTORYTAKING, SURVEILLANCE and to prescribe presumptive gross sales and Inventory-taking receipts (6C) may be conducted at any time during the taxable year, for the purpose of determining the correct tax liabilities. Surveillance is done if there is reason to believe that the taxpayer is not declaring his correct income, sales or receipts for tax purposes. The prescribe Commissioner may presumptive gross sales and receipts if: It is found that the taxpayer has failed to issue receipts and invoices, or When there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made by the taxpayer Authority to terminate TAXABLE PERIOD The Commissioner may (6D) terminate taxable period and order the immediate payment of the tax for the terminated period and any remaining tax that is unpaid, under the following circumstances:
2.
3.
4.
Authority to prescribe REAL PROPERTY VALUES (6E) The Commissioner is authorized to divide the Philippines into different zones or areas, and shall determine the FMV of real properties in each zone or area, upon consultation with competent appraisers from private and public sectors. For the purpose of computing any internal revenue tax, the value of the property shall be WHICHEVER IS HIGHER OF: The fair market value as determined by the Commissioner, or The fair market value as shown in the schedule of values of the provincial and city assessors Authority to inquire into BANK DEPOSIT Notwithstanding ACCOUNTS (6F) any contrary provision of R.A. 1405 (Bank Secrecy Law) and other general or special laws, the Commissioner is authorized to inquire into bank deposits of: A decedent to determine his gross estate, and Any taxpayer who has filed an application for compromise of tax liability by reason of financial the taxpayer must incapacity waive in writing his privilege under R.A. 1405 and other relevant laws, before the Commissioner may inquire into his bank accounts Authority to accredit and register TAX AGENTS (6G) The Commissioner shall accredit and register tax agents (may be individuals or general professional partnerships) based on the following criteria: Professional competence Integrity Moral fitness Authority to prescribe additional PROCEDURAL OR DOCUMENTARY REQUIREMENTS (6H) in relation to the manner of compliance of any requirement in connection with the submission or preparation of financial statements accompanying the tax returns. The ACCESS LETTER (5B) Commissioner may obtain on a regular
5.
RMC 44-01 A ruling by the BIR Commissioner shall be presumed VALID unless modified, reversed or superseded by the Secretary of Finance. A taxpayer who receives an adverse ruling from the Commissioner may, within thirty (30) days from the date of receipt of such ruling, seek its review by the Secretary of Finance, either by himself/itself or though his/its duly authorized representative. A reversal or modification of the BIR ruling shall terminate its effectivity upon the receipt by the taxpayer or the BIR of written notice of reversal or modification, whichever came earlier. NOTE: DOF Order 7-02 added that the Secretary of Finance may review the rulings MOTU PROPRIO. Section 246, NIRC: Non-retroactivity of Rulings Any revocation, modification or reversal ofany 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 the BIR; Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or Where the taxpayer acted in bad faith. Letter of Authority
6.
b)
c) B.
7.
Q: What is a letter of authority? The Letter of Authority is an official document that empowers a Revenue Officer to examine and scrutinize a taxpayers books of accounts and other accounting records, in order to determine the taxpayers correct internal revenue tax liabilities. Q: Who issues the Letter of Authority? Commissioner for those units reporting directly to him
8.
What is a pre-assessment notice (PAN)? The Pre-Assessment Notice is a communication issued by the Regional Assessment Division or any other concerned BIR office, informing a taxpayer who has been audited of the findings of the Revenue Officer, following the review of these findings. The assessment shall be in writing, and should inform the taxpayer of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. (Sec. 228) If the taxpayer disagrees with the findings in the PAN, he has fifteen (15) days from his receipt of the PAN to file a written reply contesting the proposed assessment. Under what circumstances is a PAN no longer required? (a) When the finding for any deficiency tax is the result of MATHEMATICAL ERROR in the computation of the tax as appearing on the face of the return; or (b) When a DISCREPANCY has been determined between the TAX WITHHELD and the amount ACTUALLY REMITTED by the withholding agent; or (c) 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; OR (d) When the EXCISE TAX due on excisable articles has not been paid; or (e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to a non-exempt person. (228) III. FORMAL ASSESSMENT STAGE What is a Notice of Assessment (Final Assessment Notice FAN or Formal Letter of Demand)? A notice of assessment is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time, or whose reply to the PAN was found to be without merit. This is commonly known as the Final Assessment Notice (FAN). An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. An assessment is a notice to the effect that the amount therein stated is due as tax and a
Q: What is the nature of prescription on the right to assess? The law on prescription, being a remedial measure, should be LIBERALLY CONSTRUED in order to afford protection. As a corollary, the exceptions to the law on prescription should be clearly construed. Hence, negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind. [CIR v. Goodrich Philippines (1999)]
If the taxpayer filed a false or fraudulent return with intent to evade tax internal revenue taxes shall be assessed within ten years after the discovery of the falsity or fraud (222a) Fraud or falsity on the return with intent to evade payment of tax is a question of fact and the circumstances constituting fraud must be
What are the characteristics of a valid protest? A protest is considered validly made if it satisfies the following conditions: 1) 2) it is made in writing, and addressed to the Commissioner of Internal Revenue it contains the information the following information (from RR 12-85): name of the taxpayer and address for the immediate past three taxable years nature of request whether reinvestigation or reconsideration specifying newly-discovered evidence he intends to present if it is a request for reinvestigation the taxable periods covered assessment number date of receipt of assessment notice or letter of demand itemized statement of the findings to which the taxpayer agrees 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 the itemized schedule of the adjustments with which the taxpayer does not agree a statement of facts and/or law in support of the protest. It states 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. It is filed within the period prescribed by law
When is an assessment deemed made? An assessment is deemed made when the demand letter or notice is RELEASED, MAILED OR SENT by the BIR to the taxpayer. The law does not require that the taxpayer receive the notice within the three-year or ten-year period. [CIR vs. BAUTISTA (May 27, 1959)] So, even if the taxpayer actually received the assessment after the expiration of the prescriptive period, provided the release thereof was effected before prescription sets in, the assessment is deemed made on time. If the taxpayer does not agree with the assessment, what is his REMEDY? The taxpayer has the right to contest an assessment, and he may do so by filing a letter of PROTEST stating in detail his reasons for contesting the assessment. When no protest is seasonably made by the taxpayer, the assessment shall become final and unappealable, and thus the tax shall be collectible. Q: What is the nature of an assessment when it is final and executory? It is in the nature of an enforcement judgment such that no inquiry can be made thereon on the merits of the original case. Within what time may the taxpayer protest the assessment? An assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment. Within sixty (60) days from filing of the protest, all relevant supporting documents must be submitted, otherwise the assessment shall become final. (228) What is the difference between a reconsideration and reinvestigation? (RR 12-85) RECONSIDERATION refers to a plea of re-evaluation of the assessment on the basis of existing records WITHOUT
3)
4)
What should the taxpayer do if his protest is denied or is not acted upon by the Commissioner? Situation 1: If the Commissioner DENIES THE PROTEST filed by the taxpayer the taxpayer may appeal to the Court of Tax Appeals within thirty days from receipt of the decision denying the protest (228)
Where there is a request for reconsideration, final demand letter from BIR is considered a decision on a disputed or protested assessment which is therefore appealable to the CTA. [CIR v. ISABELA CULTURAL CORP. (July 11, 2001)]
NOTE: If Situation 1 occurs and the taxpayer does not file a protest within the prescribed period, the assessment becomes FINAL, EXECUTORY and DEMANDABLE. But if the Situation 2 occurs and the taxpayer does not file a protest within the prescribed period, the assessment DOES NOT become FINAL, EXECUTORY and DEMANDABLE. In cases of inaction by the Commissioner, Section 228 of the Tax Code merely gave the taxpayer an OPTION: first, he may appeal to the Court of Tax Appeals within thirty days from the lapse of the 180-day period, or second, he may wait until the Commissioner decides on his protest before he elevates his case. The taxpayer was given this option so that in case his protest is not acted upon within 180 days, he may be able to seek immediate relief and need not wait for an indefinite period of time for the Commissioner to decide. But if he chooses to wait for a positive action on the part of the Commissioner, then the same could not result in the assessment becoming final, executory and demandable. [LASCONA LAND Co vs. CIR (January 4, 2000)]
JURISDICTION
to
Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs; Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals; Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code;
2.
3. When does the 30-day period to appeal in Situation 1 commence to run? The 30-day period starts when the taxpayer receives the decision of the Commissioner denying the protest. The decision of the Commissioner must categorically state that his action on the disputed assessment is final, otherwise period to appeal will not commence to run. The appealable decision is the decision of the Commissioner denying the protest, NOT the warrants of distraint or levy. [ADVERTISING ASSOCIATES vs. CA (December 26, 1984)] NOTE: A Division of the CTA shall hear the appeal. (Sec. 11, RA 1125 as amended by RA 9282 [2004]) If the taxpayer is not satisfied with the CTA Divisions ruling, what is his REMEDY? FIRST, he may file a motion for reconsideration before the same Division of the CTA within fifteen (15) days from notice thereof. (Sec. 11, RA 1125 as amended by RA 9282 [2004]) THEN, a party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration may file a petition for review with the CTA en banc. (Sec. 18, RA 1125 as amended by RA 9282 [2004])
4.
5.
6.
11 RA 9282, which amended RA 1125, expanded the jurisdiction of the CTA and elevated it to the level of the Court of Appeals. Q: Is the CTA a special court or a regular court? It is a regular court with special jurisdiction.
b.
b.
EXCLUSIVE ORIGINAL JURISDICTION over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: EXCEPTION: That offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. NOTE: Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized. EXCLUSIVE APPELLATE JURISDICTION 2. in criminal offenses: Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. Jurisdiction over TAX COLLECTION CASES:
IV. COLLECTION LETTER/WARRANTS A. Collection of Deficiency Taxes Within what time period must collection of internal revenue taxes be made? Return filed NOT false fraudulent was or No return filed, or the return was false or fraudulent. Collection with PRIOR ASSESSMENT should be made within five years from the date of assessment (based on 222c) by distraint or levy, or by judicial proceedings
Collection with PRIOR ASSESSMENT should be made within three years from the date of assessment of the tax. by distraint or levy, or by judicial proceedings
a)
b)
Collection WITHOUT PRIOR ASSESSMENT should be made within three years from the date of filing of return or date return is due, whichever is LATER (based on 203) by judicial proceedings
Collection WITHOUT PRIOR ASSESSMENT should be made within ten years after the discovery of the falsity, fraud or omission to file a return. by proceedings judicial
c. 1.
EXCLUSIVE ORIGINAL JURISDICTION in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties. EXCEPTION: Collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court,
If tax was assessed within the different period agreed upon by the Commissioner and the taxpayer, it may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the 5-yr period. (222d)
When shall the period for assessment or collection of taxes be suspended? (223) The running of the statute of limitations provided in 203 and 222 shall be suspended for the period:
2.
Q: What is the nature of a claim for refund? It partakes of the nature of an exemption and is strictly construed against the claimant. The burden of proof is on the taxpayer claiming the refund that he is entitled to the same. [CIR v. Tokyo Shipping (1995)] Q: When are there erroneously paid, or illegally assessed or collected taxes? Taxes are erroneously paid when a taxpayer pays under a mistake of fact, such as, he is not aware of an existing exemption in his favor at the time that payment is made. Taxes are illegally collected when payments are made under duress. Q: What is the difference between a tax credit and refund? They are essentially modes of recovering taxes that have been either erroneously or illegally paid to the government. REFUND takes place when there is actual reimbursement. TAX CREDIT takes place upon the issuance of a tax certificate or tax credit memo, which can be applied against any sum that may be due and collected from the taxpayer. Q: Is payment under protest necessary in claims for refund? No. Section 229 of the NIRC is specific on this point when it provides that a suit or proceeding for tax refund may be maintained whether or not such tax, penalty or sum has been paid under protest or duress. What is the procedure for obtaining a refund or tax credit? First, the taxpayer must file a claim for refund before the Commissioner within two years from the date of payment. (229) [GENERAL RULE] o EXCEPTIONS to the rule requiring a claim for refund: When on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid (e.g. mathematical errors), the Commissioner may refund or credit the tax even without a written claim therefor. NOTE: A return filed showing an overpayment shall be considered as a written claim for credit or refund. (204C)
RR 12-85 RECONSIDERATION refers to a plea of re-evaluation of the assessment on the basis of existing records WITHOUT NEED OF ADDITIONAL EVIDENCE. It may involve both question of fact or of law or both REINVESTIGATION refers to a plea of reevaluation of an assessment on the basis of NEWLY-DISCOVERED EVIDENCE that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both. PHIL GLOBAL COMMUNICATION vs. A reCIR (October 31, 2006) evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. The law distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. 3. When the taxpayer CANNOT BE LOCATED IN THE ADDRESS given by him in the return filed upon which a tax is being assessed or collected, but if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations shall not be suspended When the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and NO PROPERTY is located When the taxpayer is OUT OF THE PHILIPPINES Remedies of the taxpayer against a tax erroneously or illegally paid When may taxes be refunded or credited? Taxes may be refunded or credited in the following cases: Taxes erroneously or illegally assessed or collected Penalties imposed without authority
4.
5.
o B.
But how shall the date of payment be determined? i. If the income tax is withheld at source the taxpayer is deemed to have paid his tax liability at the end of the taxable year. CASE LAW: GIBBS vs. COMMISSIONER (November 29, 1965) A taxpayer who
What should the taxpayer do if his claim for refund is denied or is not acted upon by the Commissioner? o SITUATION 1: The Commissioner denies the claim for refund the taxpayer may appeal to the CTA within thirty (30) days from the receipt of the Commissioners decision AND within two years from the date of payment. (Note that 229 states that no such suit or proceeding shall be filed after the expiration of the 2-year period regardless of any supervening cause that may arise after payment) SITUATION 2: The Commissioner does not act on the claim, and the two-year period is about to lapse the taxpayer must file a claim before the CTA before the 2-year period lapses, otherwise he may no longer file a claim before the CTA in case the Commissioner renders an adverse decision beyond the 2-year period. NOTE HOWEVER! Is the two-year period jurisdictional with respect to the CTA? NO. Even if the two-year period had already lapsed, the same is not a jurisdictional defect which, upon grounds of justice and equity, may be set aside by the court. [(COMMISSIONER vs. PHILAMLIFE (May 29, 1995)] If the Commissioner grants the refund, within what time must it be claimed?
NOTE: A court MAY NOT GRANT AN INJUNCTION to restrain the collection of any national internal revenue tax, fee or charge imposed under the NIRC. (218) o EXCEPTION: Under Section 11 of RA 1125, as amended by RA 9282, suspension is allowed when the following conditions concur: 1. it is an appeal to the CTA from a decision of the Commissioner of Internal Revenue or Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be, and in the opinion of the Court of Tax Appeals, the collection may jeopardize the interest of the Government and/or the taxpayer. Q: In case of suspension, what may the taxpayer be required to do? Either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. Q: What are tax liens? (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 CIR until paid with interest, penalties, and costs that may accrue in
2.
How are different kinds of personal property distrained? Stocks and other securities by serving a copy of the warrants of distraint on the taxpayer, AND upon the president, manager, treasurer or other responsible officer of the corporation, company or association which issued the stocks or securities. Debts and credits by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The person owing the debts shall then pay the Commissioner instead of his creditor (taxpayer) on the strength of such warrant. Bank accounts by serving a warrant of garnishment upon the taxpayer AND upon the president, manager, treasurer or other responsible officer of the bank. The bank shall then turn over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government. (NOTE: distraint of bank accounts is called GARNISHMENT)
ADMINISTRATIVE REMEDIES 1. Distraint What is distraint of personal property? Distraint involves the SEIZURE by the Government of PERSONAL PROPERTY, tangible or intangible, to enforce the payment of taxes; followed by the PUBLIC SALE of such property, if the taxpayer fails to pay the taxes voluntarily. What are the kinds of distraint? 1. 2. Actual Distraint resorted to when there is ACTUAL delinquency in tax payment Constructive Distraint is a preventive remedy which aims at forestalling a possible dissipation of the taxpayers assets when delinquency sets in. Hence, no actual delinquency in payment is necessary.
How is ACTUAL distraint of personal property effected? When the taxpayer fails to pay the delinquent tax at the time required, the proper officer shall SEIZE and DISTRAINT any GOODS, CHATTELS, or EFFECTS, and the PERSONAL PROPERTY, including STOCKS and other SECURITIES, DEBTS, CREDITS, BANK ACCOUNTS and INTERESTS in and RIGHTS to personal property of the taxpayer in sufficient quantity to satisfy the tax, expenses of distraint and the cost of the subsequent sale. Who is the proper officer authorized to issue the warrant of distraint? Commissioner or his duly authorized representative if the amount involved is in EXCESS of One million pesos (P1,000,000) Revenue District Officer if the amount involved is One million pesos (P1,000,000) or LESS. (207A)
What is the remedy of the taxpayer once the Commissioner or other proper officer issues the warrant of distraint? The taxpayer may request that the warrant be lifted. The commissioner may, in his discretion, allow the lifting of the order of distraint. He may ask for a bond as a condition for the cancellation of the warrant. (207) If the taxpayer does not ask for the lifting of the warrant, what shall be done with the seized properties? The properties will be SOLD in a PUBLIC SALE, and the procedure shall be as follows: (1) The Revenue District Officer or his duly authorized representative (not the officer who served the warrant), shall cause a notification of the public sale to be posted in not less than two (2) public places in the municipality or city (one of which is the Office of the Mayor) where the distraint was made. The notice shall specify the time and place of the sale. The time of sale shall not be less than twenty (20) days after notice to the owner and the publication or posting of such notice. (2) At the time of the public sale, the revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained at
3)
4)
V. 1.
COMPROMISE AND ABATEMENT Compromise (to reduce the amount of tax payable) On what grounds may the commissioner compromise the payment of internal revenue tax (civil compromise)? The Commissioner may compromise the payment of any internal revenue tax in the following cases: 1) 2) A REASONABLE DOUBT as to the validity of the claim against the taxpayer exists; or The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. (FINANCIAL INCAPACITY)
May the taxpayer recover his property prior to consummation of the sale? YES. At any time before the day fixed for the sale, the taxpayer may discontinue all proceeding by paying the taxes, penalties and interest. (213) May the taxpayer recover his property after the consummation of the sale? YES. Within one (1) year from the date of sale, the taxpayer or anyone for him, may pay to the Revenue District Officer the total amount of the following: public taxes penalties interest from the date of delinquency to the date of sale interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of sale to the date of redemption. (NOTE: if the property was forfeited in favor of the government, the redemption price shall include only the taxes, penalties and interest plus costs of sale no interest on purchase price since the Govt did not purchase the property anyway, it was forfeited) NOTE: The taxpayer-owner shall not be deprived of possession of the said property and shall be entitled to rents and other income until the expiration of the period for redemption JUDICIAL PROCEEDINGS Civil and criminal action and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the BIR shall be BROUGHT IN THE NAME OF THE GOVERNMENT of the Philippines shall be CONDUCTED BY LEGAL OFFICERS OF THE BIR No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under the NIRC shall be filed in court without the APPROVAL OF THE COMMISSIONER approval of the Commissioner. (220) Q: How is a criminal action a collection remedy? The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner. (205) Q: Is an assessment necessary before filing a criminal charge for tax evasion? No, an assessment is not necessary before a criminal charge can be filed. The criminal charge need only be proved by a prima facie showing of a willful attempt to file taxes, such as failure to file a
What are the limits of the Commissioners power to compromise? For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax For other cases a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax NOTE: When 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 must be approved by the Evaluation Board (composed of the Commissioner and 4 deputy commissioners) May the Commissioner compromise cases of criminal violations? Generally, ALL CRIMINAL VIOLATIONS may be compromised, EXCEPT: a) those cases already filed in court b) those involving fraud 2. Abatement (to cancel the entire amount of tax payable) When may the Commissioner abate or cancel a tax liability? The Commissioner may abate or cancel a tax liability when: 1) 2) the tax or any portion thereof appears to be UNJUSTLY or EXCESSIVELY ASSESSED; or the ADMINISTRATION and COLLECTION COSTS do not justify the collection of the amount due. (costs of collection > amount of tax due)
VI. STATUTORY OFFENSES AND PENALTIES A. 1. Additions to the Tax Civil Penalties
Penalty Fine - P30,000 or 100,000; and Imprisonment - 2 to 4 years; Plus other penalties
Any person who willfully attempts in any manner to evade or defeat any tax or the payment thereof.
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Making false entries, records, or reports, or using falsified or fake accountab le forms.
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Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return or statement and subsequentl y withdraws the same return or statement Any financial officer or Independent Certified Public Accountant engaged to examine and audit books of accounts of taxpayers under Sec.232 (A) and any person under his direction. Any person who carries on any business for which in annual registration fee is imposed without paying the tax as required by law.
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Value of goods not > P1,000: Fine not < than P1,000 not > P2,000, imprisonment of not < 60 days, not > 100 days Value of goods > P1,000, not > than P50,000: Fine not < than P10,000 not > P20,000, imprisonment of not < 2 yrs, not > 4 years Value of goods > P50,000, not > than P150,000: Fine not < than P30,000 not > P60,000, imprisonment of not < 4 yrs, not > 6 years Value of goods > P150,000: Fine not < than P50,000 not > P100,000, imprisonment of not < 10 yrs, not > 12 years
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Misdeclara tion or Misrepres entation of Manufactu rers Subject to Excise Tax Forfeiture of
Any person who being duly summoned to appear to testify, or to appear and produce books of accounts, records, memoranda or other papers, or to furnish info. as required under the pertinent provisions of this Code. Any person who willfully files a declaration, return or statement containing information which is not true and correct as to every material matter Any manufacture r subject to excise tax
Fine P 20,000 50,000; and Imprisonment - 4 to 8 yrs Fine - P 5,000 - 10,000; and Imprisonment - 1 to 2 yrs
Any person subject to excise tax who fails to store the goods in proper place, or removes goods without payment of excise tax
Forfeiture
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Penalty for Second and Subseque nt Offenses Violation of Other Provisions of the Tax Code or Rules or Regulation s in General
Maximum of the penalty prescribed for the offense Any person who violates any provision of this Code or any rule or regulation promulgated by the Department of Finance for which no specific penalty is provided by law Any taxpayer, whose property has been placed under constructive distraint Fine: not more than P 1,000 or Imprisonment: not more than 6 months, or both
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Summary cancellation or withdrawal of the permit to engage in business as a manufacturer of articles subject to excise tax Forfeiture
Penalty for Selling, Transferri ng, Encumberi ng or in any way disposing of property Placed under Constructi ve Distraint
Fine: not less than twice the value of the property but not less than P 5,000 or Imprisonment: 2 yrs 1 day - 4 yrs or both
Any who
person
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VII. COMPLIANCE REQUIREMENTS What records are required to be kept by taxpayers? (1) taxpayers with gross quarterly sales, earnings, receipts or output of P50,000 or less a simplified form of bookkeeping records duly authorized by the Secretary of Finance, wherein all transactions and results of operations are shown and from which all taxes due may be readily and accurately ascertained and determined at ant time of the year. (232) (2) taxpayers with gross quarterly sales, earnings, receipts or output exceeding P50,000 but not more than P150,000 a journal and ledger or their equivalent. (232)
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Penalties Imposed on Public Officers The law imposes a fine of not less than P50,000 nor more than P100,000 or imprisonment for not less than 10 years nor more than fifteen years on every official, agent or employee of the BIR or of any agency or employee of the Government charged with the enforcement of the Tax Code, who shall:
Amount of reward: 10% of the revenues, surcharges or fees recovered and/or fine/penalty imposed, or P1,000,000, whichever is LOWER. The same amount shall be given if the offender offered to compromise and such offer has been accepted and collected by the Commissioner. If no revenue, surcharge or fees be actually collected, such person is not entitled to a reward For discovery and seizure of SMUGGLED GOODS The cash reward is 10% of the FMV of the smuggled and confiscated goods, or P1,000,000, whichever is LOWER. The cash rewards shall be subject to income TAX at the rate of 10%. Rule of construction Statutes offering rewards must be liberally construed in favor of informers and with regard to the purpose for which they are intended, with mere technicality yielding to the substantive purpose of the law. [Penid v. Virata]
IX. 1.
PROBLEMS Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged exclusively in international shipping. He and his wife, who manages their business, filed a joint income tax return for 1997 on 15 March 1998. After an audit of the return, the BIR issued on 20 April 2001 a deficiency income tax assessment for the sum of P250,000 inclusive of interest and penalties. For failure of the couple to pay the tax within the period stated in the notice of assessment, the BIR issued on 19 August 2001 a warrant of distraint and levy to enforce collection of the tax. If you are the lawyer of the couple, what possible defense or defenses will you raise in behalf of your clients against the action of the BIR in enforcing collection of the tax by the summary remedies of warrants of distraint and levy? Explain your answer. (2002 Bar) Answer: I will raise the defense of prescription. The right of the BIR to assess prescribes after three years from the last day prescribed by law for filing the return. The
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A Co. a Philippine corporation, is a big manufacturer of consumer goods and has several suppliers of raw materials. The BIR suspects that some of the suppliers are not properly reporting their income on sales to A Co. The CIR therefore: Issued an access letter to A Co. to furnish the BIR with information on sales and payments to its suppliers Issued an access letter to X bank to furnish the BIR on deposits of some suppliers of A C. on the alleged ground that the suppliers are committing tax evasion. A Co., X Bank and the suppliers have not been issued by the BIR letter of authority to examine. A Co. and X Bank believe that the BIR is on a fishing expedition and come to you for counsel. What is your advice? (2000 Bar) Answer: I will advise A Co. and X Bank that the BIR is justified only in getting information from the former but not from the latter. The BIR is authorized to obtain information from other persons other than those whose tax liability is subject to audit or investigation. However, this power shall not be construed as granting the Commissioner the authority to inquire into bank deposits. (Section 5, NIRC)
LOCAL TAXATION
III. BASIC CONCEPTS A. Local Government Unit - 1987 CONSTI, ART X, SECTION 1. The territorial and political subdivisions of the Republic of the Philippines are the provinces, cities, municipalities, and barangays. There shall be autonomous regions in Muslim Mindanao and the Cordilleras as hereinafter provided. B. Scope of Local Taxation The provisions in LGC shall govern the exercise by PROVINCES, CITIES, MUNICIPALITIES, and BARANGAYS of their taxing and other revenue-raising powers. (Sec 128 LGC) Power to Create Sources of Revenue -Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. (SEC. 129, LGC) Fundamental Principles -- The following fundamental principles shall govern the exercise of the taxing and other revenueraising powers of local government units: (a) Taxation shall be uniform in each local government unit; NOTE: the uniformity required is only within the territorial jurisdiction of an LGU. (IRR) (b) Taxes, fees, charges and other impositions shall: (1) be equitable and based as far as practicable on the taxpayer's ability to pay; (2) be levied and collected only for public purposes; be unjust, excessive, (3) not oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in the restraint of trade; (c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; (d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, E.
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation. (SEC. 130, LGC) Local Taxing Authority. - shall be exercised by the SANGGUNIAN of the local government unit concerned through an appropriate ordinance. (SEC. 132, LGC) HOWEVER, the local chief executive of the LGUs (except the punong barangay) possesses veto powers, as laid out in Sec. 55 of the LGC: SEC. 55. Veto Power of the Local Chief Executive. (a) The local chief executive may veto any ordinance of the sangguniang panlalawigan, sangguniang panlungsod, or sangguniang bayan on the ground that it is ultra vires or prejudicial to the public welfare, stating his reasons therefor in writing. (b) The local chief executive, except the punong barangay, shall have the power to veto any particular item or items of an appropriations ordinance, an ordinance or resolution adopting a local development plan and public investment program, or an ordinance directing the payment of money or creating liability. In such a case, the veto shall not affect the item or items which are not objected to. The vetoed item or items shall not take effect unless the sanggunian overrides the veto in the manner herein provided; otherwise, the item or items in the appropriations ordinance of the previous year corresponding to those vetoed, if any, shall be deemed reenacted. (c) The local chief executive may veto an ordinance or resolution only once. The sanggunian may override the veto of the local chief executive concerned by twothirds (2/3) vote of all its members, thereby making the ordinance effective even without the approval of the local chief executive concerned.
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IV. Common Limitations on the Taxing Powers of Local Government Units (Sec 133) Unless otherwise provided, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall NOT EXTEND to the levy of the following: (a) Income tax, except when levied on banks and other financial institutions; (b) Documentary stamp tax; (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees or charges on petroleum products; (i) Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; 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;
(j)
(k) Taxes on premiums paid by way or reinsurance or retrocession; (l) 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;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under the "Cooperative Code of the Philippines"; and (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. V. Specific Provisions on the Taxing and Other Revenue-Raising Powers of LGUs
Not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
Not exceed onetwentieth (1/20) of one percent (1%) of the capital investment Based on the gross for the receipts preceding calendar year, or any fraction thereof
Not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction
Not exceed onetwentieth (1/20) of one percent (1%) of the capital investment Based on the gross for the receipts preceding calendar year, or any fraction thereon
Not more than ten percent (10%) of FMV in the locality per of cubic meter ordinary stones, sand, gravel, earth, and other quarry resources, extracted from public
Not exceeding one-half () of the rates prescribed under subsection (a), (b) and (d) of Sec 143
per annum 2% 1%
7. On peddlers engaged in the sale of any merchandise or article of commerce in accordance with the schedule (Sec 143) Not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium. Not exceeding Fifty pesos (P50.00) per peddler annually. 8. On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the NIRC, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. (this is the catchall provision) NOTE: The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed in the LGC. Rates of Tax within the Metropolitan Manila Area The municipalities within the Metropolitan Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates prescribed in Sec 143. (SEC. 144, LGC) Retirement of Business A business subject to tax pursuant to Sec 143 shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be LESS THAN the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired. (Sec 145) Payment of Business Taxes The taxes imposed in sec 143 shall be payable for EVERY SEPARATE OR DISTINCT ESTABLISHMENT or PLACE where business subject to tax is conducted. One line of businees does NOT become exempt by being conducted with some other businesses for which such tax has been paid. The tax on a business must be paid by the person conducting the same. In cases where a person conducts or operates
Fees and Charges GENERAL: The municipality may impose and collect such reasonable fees and charges on business and occupation and on the practice of any profession or commensurate with the cost of calling, regulation, inspection and licensing BEFORE any person may engage in such business or occupation, or practice such profession or calling. SPECIFIC: 1. For Sealing and Licensing of Weights and Measures. at such reasonable rates as shall be prescribed by the sangguniang bayan. 2. Fishery Rentals, Fees and Charges. Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters and impose rentals, fees or charges thereon. The sangguniang bayan may: (1) Grant fishery privileges to erect fish corrals, oysters, mussels or other aquatic beds or bangus fry areas, within a definite zone of the municipal waters, as determined by it (2) Grant the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of other species and fish from the municipal waters by nets, traps or other fishing gears to marginal fishermen free of any rental, fee, charge or any other imposition whatsoever. (3) Issue licenses for the operation of fishing vessels of three (3) tons or less Provided, however, That the sanggunian concerned shall, by appropriate ordinance, penalize the use of explosives, noxious or poisonous substances, electricity, muro-ami, and other deleterious methods of fishing and prescribe a criminal penalty therefor in accordance with the provisions of the LGC
The proceeds of the tax on sand, gravel, and other quarry resources in highly-urbanised cities shall be distributed as follows: highly urbanised city 60% barangay where the sand, gravel, etc are extracted 40% D. BARANGAYS SCOPE --- The barangays may levy taxes, fees, and charges, as provided in this Article, which shall exclusively accrue to them: (a) Taxes - On stores or retailers with fixed business establishments at a rate not exceeding one percent (1%) on such gross sales or receipts. IN CASE OF CITIES -- with gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less IN CASE OF MUNICIPALITIES with gross sales or receipts of Thirty thousand pesos (P30,000.00) or less (b) Service Fees or Charges - Barangays may collect reasonable fees or charges for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers. (c) Barangay Clearance - No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted.
Legend: X Authorized to impose the tax XX Only if the municipality is within the Metro Manila Area VI. SITUS OF TAX RULE 1: In case of persons maintaining/operating a branch or sales outlet making the sale or transaction, the tax shall be recorded in said branch or sales outlet and paid to the municipality/city where the branch or sales outlet is located. RULE 2: Where there is NO branch or sales outlet in the city/municipality where the sale is made, the sale shall be recorded in the principal office and the tax shall be paid to such city/municipality. RULE 3: In the case of manufacturers, contractors, producers, and exporters having factories, project offices, plants, and plantations, the ff sales allocation shall be observed: 30% of sales recorded in the principal office shall be made taxable by the city/municipality where the principal office is located 70% shall be taxable by the city/municipality where the factory, project office, plant, or plantation is located Illustration of Rule 1 to 3: A company has a principal office in Mandaluyong, while its sales office and factory are in Sta Rosa sales made in Sta Rosa, will be recorded in Sta Rosa sales made in Los Baos, Calamba or Cabuyao (ie delivered to customers located in those places), will be recorded in Mandaluyong aside from sales made in Sta Rosa, Sta Rosa also gets 70% of sales recorded in Mandaluyong, pursuant to Rule 3
X X
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RULE 4: In case the plantation is located in a place other than the place where the factory is located, the 70% portion in Rule 3 will be divided as follows: 60% to the city/municipality where the factory is located 40% to the city/municipality where the plantation is located RULE 5: In case of 2 or more factories, plantations, etc in different localities, the 70% shall be prorated where the factories, among the localities plantations, etc are located in proportion to their respective volume of production. NOTE: In case of manufacturers or producers which engage the services of an independent contractor to produce or
Applies to public utilities operated and maintained by them within their jurisdiction. 15 Applies to the use of any public road, pier, wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned. Exemptions: (1) officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, (2) post office personnel delivering mail, (3) physically-handicapped, and (4) disabled citizens who are sixty-five (65) years or older.
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The franchise tax provided in Sec. 137 is intended to be in addition to the franchise tax imposed by the National Government. (de Leon, p. 463) 13 Note that under Sec. 138, the proceeds of this tax are allocated as follows: (1) Province - Thirty percent (30%); (2) Component city or municipality where the sand, gravel, and other quarry resources are extracted - Thirty percent (30%); and (3) barangay where the sand, gravel, and other quarry resources are extracted - Forty percent (40%).
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Collecting Authority All local taxes, fees and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly authorised deputies. Examination of Books The local treasurer or his deputy duly authorised in writing, may examine the books, accounts and other pertinent records of any person, partnership, corporation, or association in order to ascertain, assess and collect the correct amount of tax. Such examination shall be made during the regular business hours, ONLY ONCE for every tax period, and shall be certified to by the examining official.
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Civil Remedies (both LGU and taxpayer) A. Personal Property Exempt from Distraint or Levy the following property shall be EXEMPT from distraint or levy for delinquency in the payment of any LOCAL tax, fee or charge: tools and implements necessarily used by the deliquent taxpayer in his trade or employment one horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select and necessarily used by him in his ordinary occupatin his necessary clothing, and that of all his family househld furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding P10,000 provisions, including crops, actually provided for individual or family use sufficient for 4 months the professional libraries of doctors, engineers, (ehem) lawyers and judges one fishing boat and net, not exceeding the total value of P10,000 by the lawful use of which a fisherman earns his livelihood any material or article forming part of a house or improvement of any real property Periods of Assessment and Collection of LOCAL Taxes Assessment shall be made GEN RULE: within 5 years from the date they become due, and collection shall be made within 5 years from the date of assessment by administrative or judicial action. EXCEPTION: In case of FRAUD, or INTENT TO EVADE PAYMENT OF TAX, the same may be assessed within 10 years from
NOTE: if the tax is not paid within the prescribed period, there shall be added to the unpaid amount an interest of 24% per annum from the due dte until it is paid. IX. COLLECTION OF TAXES A. Tax Period -- unless otherwise provided in this Code, the tax period of all local taxes, fees and charges shall be the calendar year. Manner of Payment -- Such taxes, fees and charges may be paid in quarterly installments. Accrual of Tax -- All local taxes, fees, and charges shall accrue on the first (1st) day of January of each year. However, new taxes, fees or charges, or changes in the rates thereof, shall accrue on the first (1st) day of the quarter next following the effectivity of the ordinance imposing such new levies or rates. Time of Payment -- 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. (Jan 20, Apr 20, July 20, and Oct 20). 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. Surcharges and Penalties 25% surcharge on taxes, fees or charges NOT paid on time, AND
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CASE LAW: The requirement of publication in full for 3 consecutive days is MANDATORY for a tax ordinance to be valid. The tax ordinance will be null and void if it fails to comply with such publication requirement. [COCA-COLA vs. CITY OF MANILA (June 27, 2006)] C. Authority to Adjust Rates LGU shall have the authority to adjust the tax rates prescribed in LGC NOT oftener than once every 5 years, but in no case shall such adjustment exceed 10% of the rates fixed. Authority to Grant Exemption LGU may, through ordinances, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.
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XII.Problems 1. A municipality passed an ordinance imposing a tax of 1% on the consideration of all sales or other transfers of title of real property located within its boundaries. As a property owner affected by the tax, comment on its
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Improvement It is a valuable addition made to a property or an amelioration in its condition amounting to more than a 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. [Section 199(m), Local Government Code] Machinery 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. [Section 199(o), Local Government Code] NOTE: this definition of machinery is too allencompassing and broad in that everything that is used even indirectly for the needs of the industry can be classifies as machinery which is REAL property, which in turn means that it is subject to RPT; example would be a SCREWDRIVER being used in an office since this is used by the office and indirectly contributes the to smooth functioning of the general business then this can be treated as real property This was solved by the LGC IRR sec 290 (o) that now limits and qualifies this: this is known as the GENERAL PURPOSE RULE This rule states that if it used in line or for the general purpose of the business but only indirectly, then it is NOT to be treated as real property. This means that a typewriter being used in the main office of a firm that manufactures cars is NOT real property as the typewriter is NOT used to actually make the car which is the main purpose of the company.
II. Basic Concepts Definition: Real property tax has been defined as a direct tax on the ownership of lands and buildings or other improvements thereon not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. It has also been defined as: an annual ad valorem tax imposed by local government units (provinces, cities, and Metro Manila municipalities) on real property within their jurisdiction, determined on the basis of a fixed proportion of the value of the property. (de Leon, p. 509) NOTE: Real property tax is a fixed proportion of the assessed value of the property being taxed and requires, therefore, the intervention of assessors. Characteristics of real property tax It is a direct tax on the ownership or use of real property. It is an ad valorem tax. Value is the tax base. It is proportionate because the tax is calculated on the basis of a certain percentage of the value assessed. It creates a single, indivisible obligation. It attaches on the property (i.e., a lien) and is enforceable against it. Nature and scope of power to impose realty tax The taxing power of local governments in real property taxation is a delegated power. Fundamental principles governing real property taxation 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 classification within each local government unit. 4. The appraisal, assessment, levy and collection of real property tax shall not be let to any private person. 5. The appraisal and assessment of real property shall be equitable. [Section 197, Local Government Code] Real properties subject to tax Generally, Real Property Tax is imposed on lands, buildings, machineries and other improvements. The Local Government Code contains no definition of real property; however, the following terms are defined:
Generally the SC has held that Art 415 CC (which enumerates the kinds of real property) is an exclusive list as to what constitutes real property. BUT FOR TAX PURPOSES ONLY, it is common that certain properties be classified as real property even if according to the general principles of the CC, they would only be classified as personal property. LESSON: the NIRC and the LGC code prevail in classifying property for tax purposes.
Properties EXEMPT from real property taxes 1. 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. Q: Are GOCCs covered by the exemption? No. The tax exemption of property owned by the Republic of the
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NOTE: A taxpayer claiming exemption must submit sufficient documentary evidence to the local assessor within thirty (30) days from the date of the declaration of real property; otherwise, it shall be listed as taxable in the Assessment Roll. III. Rates of levy [BASIC RPT] A province or city or a municipality within the Metro Manila area shall fix a uniform rate of basic real property tax applicable to their respective localities as follows: 1. In the case of a province, at the rate not exceeding 1% of the assessed value of real property; and 2. In the case of a city or a municipality within the Metro Manila area, at the rate not exceeding 2% of the assessed value of real property. [Section 233, Local Government Code] [ADDITIONAL LEVY ON REAL PROPERTY FOR THE SPECIAL EDUCATION FUND] A province, city or a municipality within the Metro Manila area may levy and collect an annual tax of one percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax. The proceeds thereof shall exclusively accrue to the Special Education Fund created under Republic Act No. 5447. [Section 235, Local Government Code] [ADDITIONAL AD VALOREM TAX ON IDLE LANDS] A province or city or a municipality within the Metro Manila area may levy an annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value of the property which shall be in addition to the basic real property tax. [Section 236, Local Government Code] What are considered idle lands?
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CASE LAW: LUNG CENTER of the PHILS vs. QUEZON CITY (June 29, 2004) As a general principle, 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,
Sec 201. Appraisal of Real Property. All real property, whether taxable or exempt, appraised at the current and fair market value prevailing in the locality where the property is situated Sec 202. Declaration of real Property by the Owner or Administrator. shall be the duty of all persons (natural or juridical) or their duly authorized representative owning or administering real property, including the improvements therein to prepare and file with assessor, a sworn statement declaring the true value of their property, whether previously declared or undeclared, taxable or exempt, which shall be the current and fair market value of the property, as determined by the declarant The sworn declaration of real property herein referred to shall be filed with the assessor concerned once every three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with the calendar year 1992. Sec 203. Duty of Person Acquiring Real Property or Making Improvement Thereon. duty of any person, or his authorized representative acquiring at any time real property in any municipality or city or making any improvement on real property, to prepare and file with the a sworn statement declaring the true value of subject property within sixty (60) days after the acquisition of such property or upon completion or occupancy of the improvement, whichever comes earlier. Sec 204. Declaration of Real Property by the Assessor. any person, by whom real property is required to be declared under Section 202 refuses or fails for any reason to make such declaration within the time prescribed assessor shall himself declare the property in the name of the defaulting owner, if known, or against an unknown owner, as the case may be, and shall assess the property for taxation Sec 205. Listing of Real Property in the Assessment Rolls. In every province and city, municipalities within the Metropolitan Manila Area, there shall be prepared and maintained by the assessor an assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the local government unit; property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having legal interest in the property. undivided real property of a deceased person may be listed, valued and assessed in the name of the estate or of the heirs and devisees without designating them individually
[SPECIAL LEVY BY LOCAL GOVERNMENT UNITS] A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements by the LGU concerned. The 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. It shall not apply to lands exempt from basic real property tax and the remainder of the land, portions of which have been donated to the LGU concerned for the construction of such projects or improvements. Need for public hearing and publication before enactment of ordinance imposing special levy. Special levy accrues on the first day of the quarter next following the effectivity of the
Sec 214. Amendment of Schedule of Fair Market Values. assessor may recommend to the sanggunian amendments to correct errors in valuation in the schedule of fair market values sanggunian shall, by ordinance, act upon the recommendation within ninety (90) days from receipt Sec 215. Classes of Real Property for Assessment Purposes. For purposes of assessment, real property shall be classified: 1. residential 2. agricultural 3. commercial 4. industrial 5. mineral 6. timberland 7. special - Sec216. Special Classes of Real Property. lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or scientific purposes those owned and used by local water districts 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. *The city or municipality within the Metropolitan Manila Area, through their respective sanggunian, shall have the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in accordance with their zoning ordinances. Sec 217. Actual Use of Real Property as Basis for Assessment. Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located regardless whoever owns it regardless whoever uses it Sec 220. Valuation of Real Property. In cases where: (a) real property is declared and listed for taxation purposes for the first time (b) there is an ongoing general revision of property classification and assessment (c) a request is made by the person in whose name the property is declared assessor shall make a classification, appraisal and assessment or taxpayer's valuation Provided, however, That the assessment of real property shall NOT be increased oftener than once every three (3) years
Sec 206. Proof of Exemption of Real Property from Taxation. Every person who shall claim tax exemption for such property shall file with assessor within thirty (30) days from the date of the declaration of real property sufficient documentary evidence in support of such claimlike corporate charters, contracts, titles, articles of incorporation etc If the required evidence is NOT submitted within the period prescribed, the property shall be listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt, shall be dropped from the assessment roll. Sec 208. Notification of Transfer of Real Property Ownership. Any person who shall TRANSFER real property OWNERSHIP to another shall notify the assessor concerned within sixty (60) days from the date of such transfer The notification shall include the mode of transfer, the description of the property alienated, the name and address of the transferee. Sec 209. Duty of Registrar of Deeds to Appraise Assessor of Real Property Listed in Registry. duty of the Registrar of Deeds to require every person who shall present for registration a document of transfer, alienation, or encumbrance of real property to accompany the same with a certificate to the effect that the real property subject has been fully paid of all real property taxes due. Failure to provide such certificate shall be a valid cause for the refusal of the registration of the document. Sec 212. Preparation of Schedule of Fair Market Values. Before any general revision of property assessment is made there shall be prepared a schedule of fair market values by the assessor of the provinces, within the cities and municipalities Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian
Sec 221. Date of Effectivity of Assessment or Reassessment. All assessments/ reassessments made after the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year Provided, the reassessment of real property shall be made within ninety (90) days from the date if any such cause or causes occurred, and shall take effect at the beginning of the quarter next following the reassessment due to its: partial or total destruction major change in its actual use great and sudden inflation or deflation of real property values gross illegality of the assessment any other abnormal cause Sec 222. Assessment of Property Subject to Back Taxes. Real property declared for the FIRST TIME shall be assessed for taxes (back taxes) for the period during which it would have been liable but in no case of more than ten (10) years prior to the date of initial assessment Provided, however, That such taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period. If such taxes are paid on or before the end of the quarter following the date the notice of assessment was received by the owner NO interest for delinquency shall be imposed thereon; otherwise, taxes shall be subject interest at the rate of two percent (2%) per month or a fraction thereof from the date of the receipt of the assessment until such taxes are fully paid. Sec 224. Appraisal Machinery. (a) and Assessment of
(a) Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, render its decision based on substantial evidence (b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted SOLELY for the purpose of ascertaining the facts without necessarily adhering to technical rules applicable in judicial proceedings. (c) secretary of the Board shall furnish the owner of the property or the person having legal interest therein and the assessor with a copy of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the owner or the person having legal interest of such fact using the form prescribed. (d) The owner, the person having legal interest or the assessor who is NOT satisfied with the decision of the Board, May within thirty (30) days after receipt of the decision of said Board appeal to the Central Board of Assessment Appeals decision of the Central Board shall be final and executory Sec 231. Effect of Appeal on the Payment of Real Property Tax. Appeal on assessments of real property shall, in NO case, suspend the collection of the corresponding realty taxes on the property involved as assessed but without prejudice to subsequent adjustment depending upon the final outcome of the appeal. SPECIAL LEVY BY LGUs Sec 241. Ordinance Imposing a Special Levy. A tax ordinance imposing a special levy shall: describe with reasonable accuracy the nature, extent, and location of the public
The fair market value of brand-new machinery shall be acquisition cost In all other cases, the fair market value shall be determined by dividing the remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or reproduction cost. If machinery imported, the acquisition cost includes freight, insurance, bank and other charges, brokerage, arrastre and handling, duties and taxes, plus charges at the present site
(b)
Sec225.Depreciation Allowance for Machinery. depreciation allowance shall be made for machinery at a rate NOT exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the case may be, for each year of use Provided, the remaining value for all kinds of machinery shall be fixed at NOT less than twenty percent (20%) of such original,
Sec273.Proceeds of the Tax on Idle Lands. proceeds of the additional real property tax on idle lands shall accrue to the: respective general fund of the province or city where the land is located In the case of a municipality within the Metropolitan Manila Area, the proceeds shall accrue equally to the Metropolitan Manila Authority and the municipality where the land is located. Sec274.Proceeds of the Special Levy. The proceeds of the special levy on lands benefited by public works, projects and other improvements shall accrue to the general fund of the local government unit which financed such public works, projects or other improvements. SPECIAL PROVISIONS Sec276. Condonation or Reduction of Real Property Tax and Interest. sanggunian by ordinance passed prior to the first (1st) day of January of any year + upon recommendation of the Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding year or years in the city or municipality affected by the calamity in cases of: general failure of crops substantial decrease in the price of agricultural or agribased products calamity in any province, city or municipality Sec277.Condonation or Reduction of Tax by the President of the Philippines. President may, when public interest so requires, condone or reduce the real property tax and interest for any year in any province or city or a municipality within the Metropolitan Manila Area. V. Problems 1. An Ordinance was passed by the Provincial Board of a Province in the North, increasing the rate of basic real property tax from 0.006% to 1% of the assessed value of the real property effective 1 January 2000. Residents of the municipalities of the said province protested the Ordinance on the ground that no public hearing was conducted and, therefore, any increase in the rate of real property tax is void. Is there merit in the protest? Explain.
2.
The real property of Mr. and Mrs. Angeles, situated in a commercial area in front of the public market, was declared in their tax declaration as residential because it had been used by them as their family residence from the time of its construction in 1990. However, since January 1997, when the spouses left for the US to stay there permanently with their children, the property has been rented to a single proprietor engaged in the sale of appliances and agriproducts. The Provincial Assessor reclassified the property as commercial for tax purposes starting January 1998. Mr. and Mrs. Angeles appealed to the Local Board of Assessment Appeals, contending that the tax declaration previously classifying their property as residential is binding. How should the appeal be decided? (2002 Bar) Answer: The appeal should be decided against Mr. and Mrs. Angeles. The law focuses on the actual use of the property for classification, valuation and assessment purposes regardless of ownership. Section 217 of the LGC provides that real property shall be classified, valued, and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.
3.
A Co, a Philippine corporation, is the owner of machinery, equipment and fixtures located at its plant in Muntinlupa city. The City Assessor characterized all these properties subject to the real property tax. A Co. appealed the matter to the Muntinlupa Board of Assessment Appeals. The Board ruled in favor of the city. In accordance with RA 1125, A Co. brought a petition for review before the CTA to appeal the decision of the
indirectly information where, how or by whom human conception is prevented or unlawful abortion produced. Roulette wheels, gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used in gambling, or in the distribution of money, cigars, cigarettes or other articles when such distribution is dependent upon chance, including jackpot and pinball machines or similar contrivances. Lottery and sweepstakes tickets, advertisements thereof and lists of drawings therein. except those authorized by the Philippine Government Any article manufactured in whole or in part of gold silver or other precious metal, or alloys thereof, the stamps brands or marks of which do not indicate the actual fineness or quality of said metals or alloys. Any adulterated or misbranded article of food or any adulterated or misbranded drug in violation of the provisions of the "Food and Drugs Act." Marijuana, opium poppies, coca leaves, or any other narcotics or synthetic drugs which are or may hereafter be declared habit forming by the President of the Philippines, any compound, manufactured salt, derivative, or preparation thereof, except when imported by the Government of the Philippines or any person duly authorized by the Collector of Internal Revenue for medicinal purposes only. Opium pipes and parts thereof, of whatever material. All other articles the importation of which is prohibited by law.
f.
g.
h.
i.
Dutiable importation All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in other laws. (100)
2.
Prohibited importations Sec. 101 a. Dynamite, gunpowder, ammunitions and other explosives, firearm and weapons of war, and detached parts thereof, except when authorized by law.
j. k.
b. Written or printed article in any form containing: 1) any matter advocating or inciting treason, rebellion, insurrection or sedition against the Government of the Philippines 2) forcible resistance to any law of the Philippines 3) containing any threat to take the life of or inflict bodily harm upon any person in the Philippines. c. Written or printed articles, photographs, engravings, lithographs, objects, paintings, drawings or other representation of an obscene or immoral character. Articles, instruments, drugs and substances designed, intended or adapted for preventing human conception or producing unlawful abortion, or any printed matter which advertises or describes or gives directly or
Sec. 1207 It is the duty of the Collector to exercise jurisdiction to - prevent importation (prohibited importation) or - secure compliance with legal requirements (articles that may be imported subject to conditions) 3. Conditionally-free importation ARTICLE Aquatic products CONDITIONS - Caught, gathered and imported by fishing vessels of Phil registry - Not have landed in foreign territory, or if landed, solely for transshipment bond = 1 x of ascertained duties, taxes and charges must be exported within 6 months
d.
Equipment used for the salvage of vessels or aircraft not available locally
Articles brought into Phil for repair, processing or reconditioning Trophies, prizes (medals, badges, cups) Those received as honorary distinction Personal and household effects of returning Phil residents
must file bond (1 X) exported within 6 mos not exhibited for profit otherwise, confiscation+ penalty
Effects of travelers, tourist (wearing apparel, personal adornment, toiletries, portable tools and instruments, costumes) Personal and household effects, vehicles of foreign consultants and experts hired or rendering service to govt - including staff and families Professional instruments Tools of trade Wearing apparel Domestic animals Personal and household -
formally declared and listed before departure including those purchased abroad necessary and appropriate and used for comfort and convenience must have been using item abroad for more than 6 mos must accompany them or arrive within reasonable time not in commercial quantities total DV not exceed P2,000 in excess of P2,000 50% ad valorem returning resident has not previously availed of this benefit within 1 year if resident was abroad for less than 6 mos 50% ad valorem (DV <P2T) arrive with or at a reasonable time necessary and appropriate for wear and use according to nature of journey, comfort and convenience articles NOT for hire, sale, barter Collector may require: written commitment or bond accompany them or arrive at a reasonable time in quantities and kind necessary and suitable to the profession, rank or position for their own use, NOT for sale, barter, hire Collector may require: written commitment or bond in quantities and kind necessary and suitable to the profession, rank or position for their own use, NOT for sale, barter, hire change of residence is bona fide
must file bond (1 X) exported within 6 mos (unless extended by Collector for another 6 mos) principal actors are Filipinos affidavit by importer that the exposed films are same films previously exported
Reciprocity: such foreign country must grant same privilege to Phil agencies
such privileges must be accorded in a special agreement between Phil and the foreign country privilege may be granted only upon specific instructions of Sec of Finance which will be given only upon request of DFA org not for profit for free distribution to the needy except those that are reusable for shipment or transportation of goods for use or consumption of passengers on board any surplus or excess shall be dutiable
marked sample sale punishable by law for purpose of introducing new product imported by person duly registered and identified to be engaged in that trade importations authorized by Sec of Finance
such articles are not available locally in reasonable quantity, quality and price necessary or incidental to proper operations
authorized by DOH not available in Phil not exceed P10,000 in excess of P10,000, it may be entered in bond or for consumption bond (2x) conditioned on exportation within 6 mos
such articles are not available locally inn reasonable quantity, quality and price necessary or incidental to proper operations
Animals and plants for scientific, experimental, propagation, botanical, breeding zoological and defense purposes Economic, technical, vocational, scientific, philosophical, historical and cultural books and publications Phil articles previously exported and returned without increasing value or improved condition Foreign articles previously exported when returned after having been exported and loaned for use
and
Note that if a drawback or bounty was allowed to any Phil article under this subsection, upon re-importation article shall be subject to duty equal to the bounty or drawback
brought to Phil as replacement or for emergency repair spare parts utilized to secure safety, seaworthiness or airworthiness, enable it to continue voyage or flight cannot be repaired locally cost of repair made on article shall pay 30% ad valorem
b)
Personal and household effects (including one car) officer/ Ee of DFA, attach, staff assigned to Phil diplomatic mission abroad personnel of Reparations Mission in Tokyo AFP military personnel in SEATO AFP military personnel accorded diplomatic rank on duty abroad returning from regular assignment reassignment dies resigns retires
c)
CONDITIONS: 1. 2. 3. imported material was actually used in the production of article to be exported refund or credit shall not exceed 100% of duties paid on the imported material no determination by NEDA of the requirement for certification on non availability of locally produced or manufactured competitive substitutes for the imported material (I think this means there are no local substitutes for the material..) exportation must be made 1 year after importation of material claim for refund or credit must be made 6 months from exportation when 2 or more result from the used of same imported material, apportionment shall be made every application for drawback must pay P500 filing, processing and supervision fees claims shall be paid by Bureau of Customs within 60 days after receipt of properly accomplished claims
4.
5. II. RATES OF DUTY A. General Rules Sec. 104 There shall be levied, collected and paid upon all imported articles the rates of duty indicated. Max rate: NOT exceed 100% ad valorem Rates of duty shall apply to ALL products whether imported directly or indirectly of all foreign products which do not discriminate against Philippine products If foreign country discriminates additional 100% across-the-board duty on their products Rates of duty shall be subject to periodic investigation by Tariff Commission and may be revised by President upon recommendation of NEDA. Sec 106 B.
Basis of Duty Sec. 201 Basis of Dutiable Value (note: RA 8181 amended this section) The DV shall be the Transaction Value which is the price actually paid or payable for the goods when sold for export to the Phil, adjusted by: a. commissions and brokerage fees costs of containers costs of packing value of materials, components, parts
b.
e. f. g.
Alternative Methods16: 1. TV of identical goods sold for export in Phil at or about the same time as good being valued 2. TV of similar goods sold for export in Phil at or about the same time as good being valued if DV still cannot be determined using through the successive application of the methods above, the order of succession of the ff may be reversed upon request of the importer: 3. unit price at which the imported or similar or identical good is sold domestically same condition as when imported to persons not related to seller at or about the same time of the importation of the goods being valued COMPUTED VALUE = cost of raw materials + profit and general expenses + freight + insurance fees + transpo expenses 4. using other means consistent accepted principles of GATT with
3.
values shall be ascertained by Commissioner from reports of revenue and commercial attaches values shall be published in at least 1 newspaper of general circulation party dissatisfied with the values can file protest 15 days from date of publication if it becomes necessary to delay the final determination of DV, release of
identical Goods same in all respects including physical characteristics, quality and reputation. Similar Goods although not alike in all respects, have like characteristics and component materials which enable them to perform the same functions and be commercially interchangeable Sec. 202 Bases of Dutiable Weight a) gross weight: weight of article + weight of all containers, packages, holders and packing where articles were contained during importation
16 Methods are applied successively. Alternative methods are used when value cannot be determined through successive application of previous methods.
f.
c) d) e)
g. h. i. j.
Sec. 203 Rate of Exchange Value quoted in foreign currency shall be converted into Phil currency at the exchange rate published by Central Bank Sec. 204 Effective Date of Rates of Import Duty Imported articles shall be subject to rates of import duty existing at the time of entry or withdrawal from warehouse For articles abandoned, forfeited or seized by government and sold at public auction, the rate of duty shall be the rates in force at the time of auction Duty based on weight, volume and quantity shall be levied and collected on the weight, volume and quantity at time of entry into warehouse or date of abandonment/forfeiture/seizure.
Sec. 1309 Certificate of Invoice Commercial invoice must be presented to the consular officer of the Phil for certification at the time or before or immediately after the shipment of article Consular invoice shall be certified in consular district where articles were manufactured or purchased or shippers. In the absence of Phil consul, the invoice may be certified by consular officer in the district nearest the place of exportation or person designated by DFA Sec. 1310 All importations exceeding P10, 000 in DV shall be entered only 1. upon presentation of consular invoice under penalties of falsification, perjury. All importations exceeding P10, 000 in DV shall be entered only upon presentation of consular invoice under penalties of falsification, perjury OR 2. Affidavit showing cause why it is not possible to produce invoice + bond Exempt from consular invoice requirement: a. conditionally free importations b. tax free importations c. importations of government agencies and instrumentalities d. importations on consignment basis under RA 3137 and RA 6135 for re export Sec. 1313 Information Furnished on Classification and Value Classification: When article not specifically classified in code, the interested party, importer or foreign exporter may submit a sample with full description of component materials in a written request. Value: Upon written application, Collector shall furnish importer within 30 days the latest information s to the DV of articles to be imported. Importer must present all pertinent papers and documents, act in good faith and
Sec. 205 Imported article deemed entered in Phil for consumption when: entry form is properly filed and accepted together with related documents duties, taxes, fees and other charges are paid or secured to be paid imported article deemed to be withdrawn from warehouse in the Phil for consumption when: entry form is properly filed and accepted together with related documents duties, taxes, fees and other charges are paid or secured to be paid Sec. 1308 Contents of Commercial Invoice a. place, date, person by whom and the person to whom articles are sold If imported other than in a purchase, place from which shipped, date when the person to whom and by whom they are shipped b. port of entry c. detailed description of the articles (sufficient for tariff classification and statistical purposes) d. quantities e. if articles bought in pursuance to purchase, purchase price in the
RA 8181 (1996) BASIS OF DUTIABLE VALUE IMPORTED ARTICLES, AMENDING 1464 (TARIFF AND CUSTOMS CODE)
OF PD
The DV of an imported article shall be the transaction price, which shall be the price actually paid or payable for the goods when sold for export to the Phil, adjusted by adding the ff to the extent that they are incurred by the buyer but not included in the price paid: a. commissions and brokerage fees costs of containers costs of packing value of materials, components, parts and item incorporated in the imported good; tools, dies, moulds used in the production; materials consumed in the production; engineering, development, artwork, design, plans and sketches undertaken not in Phil such goods and services were supplied by buyer to seller free of charge or at a reduced rate to the extent that value was not included in the price paid royalties and license fees that buyer paid any part of the proceeds of a subsequent resale, disposal or use of good that accrues to the seller transportation cost from port of export to port of entry in Phil loading, unloading and handling charges (arrastre) insurance
b.
c. d.
Alternative Methods:
2.
identical Goods same in all respects including physical characteristics, quality and reputation. Similar Goods although not alike in all respects, have like characteristics and component materials which enable them to perform the same functions and be commercially interchangeable Customs Administrative Order # 2-99 (effective Jan 1, 1999) DETERMINATION OF DUTIABLE VALUE Dutiable Value (DV) shall be determined using one of the 6 methods of valuation. These methods must be applied in sequence. However, method 4 and 5 may be reversed at request of importer(unless there shall be difficulty in using method 5 in which case Commissioner shall reject request) Method # 1 TRANSACTION VALUE Price actually paid or payable for goods when sold for export to Phil + commissions & brokerage fees + cost of containers + cost of packing (labor, materials) + assists (value of goods and services supplied by the buyer free of charge or at a reduced price for use in connection with the production and sale for export of the good) + royalties & license fees + value of any part of the proceeds of subsequent resale, disposal or use of imported goods that accrue directly or indirectly to seller + cost of transport + loading, unloading, handling + insurance DV must NOT include: charges for construction, erection, assembly maintenance or technical assistance undertaken after importation cost of transport after importation duties and taxes of Phil
values shall be ascertained by Commissioner from reports of revenue and commercial attaches values shall be published in at least 1 newspaper of general circulation party dissatisfied with the values can file protest 15 days from date of publication if it becomes necessary to delay the final determination of DV, release of imported goods may be had by filing cash bond (imposable duties and taxes + 25% thereof)
Reasonable shall refer to any condition that creates a probable cause to make the Commissioner believe in the accuracy of the invoice value of imported goods as declared by importer. Such conditions may include, but not limited to: 1. if sale price is subject to some consideration which value cannot be determined such as: seller fixes price on condition that buyer will also buy other goods in specified quantities price of imported goods is dependent upon price at which buyer sells other goods to seller price is established on the basis of a form of payment extraneous to the Imported goods 2. part of proceeds of subsequent resale , disposal or use of goods will accrue to the seller
CONDITIONS so the Transaction Value shall be the DV 1. sale for export to Phil 2. no restrictions as to the disposition or use of goods by buyer except: those imposed by law or Phil authorities limit the geographical area where goods may be resold do not substantially affect the value of the goods 3. not be subject to some condition or consideration for which value cannot be determined 4. no part of the proceeds of any subsequent disposal shall accrue to the seller 5. buyer and seller are not related or if they are, relationship did not affect the price DEEMED RELATED IF: officers or directors of one anothers business legally recognized partners in business Er-Ee Any person owns, controls or holds 5% or more of the outstanding voting stocks of both of them One of them directly or indirectly controls the other Both directly or indirectly controlled by third person Together they directly or indirectly control a third person Related by affinity or consanguinity up to 4th civil degree IF RELATED, USE OF TV ACCEPTABLE IF: 1. circumstances surrounding transaction show that relationship did not influence the price 2. TV closely approximates: TV of unrelated buyers of identical or similar goods Deductive value of identical or similar goods determined according to method #4 Computed value of identical or similar goods determined according to method #5 Method # 2 TRANSACTION VALUE OF IDENTICAL GOODS The DV shall be the transaction value of identical goods sold for export to the Phil and exported at or about the same time as the goods being valued. Identical goods must be same commercial level and substantially same quantity as the goods being valued. Identical goods Same in all respects (physical characteristics, quality and reputation) Produced in the same country as the goods being valued
excludes imported goods for which engineering, development, artwork, design work, plans and sketches is undertaken in the Phil and provided by the buyer to the producer free of charge or at a reduced rate When no identical goods produced by the same person identical goods produced by different producer in the same country If NO identical goods at same commercial level and same quantity, TV of identical goods at a different commercial level and different quantity may be utilized TV shall be adjusted upward or downward to account for the difference
Method #3 TRANSACTION VALUE OF SIMILAR GOODS The DV shall be the transaction value of similar goods sold for export to the Phil and exported at or about the same time as the goods being valued. Similar goods must be same commercial level and substantially same quantity as the goods being valued. Similar goods: like characteristics and like component materials capable of performing same functions commercially interchangeable produced in same country produced by dame producer excludes imported goods for which engineering, development, artwork, design work, plans and sketches is undertaken in the Phil and provided by the buyer to the producer free of charge or at a reduced rate When no similar goods produced by the same person similar goods produced by different producer in the same country If NO similar goods at same commercial level and same quantity, TV of similar goods at a different commercial level and different quantity may be utilized TV shall be adjusted upward or downward to account for the difference
Method # 4 THE DEDUCTIVE VALUE DV is determined on the basis of sales in the Phil of goods being valued of identical or similar imported goods less certain expenses resulting from importation and sale of goods. Deductive Value is determined by making a deduction from the established price per unit for the aggregate of the ff elements:
CONDITIONS: 1. sold in the Phil in the same condition as imported 2. sales taken place at or about the same time of importation of good being valued 3. if no sale took place at or about the time of importation use sales at the earliest date after importation (of the similar or identical good) but before expiration of 90 days 4. if no sale meet the above conditions, importer may choose the use of sales of goods being valued after further processing at or about the same time 45 days prior to and 45 days after importation Method # 5 THE COMPUTED VALUE DV is determined on the basis of cost of production + profit + general expenses reflected in sales from exporting country to the Phil of goods of same class or kind DV is calculated by: determine aggregate of relevant costs, charges and expenses or value of (1) materials and (2) production or processing costs costs (containers, packing, assists, + engineering, artwork, plans and sketches undertaken in Phil and charged to producer + profits and general expenses + cost of transport, insurance and charges to the port or place of importation Method # 6 THE FALLBACK VALUE DV cannot be determined using any of the above methods Use other reasonable means consistent with principles and general provisions of GATT
Sec. 303 Marking a. marking of articles marked in official language of Phil and in conspicuous places to indicate to the ultimate purchaser the name of country of origin b. marking of containers
failure to mark 5% ad valorem failure or refusal to mark within 30 days from date of notice shall constitute act o abandonment. no imported article shall be delivered until it has been inspected, examined or appraised Sec. 304 Discrimination by Foreign Countries The president may proclaim new and additional duties in an amount not exceeding 100% ad valorem on articles from country where: 1. imposes an unreasonable charge, exaction not equally enforceable in other laws 2. discriminate against the commerce of Phil in such a way that it places Phil commerce at a disadvantage D. Flexible Tariff Rates Sec.401 Pres is empowered to: 1. increase, reduce or remove existing rates 2. establish quota or ban import of any commodity 3. impose an additional duty not exceeding 10% ad valorem the pres power to increase or decrease rates of import duty shall include authority to modify the form of duty
C.
Special Duties Sec. 301 Dumping Duty When Sec of Finance receives a petition or has reason to believe that a specific foreign article is being imported into, or sold/ likely to be sold in Phil, at a price less than its normal value within 20 days, must determine prima facie case for dumping
3.
4.
signed by importer, consignee or holder of bill, manager of corporation, firm or association, licensed customs broker Form of Import Entry: shall be signed by person making entries have required # of copies as prescribed by RR Contents: name of importing vessel or aircraft # and marks of packages, quantity description of article value set in the invoice Examination, Appraisal Classification (1405-08) and
B.
Declaration imported articles must be entered in customhouse at the port of entry within 30 days from date of discharge by: 1. importer, being holder of B of L 2. customs broker 3. agent
Procedure: 1. appraisers shall ascertain, estimate, determine the value or price of articles file action within 1 year 2. examiners shall render a report 3. appraisers shall describe all articles on the face of entry in tariff 15 days An appraisal, fully passed upon and approved by Collector, may not be altered or modified except: 1. statement of error 2. request for reappraisal and/or classification if duty assessed entered value D. E. amount is lower than the
Import entries: 1. Informal entry articles of commercial nature intended for sale, barter or hire the DV is P2,000 or less personal and household effects, not in commercial quantity, for personal use 2. Formal entry may be for immediate consumption, or under irrevocable domestic letter of credit, bank guarantee or bond for: a. placing article in customs bonded warehouse b. constructive warehousing and immediate transportation to other Phil ports upon proper examination and appraisal c. constructive warehousing and immediate exportation
Assessment of Taxes Liquidation (1601-03) Liquidation shall be made on the face of entry showing the particulars Daily record of entries liquidated shall be posted ion the public corridor of customs house Tentative Liquidation -if to determine the exact amount due some future action is required, liquidation is deemed tentative as to items affected and shall be subject to future and final adjustment and settlement within 6 months Finality of Liquidation: After expiration of 1 year from date of final payment of duties
Written Declaration of Import Entry must contain statements that declare: 1. full account of value or price
When: at the time payment of the amount claimed to be due is made within 15 days thereafter Form: filed according to RR; point out the particular decision or ruling grounds used as basis for the protest Scope: limited to the subject matter of a single adjustment (refers to the entire content of one liquidation including duties, fees, surcharges and fines) or other independent transaction failure to protest will render the action of the Collector final and conclusive except for manifest error upon demand of Collector, the importer shall furnish samples of the articles which are the subject of the protest HEARING: 15 days after filing of protest DECISION: within 30 days REVIEW BY COMMISIONER: 15 days after notification in writing of Collectors decision if decision of Collector is adverse to government automatic review DECISION OF COMMISIONER: within 30 days notice to party who brought case ( if seizure case, personal service if practicable) REVIEW BY SECRETARY OF FINANCE if decision of Collector is adverse government automatic review to
Inaction of Commissioner or Secretary for 30 days from receipt of records of the case decision under review becomes final and executory APPEAL TO CTA: within 30 days from receipt of copy of decision COMPROMISE
4.
Claim made in writing Collector shall verify with the records in his office certify claim to Commissioner with his recommendation and necessary papers Commissioner shall then cause the claim to be paid if found correct If the result of the refund would result to a corresponding refund of the internal revenue taxes on the same importation, Collector shall certify to Commissioner who shall cause the said excess to be paid, refunded or credited in favor of the importer
SETTLEMENT
PROTEST
15 days
B.
Protest (2308-09. 2312) written protest payment before protest is necessary (amount due + docket fee)
HEARING
30 days
DECISION
15 days If govt, automatic review
When: at the time payment of the amount claimed to be due is made within 15 days thereafter Form: filed according to RR point out the particular decision or ruling ground used as basis for the protest Scope: limited to the subject matter of a single adjustment (refers to the entire content of one liquidation including duties, fees, surcharges and fines) or other independent transaction failure to protest will render the action of the Collector final and conclusive except for manifest error upon demand of Collector, the importer shall furnish samples of the articles which are the subject of the protest
Review by Commissioner
30 days
DECISION
Secretary of Finance
30 days
Appeal to CTA
V.
REMEDIES OF THE TAXPAYER A. Refund (1707-08) When: 1. manifest clerical error made in invoice or entry 2. error in return of weight, measure and gauge certified, under penalties of falsification or perjury, by examining official 3. error in the distribution of charges on invoices not involving any question of law certified, under penalties of falsification or perjury, by examining official Conditions 1. errors discovered before payment OR discovered within 1 year after the final liquidation 2. written request and notice from importer OR statement of error certified by the Collector How:
C.
Abandonment (1801-03) Article is deemed abandoned when: 1. owner, importer or consignee expressly signifies in writing to Collector his intention to abandon 2. after due notice, fails to file an entry within 30 days from date of discharge of last package from vessel or aircraft 3. after filing entry, fails to claim his importation 15 days from date of posting of the notice to claim such importation Effect: deemed to have renounced his interest and property rights ipso facto deemed property of the Government any official or employee who: had knowledge of the existence of abandoned article custody or charge of such article fails to report within 24 hours from time article deemed abandoned shall be punished accdg to sec. 3604 ( fine: P5000 P50,000mprisonment: 1 yr 10 yrs
B.
On the basis of a warrant of seizure and detention issued by the Collector of Customs for the purpose of enforcing the Tariff and Customs laws, assorted brands of cigarettes said to have been illegally imported into the Philippines were seized from a store where they were openly offered for sale. Dissatisfied with the decision rendered after hearing by the Collector of Customs on the confiscation of the articles, the importer filed a petition for review with the CTA. The Collector moved to dismiss the petition for lack of jurisdiction. Rule on the motion. (2000 Bar) Answer: No. The legislators intended to divest the RTCs of the jurisdiction to replevin a property which is subject of seizure and forfeiture proceedings for violation of the Tariff and Customs Code otherwise, actions for forfeiture of property for violation of the Customs laws could easily be undermined by the simple device of replevin. (Dela Fuente v. De Veyra, 120 SCRA 455)
4.
What do you understand by the term flexible tariff clause as used in the Tariff and Customs Code? (2001 Bar) Answer: The term flexible tariff clause refers to the authority given to the President to adjust the tariff rates under Section 401 of the Tariff and Customs Code, which is the enabling law that made effective the delegation of the taxing power to the President under the Constitution.